2013 IRA Contribution Cheat Sheet

I posted this handy IRA Contribution Cheat Sheet earlier in the year to help readers get a head start on investing for 2013. But don't worry if you're just getting around to thinking about contributing to an IRA! You have until April 15th to make a 2013 contribution.

Fifty-eight percent of Americans don't have a retirement plan and 20% of Americans plan on relying on Social Security for all of their retirement needs. That's shocking given that the current average Social Security benefit is only $1,269 per month!

Don't let retirement sneak up on you. Even if you're only a few years away from leaving the workforce, there's still time to improve your financial outlook in retirement. Funding an IRA in 2013 is a great way to do it!

The following cheat sheet will help you determine which IRA is best for your financial situation.

Created by 2013 Tax Rules

The statistics above are from a study conducted by Deloitte Center for Financial Services. The 2013 IRA Contribution Cheat Sheet is used with permission from Greene IRA Success.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.

2013 IRA Cheat Sheet - Get A Head Start On This Year's Contribution!

Did you remember to make a 2012 IRA contribution by the April 15th deadline? If not, you're not alone.

A recent study found that 58% of Americans don't have a retirement plan. The study also revealed that 20% of Americans plan on relying on Social Security for all of their retirement needs. That's a shocking revelation given the fact that the current average Social Security benefit is only $1,237 per month!

Don't let retirement sneak up on you. Even if you're only a few years away from leaving the workforce, there's still time to improve your financial outlook in retirement. Starting an IRA in 2013 is a great way to do it!

The following cheat sheet will help you determine which IRA is best for your financial situation.

Created by 2013 Tax Rules

The study sited was conducted by Deloitte Center for Financial Services. The 2013 IRA Contribution Cheat Sheet is used with permission from Greene IRA Success.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.

2012 IRA Cheat Sheet - Don't Let Confusion Keep You From Contributing!

A recent survey found that almost half of Americans have little or no confidence that they'll be financially prepared for retirement. Many individuals in this situation plan on working longer, but that option could be cut short by bad health, disability, or loss of a job.

If you haven't started saving for retirement - or haven't saved enough - now's the time to start, and an individual savings account (IRA) is a great investment vehicle to use.

The deadline for making a 2012 IRA contribution is April 15, 2013, so you need to hurry if you want to contribute for last year. Confused about which IRA to select? Here's an excellent cheat sheet that will help you determine which IRA is best for your financial situation.

Created by Tax Code 2013

The study sited was conducted by the Employee Benefit Research Institute. The 2012 IRA Contribution Cheat Sheet was used with permission from Greene IRA Success.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.

The Nifty, Thrifty Thrift Savings Plan (TSP)

The Thrift Savings Plan - or TSP for short - is a retirement plan designed for members of the uniformed services and Federal civilian employees. If you're eligible for the TSP, don't overlook it just because you have a pension! TSP contributions should be an integral part of your retirement planning.

How Your Money Is Invested

The TSP has five funds that invest in different types of stocks and bonds, as well as several "Lifecycle Funds" that invest in different combinations of the five individual funds based on various investment time horizons. Participants have complete control over the mix of funds they select for their accounts.

Available TSP Funds
C Fund - Large- and Mid-Sized US Stocks
S Fund - Small- and Mid-Sized US Stocks
I Fund - International Stocks
F Fund -  US Government, Corporate, and Mortgage-Backed Bonds
G Fund - US Government Securities
L Funds - Mix of C, S, I, F, and G Funds Based on Various Time Horizons

Contribution Limits and Taxation

Just like 401(k) and 403(b) plans, Servicemembers and Federal employees make contributions to individual TSP accounts. Some Federal employees receive matching contributions in addition to the amount they contribute. You can contribute up to $17,000 to your TSP in 2012, or $22,500 if you’re 50 or older. These amounts are separate from any matching contributions you receive. Servicemembers in combat zones are eligible to contribute up to $50,000.

Currently TSP contributions are tax-deductible when made and withdrawals are taxed in retirement. Beginning sometime in the next few months participants will have the option to make Roth-type TSP contributions that won’t be tax-deductible now but will provide tax-free withdrawals in retirement. Withdrawals of Roth-type TSP contributions can be a great way to balance out taxable pension benefits in retirement.

Fees and Expenses (Or: My Favorite Part of the TSP)
Mutual funds sold by brokers often charge up-front commissions of 5.75% or higher. In addition to sales charges, they often have very high ongoing expenses.  According to Morningstar, the average expense ratio of funds that invest in large US stocks is 1.45%. The expense ratios for small US stock funds and international stock funds are much higher, averaging 1.61% and 1.68% respectively.

There aren't any sales charges or commissions on TSP funds. In addition to avoiding those charges, you'll also pay some of the lowest expense ratios I've ever seen. According to the TSP website, the 2010 expenses of all of the funds were 0.025% or less! These low costs are one of the best reasons to invest in the TSP. The less you pay in investment costs, the more you keep for yourself!

What Happens When You Leave

Any money you contribute to the TSP is yours to keep. When a Servicemember separates from service, or a Federal worker leaves his or her job, they have the option to roll their money to an IRA or leave it in the TSP. There’s also the option of cashing it out, but that can lead to taxes and early withdrawal penalties if you’re under 59 ½.

My suggestion is to consider leaving your funds in the TSP when you separate from service or retire. It has all of the basic asset classes you need to build a diversified portfolio and some of the lowest costs around.

You can go to www.tsp.gov to learn more about the TSP and available investment options

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.

Mid-Year Financial Tips

My wife and I are huge baseball fans, and as such, the All Star Game marks the middle of summer and hence the middle of the year for us. Now that the All Star Game is over (Go National League!), it's a great time to review your finances and make midyear adjustments as needed.

Check your retirement plan contributions

If you have a retirement plan like a 401(k) or a 403(b) through your work, take time to review how much you’re contributing. Start making contributions if you haven’t started yet. And if you are contributing, make sure you're contributing enough to get the full match offered by your employer. (Repeat after me: Never turn down free money!)

The 401(k) and 403(b) contribution limit for 2011 is $16,500, or $22,000 if you're age 50 or older. This limit applies to your contribution, so your employer's match is on top of this amount.

Check your IRA contributions

Anyone with earned income is eligible to make contributions to an IRA. Contributions to a Traditional IRA are tax-deductible when made and taxable when withdrawn. Contributions to a Roth IRA aren't deductible but withdrawals are tax-free. Pairing after-tax Roth IRA contributions with pre-tax 401(k) or 403(b) contributions is a great way to balance current and future taxes.

The IRA contribution limit for 2011 is $5,000, or $6,000 if you're age 50 or older. You have until April 15, 2012 to make a contribution for 2011.

Check your portfolio allocations

The recommended mix of stocks and bonds for your portfolio will depend on things like your age, time horizon, and risk tolerance. But whatever your ideal mix is, your actual allocations will vary over time due to market fluctuations.

Rebalancing your portfolio back to your ideal allocation helps manage risk since it forces you to "sell high" (i.e. decrease exposure to investments that have gone up) and "buy low" (i.e. increase exposure to assets that have gone down).

Evaluate your estimated tax situation

Do you normally receive a large tax refund? Then you should consider changing your withholding to have less money withheld throughout the second half of the year. On the other hand, if you usually owe money at tax time, then you could increase your withholding to avoid having to write out a check to Uncle Sam next year.

Since taxes can be complicated - and penalties incredibly steep if you make mistakes - consider having a CPA or EA review your situation and make recommendations.

Start budgeting for the holidays
It’s no secret that the holiday season can strain our budgets. By starting to plan for now for the expenses associated with travel and gift giving at the end of the year you can avoid getting yourself into financial trouble. You can use www.bankrate.com to find a great high-yield savings account for your holiday savings fund.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com

Sizing Up Your Retirement Nest Egg Need

One of the biggest mistakes I see people making in their retirement planning is underestimating how much a secure retirement costs. In fact, most people don’t have any idea how much they'll need to have saved to be able to retire comfortably.

How much income will you need in retirement?

The first step to determining how much you need to save is to estimate your annual income need in retirement. A simple way to do this is to start by figuring out how much you spend each year to support your current lifestyle.

Once you get this figure, subtract expenses you won’t have when retired (like retirement savings and expenses for your children) and then add expenses you might incur (like money for additional travel or increased health care costs).

That should give you a rough idea of what you’ll need to retire in today’s dollars.

How large does your nest egg need to be?

Withdrawals from your nest egg will be needed to cover any shortfall between your retirement spending and any steady income you’ll have from things like Social Security, pensions, fixed annuities, and part-time work. For example, assume you’ll need $50,000 in retirement income and will receive $18,000 per year from Social Security. This leaves an income gap of $32,000 per year.

$50,000 Income Need – $18,000 Social Security = $32,000 Income Gap

To get a rough idea of how large your nest egg needs to be, simply multiply this gap by 25. This will calculate how much you need to have saved to cover the income gap at a 4% withdrawal rate.

$32,000 Income Gap x 25 = $800,000

In this case you’d need around $800,000 to produce the extra income you need assuming you withdraw 4% of this amount per year.

What about inflation?

These calculations estimate how much retirement income and how large of a nest egg you'd need in today's dollars. However, since the cost of everything we buy increases over time, these numbers will have to be increased by at least 3 to 4% each year to keep up with inflation.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com