how do you find a financial advisor?

Ask Friends and Family

The first thing I suggest is to ask friends and family for recommendations.   Typically if someone has a good portfolio and they are doing well with their money chances are they probably have or have at some point had a financial advisor.   You can tell a lot about a recommendation by what your friends or family say about this person right of the bat. If they hesitate, take the name to be polite but put it at the end of the list. If they rant and rave, move them to the top.  Ask them how long they have had them as their financial advisor and what types of services they provide.  Get a feel for their relationship with this advisor.

Reputable Companies

Another way is to go with reputable companies in your area that you’ve heard of.  Check them out online, google for reviews to see what others may have to say about them and write a few down based on what you find.   You can find a lot of information online these days so searching their company name ahead of time is a good idea.

Go Straight to napfa.org/

Here’s the first thing you’ll read when you visit http://napfa.org/

National Association of Personal Financial Advisors, is the nation’s leading organization dedicated to the advancement of Fee-Only comprehensive financial planning.  Consumers and the media look to NAPFA for access to financial advisors who meet the highest standards for professional competency, comprehensive financial planning and Fee-Only compensation.

As you can see they do their homework to ensure that only the financial advisors who meet their highest standards are listed.

Now as you can see by the napfa.org link listed, they only provide fee only financial advisors.  Now if you are new to finding a financial advisor you may not be sure what that means.  Essentially there are a few ways a financial advisor can get paid: commission only, fee only or fee and commission based.

So how do you know which one to choose?

My preference is to go with a fee only financial advisor.  The reason for that is because while financial advisors should have your best interest at heart, sometimes dollar signs can quickly take over.  Commissioned based advisors may try to sell you on an investment or a product that you don’t really need but may pay them a nice commission and so their interests have now gone from your best interest to theirs.  A fee-only financial advisor will discuss your needs and what you’re looking for and will give you a fixed rate for their services no matter what products they have to offer.  Now, not all commissioned financial planners are like this. There are plenty commissioned financial planners that have your best interest at heart and realize that the better they make your money work for you, the more money they will get and the more likely you are to stay with them as well as recommend new customers.  So it’s your preference as well as your confidence level in choosing a financial advisor.

There is also the fee based advisor. This is different from a fee ONLY advisor. A fee based advisor may start out with a fixed fee but if they sell you on any products they will earn commissions on those as well.  So again, if they are easily persuaded by dollar signs in THEIR pocket they may not have your best financial interests in mind.

Once you find a financial advisor or have a list put together the next step is to meet with them to do an interview.  Even if you have a raving review from a friend or family member you should still interview at least 3 to get a better idea of who is a best fit for you.  You want to take into consideration the different types of licenses they may have, whether you have a good rapport with them, can they provide you with the list of services you are looking for and things of that nature.

This process should take a little time and next up we’ll talk about some of the important questions you should ask your financial advisor prior to hiring them!

• First a 401k rollover is when you transfer cash or assets from one eligible retirement account into another within the 60 day time period.  This rollover can consist of all your money or part of it.
• You have 3 options to choose from: Cashing Out, Direct Rollover and Indirect Rollover. Cashing out means you keep the money and will pay quite a bit in taxes and penalties, close to half.  A direct rollover is handled between your previously existing 401k custodian and your new 401k custodian and an indirect rollover means you receive a check, less 20% in mandatory tax holdings and you deposit the money, including the 20% withholding into a new IRA.
• Not all distributions are available to be rollover over. Those that aren’t are:
  • A hardship distribution
  • Nontaxable part of a distribution, like any after tax contributions you make to a retirement plan
  • Dividends on any employer securities
  • Cost of life insurance coverage
  • A required minimum distribution or
  • Distributions that are one of a series of payments based on your life expectancy, or the shared life expectancy of you and your noted beneficiary, or paid over a period of 10 years or more.
  • There are also exclusions on particular loans and corrective distributions
• If you withdraw before the age of 59 ½ the law imposes a 10% tax on some early distributions.
• If you have a loan against your 401k, you need to pay it back before rolling over otherwise the remaining amount left on the loan will be considered as an early distribution and taxed as regular income.

So keep these rules in mind as you are drawing closer to rolling over your 401k. If you are not sure what rules apply to you, contact a fee only financial advisor to get a good idea of what you can expect!

When opening a custodial IRA there are some things that you need to keep in mind:

• Custodial IRA’s are for minors who have earned income.  So the second your child has a legitimate job where they are earning income, take them to a bank, Mutual Fund company or a brokerage firm and open an account.
• You can only open an account as either a Roth IRA or Traditional IRA
• The account is managed by a parent or guardian; also know as the IRA custodian.  Once any money has been deposited into the IRA the IRA custodians cannot touch the money. There are no take backs and that money is forever theirs until it is turned over to them once they come of age, which is typically 18 to 21, depending on the state that you are in.

As you and the child are investing the money into the account, take the time to explain to them why they are doing this and how it will benefit them. Of course they might not fully understand and there may be times where they have a hard time giving up their money, encourage them to continue the savings.  While this money is typically started for retirement, they can also use this money later on to help pay their way through college. So if the retirement angle isn’t an ideal explanation or something they are terribly concerned about, use college as a way of showing them how important it is to save.  The money invested is tax deferred and compounding interest is their friend.

As with most life lessons, kids may not get it now, but they will thank you later for starting their future off on the right foot!

Simply put, a 403 b retirement plan is a type of retirement plan that was built for tax exempt organizations. Religious ministers who are self employed, public school employees and others are types of people and entities that the plan is tailored to. It is comparable to the 401k plan that other businesses offer their employees.

What Options Does a 403b Retirement Plan Give an Individual?

A traditional 401k plan offers several great options to all company employees that participate in the program. The same can be said for 403b retirement plans. This type of plan offers several options for someone who is involved.

Matching Benefits: More often than not a company will match the individual’s monetary donation (up to 3%), which allows the employee to build even more money.

Company Tax Write Off: The not-for-profit companies that participate in the 403b plan can write off matching employee contributions on their taxes at the end of the year.

Tax Deferred Status: Money that is contributed to a 403b can grow tax-deferred for a long period of time (decades). This allows the owner of the account to accumulate much more wealth. The owner will pay taxes on the account when he/she starts to withdraw the money, but by then it may not matter.

Emergency Loans: Individuals that have a 403b retirement account can take a loan out against the account in times of an emergency. The loans will need to be paid back to avoid any tax consequences.

401k Contribution Limits – The Good News

While many people might get worried at hearing words like “caps” and “limits” on their 401k contributions,  the good news is that you can stop panicking, wondering how you can put enough money away with all these limits because 401k contribution limits are high and much higher than IRA limits.  In fact $16,500 is the lowest cap on what you can put into your 401k for a year, which definitely should relieve any worries about not being able to put enough away.  Workers over the age of 50 can put in even more into their retirement investment accounts.

Why age matters

Age makes a big difference to what the 401k contribution limits in 2011 are.

• $16,500 a year for workers under the age of 50
• $22,000 a year for workers 50 years older

That’s a big difference, and shows that while early investing is still important for the long term goal of retirement, you still have extra help in catching up later on in life.  Despite this extra boost to workers 50 and over, it’s still very important to get started early on in life.  The name given to the extra amount of money which can be put away by older workers is even called a “catch up clause,” but it’s always best to get started early. Compounding is your best friend when it comes to retirement investing for the golden years of retirement, and starting early will lead to a lot more tropical drinks on a sunny beach when the time comes.

401k contribution limits for 2011

For 2011 the limit for adding to your 401k is $16,500 for workers 49 years old and under while workers 50 years old and older can add in up to $22,000 a year.  These numbers have remained the same since 2008, and based on past trends we’ll probably all see another increase within the next few years of at least $500 to account for inflation.

Employer contributions

There are two other factors people need to know about their 401k.  The first is that employer contributions do not count towards your limit.  An employer can match up to 6% of your total yearly compensation in your 401k.  This means that just because you’re limited to $16,500 a year as a young worker, that doesn’t mean you can’t end up with more.  The employer contribution is in addition to whatever you contribute, so take advantage of any matching program.

Understanding the contribution limits on your 401k account will help you be able to more effectively plan for the ideal retirement and budget accordingly.

Old IRA Rules: A Recap

To begin with I need to bring you up to date with some basic IRA rules.  In 2006 Congress passed the Pension Protection Act of 2006.  The 2006 law created the Inherited IRA.  With an Inherited IRA you can have someone other than your spouse receive your IRA without paying taxes.

Before PPA of 2006

Before 2006 when a married person passed away their IRA would transfer automatically to the surviving spouse without any taxes due.  Taxes would only be due if they were over 70 ½ and only on the Required Minimum Distribution (RMD).  The remaining balance would continue to grow tax-deferred.

When the surviving spouse passed away income taxes would be due on the balance from their beneficiary.

Bad News: 50% Gone In Taxes

For example, let’s say your widowed parent passed away and named you as sole beneficiary of their IRA of $200,000. What amount in taxes would you owe the government?  The Answer: Half of this amount or $100,000 would be gone in Federal, State and Local income taxes.

The reason is simple.  The $200,000 is treated as earned income that has never been taxed and it is added to your income.  Hence $200,000 + your income = $200,000+ of income.

Good News: Tax Laws Have Changed

First the good news:  If you were the child receiving the $200,000 you can now defer the taxes and allow the money to grow tax-deferred the rest of your life.  However, there is a catch.  Your parent or parents had to name you as a Beneficiary or Contingent Beneficiary before they passed away.

A Will = A MISTAKE

A common mistake many people will make is to just name their children as a beneficiary in their Will or Trust.  They believe using a Will or Trust is best way to transfer assets.  In the past this may have been true, not anymore.   Today all your money will be eaten by taxes and attorney fees before the money reaches your kids.

Beneficiary Designation is The Key

Naming a Beneficiary on ALL of your retirement accounts is critical.

Remember the above example about receiving $200,000 from your parent? We will now assume your parent named you as a Beneficiary and you did everything to set up a proper Inherited IRA (more on this in another article).  Note: The IRS does not allow you to do a do-over.

Instead of paying $100,000 in income taxes you can now stretch the taxes out over your life.  Many financial advisors call this a Stretch IRA.  As you will notice an Inherited IRA has several names.

Taxes Owed $5,200 vs. $100,000

With a Stretch IRA you only pay the Required Minimum Distribution (RMD) based on your age.  If you are 45 years old you would only have to withdraw about $5,200 from the IRA.  The $5,200 is the RMD amount you would add to your income, NOT $200,000.

The remaining balance continues to grow tax-deferred in the investments you chose.

How About an Extra $1,000,000?

Over the course of your remaining life of say 30 years that $200,000 could grow to over $1,000,000 earning only 6% a year while still were taking out the RMD each year.

Greatest Estate Builder

An Inherited IRA/ Non-Spousal Beneficiary IRA/ Stretch IRA is one of the greatest estate and legacy builders ever created.  The critical part is naming beneficiaries on ALL of your retirement accounts regardless of the balance.  Even a small amount can grow substantially over time.

This article covered the basics.  I will go into greater detail in future articles.

Homework

Your homework to do right away is to take two minutes today to name a Primary Beneficiary and a Contingent Beneficiary to your retirement accounts.  Nothing else is required.

BTW: ALL people need to do this, not just people in their 60s or 70s.  All of you in your 20s and 30s need to do the same.



There are of course good retirement investments and bad retirement investments. I wanted to give you a quick rundown of some retirement investment options that you may want to look into, while at the same time showcasing some you may want to avoid. Remember, smart investing will allow you to enjoy your later years, so take some extra time to invest wisely.

Good Retirement Investments

Since the economy has let us down these past few years, lets explore this from the angle that you have already started investing for retirement and that you have less than 20 years before you are set to retire. If you have lost a substantial amount of money in recent years, then some of these options may help get your goals back on track – or at least get you some of your money back. With that being said, the following list of investment options are well suited for individuals of any age, so keep that in mind as well.

Remember, these are just suggestions. Every situation is unique based on your existing portfolio so you’ll want to do your own research and speak with a professional. That being said,  some of the best retirement investment options available are as follows:

• United States Treasuries
• Certificates of Deposit (CDs)
• Unit Investment Trusts (UIT)
• A Sub Account with a Registered Investment Advisor
• Life-Cycle Funds
• DRIP Plans (Dividend Reinvestment Plans)
• Real Estate
• Variable Annuity (VA)
• Individual Retirement Account (IRA)

Remember, with the economy the way it is, it is always important to expand your investing horizons. These are just some things you may want to consider.

Bad Retirement Investments

On the flip side, there are definitely a few retirement investments that you may want to avoid. While you may get lucky with some of these, they can be risky and you should take extreme caution, especially if you’ve lost a lot of money based on the terrible economy over the past few years. Here are some retirement investments that you may want to avoid.

• Liquid Investments
• Overly Short-Term Investments
• Non-Diversified Investments
• Over Diversification
• 401k That You Already Borrowed Against
• Too Much Company Stock
• Gold (Too Volatile)

There are other bad investments out there, so you want to be sure to avoid them at all costs. Remember to really do your homework when deciding about your investment options.

Here are a few more investment options to consider that most do not think about. These could turn out good or bad, so if you don’t have any expertise in these areas, you will want to do your homework or you may want to reconsider. Some popular investment choices include:

• Classic Cars
• Sports Memorabilia
• Coins and Other Collectibles
• Paintings
• Other Fine Art
• Starting Your Own Business

It is up to you to decide how you will spend your retirement. While the economy is tough right now, you can still make choices that will benefit your future. Good luck!

One Size Doesn’t Fit All

Some people think that there truly is a “best Roth IRA” out there. This is not true, as a Roth IRA is not a product based on a one size fits all mentality. It is your job to search some different companies and see what they offer. This will help you gain a better understanding of what type of Roth IRA is the best fit for you.

Investing Wisely

It is of extreme importance to be fully aware of where you are investing all of your hard earned money. Not paying attention to this aspect of the game could lead you to losing big. However, if you are well aware of where your money is being invested, then it could lead to you winning big in the long run. Here are of couple of places you may want to steer clear of when investing your money:

Stock Brokers: There is nothing legally binding them to make proper investments that will help you reach your retirement goals.

Annuities: They carry too many fees.

Gold IRAs: Gold is just too risky right now.

So where do you invest your money then? I want to stop short of telling you exactly where to put money – I don’t want to be responsible for anyone losing money, but mutual funds are generally a pretty safe bet. Just remember there is always risk, but a mutual fund holds way less risk than some other investment methods.

Share Class, Break Points and Fees

Three very important aspects of proper Roth IRA investing are share class, break points and fees. You need to make sure you understand all three before jumping into investments. What are all of these and what do they mean for you?

Share Class: A share class determines how fees are paid on a mutual fund. There are three very common share classes used:

• A Shares
• B Shares
• C Shares

Which share class do you choose? Well, that depends on how you want to pay fees. Share fees are paid upfront, B share fees are scattered out over time and paid slowly, and C share fees usually allow you to get a lower sales charge, but have higher fees over time. The share class you choose will be based on how you want to pay your fees. I prefer A shares, simply because I can get all my fees paid and out of the way, however, many people enjoy paying slowly and over time, so B shares would be a great way to go as well.

Break Points: This is the amount of sales charge you pay based on the amount of capital you have invested. The more you invest, the lower the sales charge. You will obviously pay a lower sales charge on an investment that carries $50,000 or more than you would on an investment that only carries $20,000. Make sure you understand the break points and are fully aware of the sales charge you will pay.

Fees: We all know this word, we all understand this word, and we all hate this word, especially when it comes to our investment money. Here are some common fees you can look forward to paying when you invest in a Roth IRA:

• Break Point (sales charge): See above.
• Annual Expense Fee: The fee the account holder pays the institution to manage the account.
• 12b-1 Fees: Some companies charge this fee to pay for things like advertising and brochures. Stay away from any companies that use this fee, even if there other fees may be a bit better, as you will probably pay more anyway.

If you take only one thing away from this article let it be this; there is no perfect Roth IRA. The best one is based on what is the best situation for you. Do a little research and you will be well on your way to investing in your future.



While this may seem like the perfect setup for all of us, there are indeed some factors to be aware of. It is important that you investigate all the ins and outs of the self directed or solo 401k plan. You may not like some of the self directed 401k rules and everything it entails. To give you a better perspective, here are some pros and cons to consider.

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Self Directed 401k Pros

There are a few upsides to pursuing a 401k self directed. Despite the slide of the economy over the past few years, the desire from individuals to pursue self directed 401k plans is continuing to grow. Many companies – both large and small, are starting to offer the plan. This is a nice option, considering not many employers ever offered something like this.

Another fantastic option the self-directed account affords you is the potential for increased investment options. This is particularly nice if your current 401k plan doesn’t offer a good selection of mutual funds, or if those current funds are not performing how you would like them to. A self directed plan will more than likely allow you to find funds that are performing better, or to buy individual securities.

While all of this seems to be perfect, there are a few setbacks to such a setup.

Self Directed 401k Cons

It sounds like a plan that everyone would want to participate in, but the fact of the matter is that there are some pretty obvious risks involved with the self-directed plan.

One of the main setbacks is all of the added responsibility that the self directed participant will have on their shoulders. Choosing from all of the available funds can be daunting, especially if you don’t really understand what to invest in. Conversely, you may only choose one or two options, which may greatly affect what your portfolio does. If you put too much money in one option, then you are increasing the chances of your portfolio dropping, or rising, depending on a singular investment.

Another drawback is the temptation to trade options too frequently, based on how the market reacts on one day. This is not wise, as you will lose money because of trading fees. You will need to learn how to pick the best options, and when to ride them out even when the market is struggling.

One last thing to also consider is participant fees may go up, depending on what fees have to be paid. You will eat all of the fees of a self-directed plan, as your company will not be responsible for taking on these fees for you.
A self directed 401k has a lot of upside to it, but it also has some negative aspects that have to be handled properly. Do your homework to really see if this type of investment is right for you.

401k Withdrawal Penalty

If you withdraw money from your 401k plan before you reach the age of 59 1/2, you’ll be charged a 401k early withdrawal penalty. This additional tax penalty is equal to 10% of the amount you withdraw. You will also have to pay income taxes on the money you withdraw since it was not taxed before you put it into your 401k. This can increase your income to the point where you fall into a different tax bracket. If this happens, you’ll find yourself owing more income tax than you expected. To avoid extra taxes, it is best to avoid a 401k early withdrawal if you possibly can.

There are several exceptions to the 10% tax penalty. Some of the exceptions are distributions made to your beneficiary after you die, distributions made because of a disability, payments made after you stop working for the company if you are at least 55 years old, and distributions made for the purpose of receiving medical care. You also don’t incur the tax penalty if you receive a distribution of excess contributions or if the distribution is due to an IRS levy against your 401k plan.

401k Hardship Withdrawal

If you are experiencing financial hardship, you may be able to make a 401k hardship withdrawal. This option is available only if you can show an immediate and pressing financial need and do not have any other assets that can be used to satisfy that need. Not all 401k plans allow hardship withdrawals, but if they are permitted, the amount is limited to the amount of need and the distributable amount in the plan. You cannot make elective contributions to the plan for six months after receiving a hardship withdrawal.  It’s also important to note that hardship distributions are not treated as eligible rollover distributions.

Required Distributions

If you have a 401k plan, you must start taking distributions by April 1 following the year that you turn 70 1/2 years old or April 1 following the year that you retire, whichever is later. Some plans require you to take distributions by April 1 following the year you turn 70 1/2 even if you don’t retire.

Sometimes taking a 401k distribution is necessary, in which case you should be sure to figure out the amount of tax liability that you will need to pay. The plan will withhold 20% of the withdrawal amount, but you might find that you need to set aside an additional amount to cover the taxes on the 401k withdrawal.