401(k) Withdrawals During Employment

Recently, a client sent me an e-mail expressing concern regarding an article that discussed the dramatic increase in 401(k) hardship distributions resulting from the recent economic downturn (http://www.msnbc.msn.com/id/38783832).

For retirement plan sponsors, articles like this one can be alarming, since these plans typically are established to reward long term employees by providing a benefit meant to assist them in retirement.  Some employers are more compassionate than others, and since many of our 401(k) clients are small business owners, they tend to be concerned over the long-term success and financial health of their employees.

The upheaval in the economy has been challenging for retirement plans.  Some plan sponsors have had to reduce or suspend their ‘match’ contributions, employees have reduced their contribution/savings rates, and more and more employees are looking to their retirement accounts as a means to access quick cash.

Three Types ...

How many times over the past several years have you heard, “mortgage rates are at historic lows and the time to refinance is now?”  We have been flooded by a barrage of recent advertisements promising low mortgage rates making it quite easy to become immune to those claims.  In fact, one morning this week on the way to work I heard a radio commercial by a mortgage company indicating that mortgage rates were currently at the lowest point in five decades!  And while I was certainly aware that mortgage rates had recently ticked down again, my curiosity was sparked to find out how low we really are relative to history. 

I did some research on the web and learned that the 30-year fixed rate hasn’t been as low as it is currently since the 1950s (and back then longer-term mortgages generally extended only for 20-25 year ...

Who doesn’t want to have the perfect investment with high returns and low risk?  Unfortunately, that is a lot easier said than done—in fact, nearly impossible to achieve.  Great minds spend a lot of time developing theories and strategies designed to achieve the ultimate investment, but none has been more compelling—or more widely adopted—than Modern Portfolio Theory (MPT).

I could overwhelm you with statistical date, but instead want to provide a brief background of MPT as well as it’s basic meaning.

Harry Markowitz developed MPT Theory in 1952, later receiving the Nobel Prize (along with William Sharpe and Merton Miller) for what has become a broad theory for portfolio selection.  Before Markowitz’s work became a guiding investment theory, investors focused on the risks and rewards of individual securities when putting together their portfolios, typically, building holdings of investor-identified securities which offered the best opportunity for gains with ...

Achieving positive investment portfolio returns would be much easier if there were a crystal ball available. Knowing where the interest rates will be next year or buying into the market at the bottom and exactly before a steady upturn would not be just a fairytale. With this kind of magic on hand, an investment strategy would not be necessary.

In the real world, however, money managers and financial advisors do not have such paraphernalia, so they must rely on historical data and conventional wisdom. Monetary policy, fiscal policy—and investor sentiment—direct the variation on the return curve.

Monetary Policy
The monetary policy of the Federal Reserve is determined by the Board of Governors and the Federal Open Market Committee. Its guidance and forecast of interest rates is a two-edged sword; it may instill fear in bondholders and shareholders or spark anticipation. Fixed income vehicles, like long-term bonds and preferred stock, are ...

A charitable lead trust is a type of irrevocable trust that provides an income interest (the ‘lead’ interest) to a charitable organization and the remainder interest to a non-charitable beneficiary (which could be the donor, the donor’s family or other specified individuals).

A plan sponsor’s personal liability

A recent seminar focusing on fiduciary responsibilities as they pertain to company retirement plans was so well-received we thought it would be a good idea to share this information with our clients and friends. As plan sponsors are aware, performing certain duties within the company retirement plan renders the plan sponsor personally liable. Understanding that often leaves plan sponsors wondering what steps should be taken to properly manage that liability.

What constitutes liability?

Liability comes in all shapes and sizes. This article does not claim to be an inclusive look at all potential liability, but instead focuses on the investment selection and monitoring ‘piece of the pie.’ If the plan sponsor is not an expert they must hire one to properly select and monitor the investments in the plan. Seems simple enough, right? Well not exactly. Not all advisors are created equal, and in ...

I recently met with a client—let’s call him Joe Plumber—who did not have a ‘typical’ estate plan in place, but rather had the majority of his assets held jointly with his wife.  When I raised the issue of establishing a ‘typical’ estate plan, Joe’s response was that he had somewhat of a bias against an estate plan with numerous trusts because he simply did not understand the complex setup.  My goal, then, was to provide an explanation of a ‘typical’ estate plan and its benefits, in an easy to understand format.  For clients who turn glassy-eyed during the estate planning discussions in review meetings, this explanation is intended to help you understand more easily the ways of the estate planning world.  Believe me, I recognize that this is a very complex subject, one which can be difficult to understand short of spending three years in law school.  I would also ...

Over the past several months, clients have been asking a lot of questions relating to fixed income yields. Here is just a sample of what they’re asking:

• Why would I invest in bonds paying such low yields?
• Why would I rebalance and invest in such low yielding bonds, especially since I am getting a better dividend yield in my equities?
• Should I stay in cash for the short run until bond yields improve?
• How can I enhance my yield?

I always find myself coming back to the very fundamental investment theme of risk vs reward. In other words, clients should consider how much more risk they are willing to take on in pursuit of higher yields.

I think it is important not to lose sight of the role fixed income plays in a well-diversified portfolio. That role is to reduce risk and add stability. The current low yield environment is ...

The Alternative Minimum Tax originally took effect in 1970 as a separate tax system built around the notion that high-income individuals should pay a minimum amount of tax, even if they qualify for tax benefits that would otherwise allow them to pay less.[1]  For most of you, the 2009 tax season has come and gone and you may have already had to deal with the AMT nightmare. But for those who have yet to pay 2009 taxes, the Alternative Minimum Tax may still be waiting for you.    For most of you, the 2009 tax season has come and gone and you may have already had to deal with the AMT nightmare. But for those who have yet to pay 2009 taxes, the Alternative Minimum Tax may still be waiting for you. 

In order to ensure that certain taxpayers who benefit from regular tax deductions and credits ...