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Should you roll over your 401(k)? Do you qualify for a Roth 401(k) or Roth IRA? Learn more about your retirement plan options, tax considerations and hidden fees.

Never Rollover If You Can Transfer

You might have heard the IRS is limiting the frequency with which you can rollover IRA accounts in 2015. Starting January 1st the IRS will limit you to only one IRA rollover per calendar year. You will now face steep penalties if you attempt more than one rollover  per year. However most people don’t realize there exists a superior alternative called an ACATS or electronic transfer. You will still be allowed unlimited transfers per year, but not all investment firms will accept an electronic transfer. A Rollover is Very Different From a Transfer Most investors think a rollover is the only way to transfer an IRA to another brokerage firm. When you request a retirement account rollover, your account’s current […]

The Significance of 65

Numbers can be deceptive. They are quantitative, yet in the blink of a chameleon’s eye they can convert into qualitative  symbols when linked to the dynamic world of emotions, expectations, and beliefs. Consider the deeper meanings that surge to mind as you ponder 65, 9/11, 18, 16, 13, 1st or 99-and-44/100%. Do we all  think of retirement, The World Trade Center, voting, driving, bad luck, that first kiss, or Ivory Soap that floated? Context matters because an objective number can, as a symbol, have many subjective  meanings. As we all know, the same numbers can have very different symbolic or emotional meanings: 5 minutes early vs. 5 minutes late for lunch with a friend versus 5 minutes late for a […]

A Good ESPP Is a No-Brainer

Ask These 12 Questions About Your Options

An often overlooked and potentially valuable employee benefit is the Employee Stock Purchase Plan (ESPP). If your employer offers an ESPP we recommend you   1) participate at the level you can comfortably afford  and then  2) sell the shares as soon as you can. This strategy should allow you to lock in a generous return on your contributions while avoiding additional risk on your company stock, which may already represent an outsized percentage of your net worth. To appreciate why this strategy makes sense let’s cover some basic questions: What is an ESPP? How does an ESPP work? Should you participate? How are ESPP gains taxed? When should you sell the stock you purchase through an ESPP? What is an […]

When Do You Use a Traditional vs. Roth IRA?

If you’re like most people you’re not quite sure when you should open a Traditional vs. a Roth IRA. Unfortunately the answer is not straightforward due to all the arcane income limitations and tax treatments associated with each. With this post we attempt to explain the differences between the two types of retirement accounts, why they were created and when each might be preferable. Similarities Both types of IRA allow individuals younger than 50 to contribute $5,500 each year and individuals 50 and older to contribute $6,500. Returns generated in both IRAs compound tax-free over their entire life. Each allows you to withdraw money without penalty for various reasons including qualified higher education expenses, certain medical expenses, and a limited […]

Missing the Obvious on Fees

I have a personal confession. For nearly 50 years, I’ve missed the “obvious” reality: Fees for investment management are not low. They are high; very high. When investors recognize this “new reality” — that fees are not trivial but are crucial — the beautiful “inside” world of fund management will experience a powerfully disruptive revolution. It may not be sudden, but it is inevitable. Investors are not captives of the conventional practices of “performance” investing. They have proven alternatives. The process of getting to the “Ah ha!” moment can come through a few examples of how easy it is to miss (or misinterpret) reality. Missing the obvious Sometimes it’s due to deliberate deception — as when a magician has you […]

How a Simple Estate Plan Pays for Itself

More than 50% of U.S. adults do not have even the most basic estate planning document; a Will. [1]  For adults without spouses, children or any significant assets, the lack of an estate plan may not significantly impact their surviving family, but for everyone else the costs of not having a simple estate plan are almost certainly greater than the cost of obtaining one.  In this post I’ll briefly explain what constitutes a “simple estate plan,” how much you can expect to spend on such a plan, and what fees, expenses, taxes (and headaches) you can avoid by having one. Although ancillary documents may be appropriate given the specific circumstances, a “simple estate plan” is generally understood to constitute the following […]

Does It Ever Make Sense to Stop Saving For Retirement?

This Knowledge Center post was adapted from Wealthfront COO Adam Nash’s answer to a question on Quora — Ed. The Question: Let’s say I’m 30 and have $250K in my 401k. If I stopped contributing now I would have $2.5M in my account by the time I’m 60 and am allowed to make a withdrawal. That should be enough right? Even if it isn’t, there must be some point where it makes sense not to max it out anymore. The short answer is no. What you have saved is very likely not enough. I know what you are thinking. You’re thinking that $250K is a mountain of cash to build on for the next 30 years. And it is, no […]

The Advice You Need, Not The Advice You Want

Last week’s post, You Need Equity To Live In Silicon Valley, generated quite a bit of emotion from our readers. A number of people missed the point of the post, which explains the economics of living in Silicon Valley. We pointed out that it’s hard to make the numbers work if you don’t own equity in a business that could be worth something in the future. Unfortunately a number of people misinterpreted the article as a condemnation of Silicon Valley. Real estate is expensive in the Valley because so much wealth is created here. You can waste your time making a value judgment about whether it’s good or bad that the wealth we create, combined with a low inventory, drives […]

Q&A with William Sharpe: Investing In a Turbulent Market

Nobel Prize-winning economist William Sharpe recently published an article showing retirees how much more money they could have in retirement by avoiding actively managed funds in favor of index-oriented funds. In the article, “The Arithmetic of Investment Expenses” in the Financial Analysts Journal, Sharpe showed that a person saving for retirement who chooses low-cost investments instead of higher-cost investments could have a standard of living throughout retirement that is more than 20% higher. Professor Sharpe[1] recently spoke to Bill Snyder of the Stanford GSB about retirement strategies and lessons learned (or not learned) from the financial meltdown of 2007. This Q&A was adapted from that interview and used with Professor Sharpe’s permission. What did we learn from the crash and […]

7702 Retirement Plan? There’s No Such Thing

A growing number of insurance companies and independent financial advisors have been selling “7702 Plans,” sometimes referred to as a “7702 Private Plan,” for retirement. On Google alone, a query for “7702 plan” results in almost 1.5 million pages of matches. This is fascinating, largely because there is no such thing as a 7702 plan. A vehicle for selling life insurance If you go to one of the thousands of websites, you’ll find a description of something that sounds like a 401(k) or IRA, but is based on life insurance. The page will explain that unlike traditional retirement plans like 401(k) and IRA accounts, “life insurance retirement plans” have no limit on contributions or size, and no requirements for withdrawals […]