Here are a few ways to fatten your wallet each month and reduce some monthly annuity costs:

Roku – Not sure about you, but one of the bills I despise paying the most is my monthly cable bill. Our household cable bill for the right to watch television laced with advertising is just about $100 per month. If you have a good wireless internet connection in the house, you might take a look at Roku (or other Internet TV providers). A Roku box is a little piece of hardware that streams entertainment to your television and claims to have access to over 750 channels. Some of these channels you have to pay for, but many are free. That is correct, after the initial cost of the hardware, about $65, you can get high definition television for free. This is definitely a different television viewing experience as Roku does not stream live television and trying to watch the Bruins is a difficult task. However, there is plenty of content available to keep you entertained at a much cheaper price. Add a subscription to Netflix or Amazon Prime, which run about $8 / month, which is much cheaper than cable, and there are plenty of television series and movies to watch commercial free. We have cut our household cable service down to a minimum and stream most of our entertainment via our Roku box.

Coffee makers – About a year and a half ago, my wife brought home a Keurig coffee maker. At first I resisted using it, but my love /addiction of coffee and its convenience were difficult to pass up. Soon, I became a rabid user. However, the cost of single serve coffee pods is a bit on the inflated side. Even when buying in bulk, the cost of coffee using single serve pods is about $0.75 per cup. Two or three cups a day, multiplied by two people and you can be spending almost $100 per month on single serve coffee pods. Finally I made a change. I bought a Hamilton Beach Single Serve Coffee Maker for $59 where you use regular coffee grounds without the need for pods or any special filters. By eliminating the single serve pods and just using regular ground coffee, my cost is about $.05 per cup. I have to say using this device is almost as convenient as using my trusty Keurig and makes a pretty good cup of coffee. It takes about three minutes and my coffee is ready. In addition to the monthly price savings, I placing a lot less plastic in the local landfill.

Insurance deductible – I can not recall a time in my life where I made a property insurance claim of any kind (knock on wood). If your claim history for home and auto is pretty low, then you might consider increasing your deductibles on your home and or auto policies. By increasing the deductible from say $500 to $1,000, your premiums will decline. The increased deductible reduces the risk for the insurance company and pushes more of that potential risk on to me. But if my future property losses are similar to my recent past, then this one will pay off.

Refinance the Mortgage – Most people have refinanced their mortgage already, but there is a pretty large number of folks that have not been able to take advantage of the low interest rates environment because their homes have been underwater. However, home values and appraisals have been on the rise of late and many of those underwater homes might be back on solid footing. It is certainly worth taking a look as you can save a lot more than $50 / month with this one. By refinancing over the last few years, my wife and I are paying about $600 less in monthly interest expense.

Private Mortgage Insurance (PMI) – Many people must pay PMI when they have less than 20% equity in the value of the home, i.e. they put less than 20% down on the home. However, once you pay down enough of your mortgage such that you have 20% equity in your home, your PMI requirement should cease. The lender will not typically end the PMI requirement, you will have to call them and inform them that it is time to discontinue the policy.

Dining out – Brown bagging your lunch a couple of times per week can easily save you $50 / month. As a bonus to the cash savings, you will likely save yourself a significant amount of calories as well.

Increase your 401(k) / IRA Contribution – By contributing another $200 or so per month into your 401(k) plan or Individual Retirement Account, you can probably save yourself about $50 in federal and state income taxes. Only about 5 percent of Americans contribute the maximum allowable amount to their 401(k) plan, so many can take advantage of this one.

Land Phone Line – It seems a lot easier to maintain just one phone number via your cell phone than have a couple of different phone numbers. Why not just move exclusively to the cell phone and ditch the land line. Verizon’s bundled billing practice is obviously one to confuse so you can not find the real cost of what you are paying for the land line, but you can be sure that the cost of the land line is real. Worth taking a look once your contract expires.

Small business owners have many concerns, not least of which is retirement benefits for themselves and their employees. Many employers offer a 401(k) plan to their employees to help address retirement needs. While many small business owners take advantage of the deferred compensation available to them under the 401(k) plan, there are ways to increase the benefit and value of these plans.

While employee contributions are limited to $17,500 for 2013, the annual tax deferral limit is $51,000 ($56,500 for those over age 50). The tax deferral limit is the maximum amount that can be contributed to an individuals 401(k) account in a single year, it combines both the employee’s contribution as well as the employer’s contribution. As an example, a small business owner might contribute the full $17,500 deferral available to herself in a year under the 401(k) rules. In addition, the business makes a profit sharing contribution of $33,500 to the owners account, for a maximum contribution to the business owner of $51,000. This is obviously a tidy sum to receive.

For small business owners looking to maximize their savings and minimize their taxes, utilizing a profit sharing option in a 401(k) plan can be a very good decision. Here are some of the benefits for small business owners:

- Employee contributions to the plan are not taxed by the federal and most state governments until they are distributed (usually at retirement age).

- Employer profit sharing contributions are an allowable business deduction. Contributions to the plan are not taxed until they are distributed.

- The small business owner can defer up to $51,000 to his / her 401(k) account in a single year. Significantly more than if they just maximize the $17,500 employee contribution limit.

- Flexibility – The profit sharing contribution is discretionary and can vary by year. If the business has a difficult year, the profit sharing contribution can be reduced.

- Attract employees – A well designed and funded profit sharing plan can help attract great employees.

- Administration and costs are generally low.

There are several different types of profit sharing plans. The one I see the most is called a New Comparability Plan. A new comparability plan is a profit sharing plan that divides employees into groups. A simple division between groups might be an owner group and a non-owner group. Each group receives a profit sharing contribution match based on a percentage of compensation. However, the match percentage for each group does not have to be the same. As such, profit sharing contributions can be allocated significantly in favor of the small business owner.

As an example, the non-owner group might receive a contribution based on 1.5% of their salary and the owner group might receive a contribution based on 4.5% of their salary. If there is one employee in the non-owner group and their compensation is $40,000, the company will make a profit sharing contribution of $600 to the non-owner. If the owner’s compensation is $100,000, the company makes a profit sharing contribution of $4,500. So for a total cost of $5,100,which is fully tax deductible, the owner will receive $4,500 into her account. The goal for a small business owner might be to reach the annual tax deferral limit of $51,000 in a given year. Deferring this amount of income annually will save significant tax dollars and should create significant long term wealth for the small business owners.

There are some restrictions, including discrimination testing. However, most of these restrictions can be overcome by contributing 5% to the employees’ accounts, then the small business owner should be able to defer the full $51,000 for herself. Additionally, you will need to engage someone experienced in creating these types of plans, which has an administration cost. However, for many small business owners, the tax benefits can be substantial.

By John Napolitano, Financial Planning Association of Massachusetts

John Napolitano is president of the Financial Planning Association of Massachusetts and chief executive of US Wealth Management. He will be hosting a live Boston.com chat on Friday, Nov. 9 at 3 p.m.

We all eventually clean out a closet or basement, and find things that you forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. Living proof of this is your home state's unclaimed property list. In my home state of Massachusetts, it is estimated that one in 10 residents has unclaimed property.

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John P. Napolitano, the chief executive of US Wealth Management, will take your money questions live Tuesday, Oct. 30 at 1 p.m.

Thinking of flying for the holiday season this year? You'll probably notice higher prices, if you are. But how can you get a cheaper flight? Here are some tips from George Hobica, founder of Airfare Watchdog. Some of his tips include setting up alerts for lower fares, looking at the early morning flights, and picking Thanksgiving Day (rather than the day before). What are your airfare tips?

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Relay Rides is a car-share program that puts extra money in car owners' pockets. The program lets people rent out their cars for hours or days via the company's website. Relay Rides lets people rent cars for $7 an hour, $50 a day, or $250 a week. The whole transaction is done via Relay Rides, so people renting their cars don't need to be there to take the cash. What do you think? Is this a service you'd use?

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Keeping up with all the shopping discounts on the web and in your favorite stores can be a challenge. But what if you had a mini personal shopper that sits in the palm of your hand to help remind you that your favorite pair of shoes is now discounted and just a click away? Buzz 60's Priya Desai takes a look at the apps and websites to help you save some cash.

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Taxes and health care in the SAME entry?! I promise I'll make this quick and easy -- while saving you some cash in the process. While you're wading through all those forms during your annual health care open enrollment, make sure to look for information on flexible spending accounts. At their core, these accounts let your employer take money from your account before taxes that you can then put toward some medical costs, such as co-pays.

Think of it as a forced savings that is worth more than if you just put the money in a locked box under your bed.

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By Christina Reinwald, Boston.com correspondent

How do you keep track of your financial information? Mint.com wants to help you improve it by importing your finances online. Stacy Rapacon, channel editor for personal finance website Kiplinger.com, said Mint.com offers the best overall online budgeting. What makes it even better? It’s free.

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It's an emotionally charged topic, and there are a lot of financial topics to consider during a divorce. Here are a few including college expenses, moving costs, and life insurance.

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Looking for other options than just the traditional checking or savings account? Here are some ideas to check out (that are safer than just stuffing all your money in a shoebox).

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The Saver’s Credit is a tax credit that provides an added benefit for low to moderate-income workers who save for retirement. The saver’s credit will offset part of the first $2,000 that workers contribute to their IRAs or 401(k) plans (as well as other similar employer-sponsored retirement plan. This credit is also known as the Retirement Savings Contributions Credit.

The maximum credit that a single taxpayer can receive is $1,000. Married taxpayers can receive a maximum credit of $2,000. This credit is refundable which means that it can increase your refund or reduce your tax owed. The actual amount of the credit is based on the taxpayer’s filing status, adjusted gross income, tax liability, and amount contributed to qualifying retirement plans.

The Saver’s Credit supplements other tax benefits typically available for those who make retirement contributions such as the ability to deduct IRA contributions and make pre-tax 401(k) or 403(b) contributions.

The Saver’s Credit can be claimed by:
* Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012;
* Heads of Household with incomes up to $42,375 in 2011 or $43,125 in 2012; and
* Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.

Additional requirements to be eligible for this credit include:
* Eligible taxpayers must be at least 18 years of age.
* Anyone claimed as a dependent on someone else’s return cannot take the credit.
* A student cannot take the credit. A person enrolled as a full-time student during any part of five calendar months during the year is considered a student.
* Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2011, this rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return. Form 8880 and its instructions have details on making this computation.

In order to claim this credit for 2011, you will need to make your qualifying IRA contribution by April 17, 2012 or make your contribution to your employer sponsored retirement plan (e.g., 401(k), 403(b), 457 Plan, and Thrift Savings Plan) by December 31, 2011.

For more information about the Saver’s Credit visit the IRS’ web site at http://www.irs.gov/newsroom/article/0,,id=107686,00.html

In late 2008 and early 2009, many investors jokingly referred to their 401(k)s as "201(k)s" because their account balances had fallen so drastically. However, a recent survey by Fidelity Investments says that account balances are at their highest levels since the company began tracking account values in 1998.

Fidelity recently reported that the average 401(k) retirement plan balance rose to $74,900 as of March 31, 2011. That represents an increase of 12 percent from March 31, 2010. The company also reported that participants in its 401(k) plans saved an average of 8.2 percent of their salaries.

Vanguard reported figures that were very similar. The average balance in its 401(k) accounts was just over $79,000 at the end of 2010. Again, this represented the highest balance since Vanguard began tracking balances in 1999.

So, the fact that account balances are rising is good news but account balances and annual contributions are still at very low levels. An 8 percent contribution might sound reasonable, but depending on the employee's age and the amount he or she has already saved, contributions of 10 to 20 percent of income are generally required. Also, the guideline for a safe withdrawal rate is generally 4 to 5 percent. If an employee is retiring with a 401(k) account balance of $75,000, the amount they can safely withdraw each year is just $3,000 to $3,750.

Fortunately, Fidelity points out that the $74,900 figure is an average for all participants so it includes the balance of employees in their 20s as well as their 60s. Older participants hopefully have higher balances. Fidelity reports that employees who are 55 years old or older and who have participated in their company plans for 10 year or more have balances that average $233,800. Definitely an improvement, but even these individuals should not be withdrawing more than $11,600 from their accounts if they want their money to last throughout their retirement.

Do you have financial questions that you'd like an informed opinion about? Then join certified financial planner Dana Levit today at 11 a.m. for a chat about money. Dana is owner of Paragon Financial Advisors in Newton.

What is a Stretch IRA account?

A "stretch IRA" is a not an actual type of IRA account that you can “open” like you do for a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA. Rather, the term “stretch IRA” refers to a traditional IRA or Roth IRA that includes certain provisions that make it easier to keep funds in the IRA after the IRA owner dies. These provisions will generally allow the beneficiaries to continued the tax-deferred growth of the funds in the IRA over a longer period of time. An IRA or Roth IRA that does not have these provisions may be required to distribute the funds in the IRA account more aggressively than the beneficiary needs or desires.

Many people may know that owners of non-Roth IRAs are required to take minimum distributions from their non-Roth IRAs during their lifetime starting at age 70.5 (also referred to as “lifetime requirement minimum distributions”). However, many may not know that all IRAs (including Roth IRAs) are also subject to certain required minimum distribution rules after the IRA or Roth IRA owner dies. The amount and timing of these required minimum distributions are determined based on several factors including, who the owner names as his/her beneficiaries, whether or not successor beneficiaries are named, and whether or not the IRA owners dies before beginning his/her lifetime required minimum distributions.

Keep in mind that IRA “stretch” provisions and strategies are largely based on the required minimum distribution rules, which can be complicated and confusing. In addition, they are not the right solution for everyone. In general, “stretch” provisions are more useful in situations where the IRA’s beneficiary can afford to minimize the distributions from the inherited IRA and thus, extend the tax-deferred growth of the inherited IRA for their heirs. If you are considering the use of these strategies, you may want to consult with a financial planning and estate planning professional as part of your comprehensive retirement and estate planning work.

Businesses are sitting on significant amounts of cash these days and everyone is seeking opportunities to put some of this cash to work. Companies might consider taking advantage of the new bonus depreciation rules and “The Energy Policy Act”. The installation of high energy efficient lighting systems, combined with these tax programs, could provide commercial property owners a very reasonable return on their investment. Here are a couple of thoughts:

Indoor lighting systems:
The Energy Policy Act provides an immediate tax deduction for the cost of improvements to commercial property designed to save energy through heating, cooling, water heating and interior light systems. These deductions are available for systems placed in service through December 31, 2013.

One particular aspect of this system may make a good investment for businesses; updating interior lighting to an energy efficient system. This upgrade would typically be depreciated over a 27 or 39 year life. However, under the Energy Policy Act, much of the system update can be depreciated using accelerated methods in the current year. The installation of light emitting diode (LED) lighting would typically qualify for the deduction under this program. The Energy Policy Act allows for a deduction of up to $0.60 per square foot for qualifying improvements. To qualify the project must be certified by a licensed professional to reduce lighting power density by 25 – 40 percent (50 percent if a warehouse) compared to industry benchmarks. The rules are a bit cumbersome, so I recommend reviewing this guide for complete details and talking to both a CPA and a qualified engineer.

Outdoor lighting systems:
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides businesses with 100 percent bonus depreciation for certain capital investments placed in service between September 8, 2010 and December 31, 2011.

Outdoor lighting systems, which typically involve illuminating parking lots, are another area in which businesses might be able to find a good return on their investment. For the first time, installing outdoor energy efficient LED lighting qualifies for a 100% deduction under the new bonus depreciation rules.

In addition to the immediate tax deductions noted above, installing LED lighting will have other financial benefits.

a.) Reduced energy consumption: LED lighting is up to two times more efficient than compact florescent lighting and four times more efficient than incandescent lighting. Thus, installing LED lighting should help you cut your utility expense significantly.

b.) Long term maintenance: LED lights can last for up to 25 – 30 years under normal use before replacement is required. Compare this to incandescent bulbs which last for approximately 1,000 hours and compact fluorescents which last about 8,000 hours. Replacing light bulbs using lifts or buckets with expensive labor will almost be eliminated. This can greatly decrease maintenance costs on commercial properties.

The Energy Cost Savings Council estimates that energy-efficient lighting projects generate an average 45% return on investment, and repay themselves in just 2.2 years. However, upwards of 80% of commercial buildings still operate on lighting systems installed before 1986. That kind of return certainly beats short term interest rate.

Bank of America and some other banks have announced in recent months new fee structures. Partially as a result of new regulations coming from Washington, many banks, including BofA, will end or severely limit free checking accounts in the near future.

However, Bank of America does offer a nice program to its debit and credit card customers that may take some of the sting out of the new account related fees. It is called the Museum’s on Us program. This program provides free general admission to participating museums and zoos on the first full weekend of every month. All you have to do is present your Bank of America debit or credit card and your photo ID. Since BofA has such a large customer base, I assume some 20 percent of the country can take advantage this program.

The next eligible weekend is March 5th – 6th. There are over 150 participating museums in the United States. In Boston, you can gain free entry via this program to the Museum of Fine Arts. Additional participating museums in the area include: The Cape Cod Museum of Art in Dennis, the deCordova Sculpture Park and Museum in Lincoln, the Worcester Art Museum, the Currier Museum of Art in Manchester NH, the RISD Museum of Art in Providence, the Providence Children’s Museum and the Museum of Work and Culture in Woonsocket.

A new year brings about a renewed vigor for many people to better their financial situation. If you want to start the year off with a bang for your financial buck, then make your 2011 IRA contribution now.

Many people wait until the end of the year, or even until they pay their income taxes in April of the following year, to make IRA contributions. But making a contribution now means your money has more time to grow. You get an extra year of tax-deferred (or in the case of a Roth IRA, tax-free) growth.

So if you have the cash and you know you are qualified to make a contribution, go ahead and fund your IRA or Roth IRA now. Even if you haven’t earned enough income to match the contribution yet you can do so, as long as you know you’ll earn it by the end of the year.

If you can’t make the whole contribution now (the maximum is $5,000, with an extra $1000 allowed for those age 50 or older by the end of the year) at least get started. Contribute what you can now and add more later. Or set up direct deposit from your paycheck or bank account so you don’t have to think about it later in the year.

Some of the favorable provisions of Coverdell educational savings accounts (“Coverdell ESA”) are slated to expire by December 31, 2010 if Congress does not extend the current rules. Two of the more significant changes include a reduction in the annual contribution amounts and in how Coverdell ESA funds can be used.

Coverdell ESAs are tax-advantaged educational savings accounts that can be set up for minors to pay for their educational expenses. This type of account, which was formerly known as an “Educational IRA”, allows after-tax dollars to be set aside to pay for qualified educational expense for grades kindergarten through 12 and college. Similar to IRA accounts, contributions into an ESA grow tax-free and distribution are tax free when used to pay for qualified educational expenses such as tuition, fees, books, supplies, room and board.

The current annual contribution limit of $2,000 for Coverdell ESAs is expected to revert back to their 2001 limits of $500 per year. In addition, there will be significant changes to how Coverdell ESA funds are used. Currently, funds in a Coverdell ESA can be used for qualified college expenses as well as expenses for kindergarten through 12th grade. Starting in January 2011, existing Coverdell ESA funds as well as any future contributions can only be used for qualified college expenses.

Unless Congress intervenes these changes will affect those with existing Coverdell accounts differently. For those who have or are planning to start a Coverdell ESA for the purpose of using it to pay for a child’s college expenses, you can continue to fund the Coverdell (albeit at the lower amounts) or consider transferring it into a 529 plan. For those who have a Coverdell for the purpose of funding a child’s K through 12 education, your choices are more limited. You can withdraw the funds in the existing account and spend it on qualified K through 12 educational expenses before the changes go into effect in January or you can leave the funds in the Coverdell and consider using it for the child’s future college expenses.

About three weeks ago, my wife and I refinanced our home for the second time in 18 months. We have shaved about $460 per month off our original mortgage payment. We are definitely a benefactor of the Federal Reserve current interest rate policy. No sane bank would ever provide my wife and me a 30 year loan at 4.25 percent. As of Wednesday, a 30 year US Treasury bond was yielding 4.25 percent. Consequently, the US Government is borrowing money at the same rate that we are borrowing money. Not that we are bad credit risks, we just are not as good as the US government.

Last week the Federal Reserve announced that it will purchase an additional $600 billion of Treasuries in an attempt to further reduce interest rates. Maybe my wife and I will hit pay dirt again and refinance our home at an even lower rate. While these low interest rates have been a blessing to us, they have been a curse to others. Those cursed in the current environment are primarily seniors and savers.

My Grandmother was the model of fiscal prudence and responsibility. She lived through the Great Depression and knew how to stretch and save her money. After retiring, she lived on a modest Social Security annuity and her savings. All of her savings were in CD’s. Like many elders, she preferred not to tap into the principal of her savings and lived on the interest that it earned. After passing this summer, most of her CD’s were earning interest at rates considerably less than one percent. She could no longer live solely on the interest and was dipping into the principal. She was being squeezed and had to cut back where she could. I know others are being squeezed as well.

As if this is not bad enough for seniors, the Federal Reserve wants to INCREASE the rate of inflation. So in addition to earning no interest on their savings, their savings accounts will actually be worth less, i.e. your $100,000 CD will only buy you $97,000 worth of goods next year.

What is the rationale to redistribute money to borrowers (like myself) from savers (like my Grandmother)? This is the net effect of the Federal Reserve’s policy. I save $460 per month and my Grandmother probably gave up a similar size stream of income each month. Is this the new era of responsibility that President Obama was talking about when he ran for President? Are the savers no longer the responsible party and the borrowers are? Maybe my wife and I will go run up our credit cards on frivolous trinkets and become even more responsible. Instead of saving for the kids college (and earning no interest), we will take a vacation.

Although the IRS generally allows loans to be taken from 401(k) plans, your employer may not allow it in their particular plan. If your employer does allow you to borrow from your 401(k) balance, there may be further restrictions. Loans from your 401(k) cannot exceed the lesser of 50 percent of your vested balance or $50,000 dollars and they usually need to be repaid within 5 years. In addition, employers may impose restrictions on the purpose of the loan. For example, some employers will only allow loans for unreimbursed medical expenses, educational expenses, first-time home buyers, and financial hardships. Be sure to check with your company or your company’s 401(k) plan administrator to confirm if you can borrow money from your 401(k) and, if so, under what conditions. Aside from these restrictions, you should keep in mind that there are advantages and disadvantages to borrowing from a 401(k) plan.

The main advantages of borrowing from your 401(k) plan include:
* No credit check - If your company allows the loan, it is usually easy to qualify for it without having to go through a credit check;

*Lower interest rates - The interest rates you repay the loans with are usually more favorable than commercial loan rates;

* The repayment of interest goes back into your account - You are paying yourself for the loan as opposed to paying a bank or credit union;

* Loan proceeds received are not taxable - The loan you receive is not considered taxable income unless you default on the repayment of the loan; and

* No early withdrawal penalty - As long as you do not default on the repayment of the loan, you are not subject to the 10 percent early withdrawal penalty if you take out a loan before age 59.5.

The main disadvantages of borrowing from your 401(k) plan include:
* The loan needs to be repaid - If you lose your job or leave voluntarily, you will usually need to repay the loan in full, right away, or be subject to income taxes on the outstanding balance and a 10 percent premature distribution penalty;

* Repayment is made with after-tax dollars - Each dollar you earn to repay the loan will have income taxes taken from it. That same dollar will be taxed again when you retire and withdraw your money from the 401(k). For example, if you are in the 25 percent tax bracket and you earn $100 dollars. After income taxes are taken from that $100 dollars, you will be left with $75 dollars to repay your loan. That same $75 dollars will be taxed again when you retire and withdraw the funds as a distribution; and

* Opportunity loss - By reducing your 401(k) balance you are losing the potential for that money to grow and earn interest over the long-term.

In general, taking a loan from your 401(k) is not a good idea for most people and not widely recommended. However, in certain circumstances it may be the only feasible option available. Keep in mind that 401(k) plans are setup with incentives to encourage people to create and maintain long-term savings for retirement.

Have questions about investing in bonds? Jason Lilly, vice president and director of portfolio management at Rockland Trust, will take your questions about bonds - or anything else money-related - today at 1 p.m.

This chat was coordinated by the Financial Planning Association of Massachusetts. For more info, visit www.fpama.org.

As we approach the end of the year, it is a good idea to double check your federal and state tax withholdings to make sure that are not having too much or too little being withheld from your paycheck. If you have too much withheld, your refund may end up being larger when you file your tax return but you are effectively giving the government an interest free loan until the money is refunded to you. If you do not withhold enough taxes, you may end up with a larger than expected tax payment as well as potential penalties for the underpayment of taxes. With three months left in the year, you should have plenty of time to adjust your current withholdings to make the appropriate changes.

The IRS has a calculator on their web site to help taxpayers compute the proper withholdings (http://www.irs.gov/individuals/article/0,,id=96196,00.html). If you do need to make any adjustments, you generally have two options: 1) you can submit a new Form W-4 (Withholding Allowance Certificate) to your employer, or 2) you can adjust your quarterly tax payments. For more information on how to calculate the proper amount of withholdings and how to make any adjustments, review IRS Publication 919 (How Do I Adjust My Withholding?) http://www.irs.gov/pub/irs-pdf/p919.pdf.

In general you should check your withholdings if you experienced any changes in:
- Lifestyle - e.g., marriage, divorce, birth or adoption of a child, retirement;
- Wages - e.g., starting or stopping a job;
- Taxable income not subject to withholdings - e.g., interest income, dividend income, self employment income;
- Tax adjustments - e.g., IRA deductions, alimony expense deductions;
- Itemized deductions - e.g., medical expenses, charitable contributions; or
- Tax credits - e.g., education credits, child tax credits, earned income credit.

According to the IRS those who fall into the following categories should pay particular attention to their withholdings to make sure that you are withholding enough:
- Married couples with two incomes,
- Individuals with multiple jobs,
- Dependents,
- Some Social Security recipients who work,
- Workers who do not have valid Social Security numbers, and
- Retirees who receive pension payments may also need to check their federal withholding.

Several retailers are offering cash back on balances stored on Christmas Club savings cards, but don’t delay.

The Sears Christmas Club card offers a 3% bonus up to $100 on balances as of November 15th, but the card must be activated by October 31st. The reloadable gift card can be used at Sears, Kmart, Lands End, mygofer and The Great Indoors. Toys R Us has a similar program, but the bonus is paid on the card balance as of October 16th.

I haven’t found any other offers like these in our area, but another way to boost your holiday budget is to open a Christmas Club account at a local credit union. The advantage here is that you can set up direct deposit to make funding the account simple. And you’ll earn a little bit of interest between now and the holidays.

Putting money aside for life’s little (and big) emergencies is an important part of good financial planning. But how much to save depends on several factors.

The general rule of thumb is to set aside 6-12 months of income in an account that is very safe and very accessible, such as a savings, checking or money market account. CDs will also suffice if you don’t mind paying a penalty for cashing them in early should you need the money (the penalty is usually several months of interest.)

The amount that is appropriate for you depends on a few things. How secure is your job? If you have a contract that ensures you work, or are in a high-demand occupation you may not have to worry much about losing your job. Setting aside enough to cover the purchase of a furnace or to repair the roof may be enough for you. If, on the other hand, you feel very unsure about how long you might have your current job then you should set aside at least 6 months of income, and preferably 12 months worth.

How important is your income to your lifestyle? If you are not the major breadwinner of the family, or have other income that could cover expenses, then you can back down to perhaps 3-6 months of income.

How much are you willing to cut expenses if you lose your job? The more you can cut back, the less you need and the less you have to have in your emergency account.

No matter how secure you feel in your job it is wise to keep some money on hand for unusual and unforeseen expenses, so that you don’t have to sell investments or take out a loan if you need some extra cash.

Even in retirement it is wise to keep an emergency fund going. Having 1-3 years of estimated living expenses in liquid investments (cash, bonds, money market or CDs) means that you can wait out a market downturn without having to tap into your accounts for cash.

This summer, my wife and I decided it was time to remodel our kitchen. The construction phase of the job began about four weeks ago and will finally be wrapping up on Saturday. I had read that the average cost of a kitchen remodeling is between $40,000 and $50,000. Our remodel job was not this expensive, but still ended up more than we had estimated. The average kitchen remodeling job will return between 80 and 95 percent on resale, so hopefully we will recover some of these costs if / when we decide to move.

Here are a few ways you might save some money on your remodel job:

Do it yourself – My skills in the trades is limited at best and I had no illusions that I was capable of completing our remodel. However, I was able to save some money doing the demolition myself. Tearing out the existing cabinets and other demolition is relatively easy and can save you the cost of a carpenter for a few days. I also handled the painting and daily clean-up. This saved me several more days of hired labor. It seems to me that many people can handle these tasks and can probably save a few thousand dollars in the process.

Appliances – The best way to save in this area is to use your existing appliances. This was our original intent (our refrigerator was only two years old.) However, the final color schemes did not work so we had to buy new appliances. I anticipated that stock mid-range appliances would set us back around $4,000. This included a refrigerator, gas stove, dishwasher and microwave. However, we were very fortunate and ended up paying about $2,400 for these items. On a trip to Best Buy in Brockton, we met the best sales associate (named Julie). We ended up purchasing several floor models that were also on clearance. Floor models may have a scratch or two, but the savings can be significant. Had we purchased these at their original prices, we would have shelled out about $4,900. Instead we got them for less than half that price.

Neutral colors – When designing a kitchen, you may want to consider using designs and colors that stand the test of time. Modern looks and unique color countertops, while fashionable now, might look dated or out of style after several years. You do not want to undertake another remodel job in six or seven years. Furthermore, you want to the kitchen to be appeal to as many buyers as possible when you go to sell your home.

Contractors – My personal preference is to use small contractors (carpenters / plumbers / electricians) to complete the various tasks. Small contractors, usually have lower overhead costs than large operations. Consequently, they can pass these savings on to you. Our carpenter also served as our general contractor and this helped us keep costs in check. There are some drawbacks to the small contractor philosophy. The quality of craftsmanship can vary significantly and you will want to make sure your contractor is competent to complete the job. Fortunately, I know a couple of good contractors that I trust and are skilled craftsmen. Also, you probably want to make sure the contractor is insured.

Don’t move your sink – My wife claims to have modest tastes. This is one of those instances where her perception and reality are in stark contrast. My wife proposed that we move our sink into the island. We discussed this with the plumber and the additional costs were significant. My wife reluctantly agreed to leave the sink in its existing location. If possible, do not move your sink to another location.

Donate or sell your garbage – Our existing appliances were in pretty good shape. So instead of sending them to the landfill, I sold them online. While the amount of money I received was pretty nominal, it saved me the costs and hassles of disposing of the units. I have heard that Habitat for Humanity and other charities will come and pick up cabinets, appliances and other supplies. In addition to saving on disposal fees, you can take a tax deduction for your donation and will save some space in a landfill.

Final costs – As a means of comparison, here are our final costs incurred in our kitchen remodel:

Appliances (Best Buy) - $2,324
Electrician and electrical supplies $2,780
Cabinets (Home Depot) - $7,786
Carpenter and general contractor - $3,750
Plaster - $950
Plumbing - $1,000
Hardwood floors (Wood Pro Flooring) - $2,250
Granite countertop $3,050 ($43 / square foot installed)
Kitchen faucet (Home Depot) - $228
Hardware, paint and other supplies $606
Total - $24,724

Can I have more than one account (Max. $250,000) in the same bank, and be insured for the additional account(s)?

Yes but it depends on the ownership of your accounts. The $250,000 FDIC insurance limit applies per depositor, per insured bank, for each ownership category. The ownership category refers to how an individual's or family's accounts are titled at the insured bank or savings institution. According to the FDIC, the most common ownership categories (as well as their insurance coverage limits) include:

* Single Accounts (owned by one person): $250,000 per owner;
* Joint Accounts (two or more persons): $250,000 per co-owner;
* IRAs and other certain retirement accounts: $250,000 per owner;
* Revocable trust accounts: Each owner is insured up to $250,000 for the interests of each beneficiary, subject to specific limitations and requirements.

Based on the above categories, it is possible for a person to have more than $250,000 at one insured bank or savings institution and still be fully insured but you would need to make sure that your deposits are held in some combination of the ownership categories noted above. It would be difficult to identify which combination works best for you and your family because it depends on your particular financial circumstances.

However, the FDIC does offer an online calculator to help depositors analyze there specific situation and estimate how much of their deposits are insured. The calculator will determine the amount of FDIC insurance coverage a person and their family have based on the amounts they have on deposit and the ownership of those deposits at each bank or savings institution. This calculator, called the Electronic Deposit Insurance Estimator (EDIE) can be found at their web site at https://www.fdic.gov/edie/index.html.

Keep in mind that FDIC insurance does not cover funds held in investments such as stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if they were purchased from an FDIC insured bank or savings institution.

For more information on FDIC coverage and the EDIE calculator visit the FDIC web site at http://www.fdic.gov/

Healthcare costs here in Massachusetts are the highest in the country. Everyone, except state and municipal employees, is paying a lot more for healthcare these days. If you are not in this blessed class and are looking to save a few dollars on your healthcare, here are a few thoughts:

Become proactive with your health – It seems to me that many people have the false notion that their health is a passive activity. The belief that what one does today will have no bearing on your future health is completely false. Sedentary lifestyles, poor eating decisions, lack of sleep, etc. will eventually catch up with us. A little more exercise, a little better eating, a little less smoking, a little more sleep will all make tomorrow a better day. Most ailments are self-inflicted and can be prevented with an improved lifestyle. Make the choice to live a little healthier and act on it.

High deductible insurance plans – If you take reasonably good care of yourself and are on the younger side of the age spectrum, consider enrolling in a high deductible health insurance plan. Young healthy individuals subsidize health costs of older and sicker individuals. By enrolling in a high deductible plan, you can cut the cost of your insurance dramatically and your healthy lifestyle and youth should keep you away from the hospital. High deductible plans are becoming more popular. This trend will continue in coming years as insurance costs continue to rise and people.

Health savings accounts (HSA) and Flexible spending accounts (FSA) – Many employers offer these tax preferred arrangements. Both HSA’s and FSA’s allow you to set money aside on a pre-tax basis. This money can then be used to pay any out of pocket health-related expenses that are not covered by your insurance. By using money on a pre-tax basis, the average wage earner is effectively purchasing services at a 30 percent discount. If your employer offers either of these plans, you should take full advantage of them.

Use generic medications – The cost of many generic drugs has declined in recent years. I give full credit to Wal-Mart for this wonderful price reduction. When they introduced prescription drugs for $4 / month, everyone thought they were crazy. Now every major drug retailer has followed there lead and has a similar program in place. No federal government program was needed to bring down the costs, just a great retailer like Wal-Mart. If you are struggling to pay for your patent protected medication, ask your doctor if any generic medications can get you high levels of efficacy for $4 / month.

Split your prescription medication – If you need a 5 milligram dosage of an expensive medication, ask your doctor for a prescription for a 10 milligram dosage. Then merely cut the pill in half. Since most drugs cost the same price regardless of the dosage, you will receive twice the number of pills for the same price. Obviously, you need to confirm with your doctor or pharmacist that this is an option and will not reduce the efficacy of the drug. For certain drugs, i.e. those in capsule form, extended release, etc. it is not an effective option. However if the doctor agrees that the drug can be split without reducing efficacy, it may be worth a try.

Get preventive care – Preventive care is usually covered under health plans for little or no cost. Take full advantage of these and get your annual physical, screenings and immunizations. One of my favorite adages is “an ounce of prevention is worth a pound of cure.”

I have CD’s totaling $450,000. These are held in a revocable trust and are payable on death (POD) for each of my three children. How much of my account is protected under the FDIC insurance program?

The standard FDIC insurance amount of $250,000 per depositor is in effect through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

The FDIC provides separate insurance coverage for funds depositors may have in different categories of legal ownership. The FDIC refers to these different categories as “ownership categories.” This means that a bank customer who has multiple deposits may qualify for more than $250,000 in insurance coverage if the customer’s accounts are deposited in different ownership categories and the requirements for each ownership category are met.

In general, the owner of a revocable trust account is insured up to standard maximum deposit insurance, currently $250,000, for each named beneficiary (not more than five), if all of the following requirements are met:

1. The account title at the bank must indicate that the account is held pursuant to a trust relationship. This rule can be met by using the terms payable on death (or POD), in trust for (or ITF), as trustee for (or ATF), living trust, family trust, or any similar language, including simply having the word “trust” in the account title. Account title includes information contained in the bank’s electronic deposit account records.

2. The beneficiaries must be named in either the deposit account records of the bank (for informal revocable trusts) or the beneficiaries must be identified in the formal revocable trust document. For a formal trust agreement, it is acceptable for the trust to use language such as “my issue” or other commonly used legal terms to describe the designated beneficiaries, provided the specific names and number of eligible beneficiaries can be determined.

3. To qualify as an eligible beneficiary, the beneficiary must be a living person, a charity or a non-profit organization. If a charity or non-profit organization is named as beneficiary, it must qualify as such under Internal Revenue Service (IRS) regulations.

An account must meet all of the above requirements to be insured under the revocable trust ownership category. Typically, if any of the above requirements are not met, the entire amount in the account, or the portion of the account that does not qualify, is added to the owner's other single accounts, if any, at the same bank and insured up to the maximum deposit insurance coverage, currently $250,000.

An owner who identifies a beneficiary as having a life estate interest in a formal revocable trust is entitled to insurance coverage up to $250,000 for that beneficiary. A life estate beneficiary is a beneficiary who has the right to receive income from the trust or to use trust deposits during the beneficiary's lifetime, where other beneficiaries receive the remaining trust deposits after the life estate beneficiary dies.

For example: A husband is the sole owner of a living trust that gives his wife a life estate interest in the trust deposits, with the remainder going to their two children upon his wife's death. Maximum insurance coverage for this account is calculated as follows: $250,000 times three different beneficiaries equals $750,000.

Based on the brief information that you have provided, it appears that your FDIC coverage may be upwards of $750,000. This is calculated as $250,000 for each of your three named beneficiaries. On January 1, 2014 your insurance coverage will revert to $300,000. This assumes that you meet the above criteria for revocable trust accounts. However, it should be noted that the FDIC insurance program is full of legal exceptions, details and fine print. You really need to discuss the details of your unique situation with the bank and / or an attorney to make sure your coverage is adequate.

The Affordable Care Act, signed by the President earlier this year, provides a $250 rebate to Medicare Part D recipients whose prescription drug expenses fall into the “doughnut hole”. This rebate is a non-taxable, one-time rebate for 2010 available to those who do not already receive assistance under the Medicare Extra Help program. Under Medicare prescription drug coverage (also known as Medicare Part D), prescription drug expenses below $2,830 and above $4,550 are covered by Medicare coinsurance. Amounts between $2,830 and $4,550 are not covered and must be paid 100 percent by the Medicare recipient. This gap in coverage is known as the “doughnut hole”.

The rebate checks will be sent to Medicare recipients automatically beginning in mid-June as their prescription drug expenses exceed $2,830. You can check your Explanation of Benefits statements to see if you have reached the $2,830 threshold. If so, you should receive a rebate check within 45 days after the program begins. Remember, this should happen automatically. Therefore, you do not need to provide any information or fill out any forms. Be cautious of anyone calling you to ask for personal information regarding this rebate.

If you believe that you qualify for the rebate and you do not receive it, contact Medicare at 1-800-MEDICARE (1-800-633-4227). For more information on Medicare Part D coverage and the rebate, visit the following Medicare web site links:

Medicare Part D: http://www.medicare.gov/navigation/medicare-basics/medicare-benefits/part-d.aspx

Medicare Part D Rebate: http://www.medicare.gov/Publications/Pubs/pdf/11464.pdf?Language=English

I have a deep seated fear of taking my car to the mechanic. My understanding of cars is limited to what I learned in high school in small engine repair. You will be even less impressed with my educational credentials when I tell you that I attended public schools. The fear is a macho thing. I know very little about cars and my biggest fear is that the mechanic starts talking about fuel injectors, brake lines, struts, axles etc. and I do not understand him / her.

That being said, I have learned a few things over the years and have been fortunate enough to keep my car repair costs to a minimum. Here are a few things to keep your car repair bills down:

Preventive maintenance – The old adage “an ounce of prevention is worth a pound of cure” holds very true when it comes to cars. I try to follow the scheduled maintenance plan as outlined in my car owner’s manual. Following this maintenance plan will add years of life to your vehicle and keep it out of the shop. However, there is no need to overdo preventive maintenance. For example, my owner’s manual tells me to change my oil every 5,000 miles. I stick to this plan and do not subscribe to having my oil changed every 3,000 miles that many repair shops tell me to follow. This alone saves about $40 / year.

Honest mechanics – The difference between an honest mechanic and a dishonest mechanic can save you hundreds of dollars each visit to the shop. Once you find a mechanic that you are comfortable with, hold on to them for dear life. If you do not have a mechanic that you work with regularly, ask your friends and family for references. Recently, my car had to pay a visit to my mechanic (MacDonald’s Auto Repair in Canton). After the work was completed, I felt that I was NOT charged enough. It is pretty rare that I want to pay anyone more than the bill, but I feel this way every time I leave their shop. They are just so honest and reasonable.

Clean car exterior regularly – Clean the exterior of your car regularly, especially the undercarriage. The build up of salt, dirt and debris on parts will corrode parts quicker and require more costly repairs. Also dirt and grit gets into joints and helps cause failures.

Dealership vs. local repair shop – Getting repair work done at the dealership is usually a bit pricier than going to a local repair shop. But, the beauty of going to the dealership is that you can be confident that the work will be done correctly. For all complex repair jobs, I take my car to the dealership. Years ago my wife took her car in to have the timing belt changed at a local repair shop. She had to take the car back three times before the repair was done properly (and I will argue the car never really ran the same after that “repair”). Time is money and who has time to deal with that?

Diagnose problems – If your car is not running properly, then diagnose the problem yourself before taking it to the mechanic. There are many websites available in which you can input the symptoms and they will help you assess the problem. These sites will also give you an estimate of the cost to repair the problem. This way, you can speak mechanic when you take the car into the shop and hold them accountable when they estimate the fee.

Tire pressure – Keeping tires properly inflated will add life to your tires and improve the gas mileage of your vehicle. Check your tire pressure regularly. One of the things I like about my car is that it has an automatic indicator to let me know if my tire pressure is low.

Do it yourself – I am neither mechanically inclined nor do I have the time to spend tinkering with my car. About the only task I perform on my car is to lubricate my car door hinges with WD-40 when they start to squeak. However, if you plan to do certain repairs yourself, get the factory repair manual to guide you through the process. This investment will pay for itself in one repair.

AAA – For the nominal annual fee, you can not beat AAA. The member benefits are too great to list here. Additionally, their group rate savings programs will more than offset the annual fee. I save ten percent on my auto insurance through the AAA group rate and always get AAA rates when booking a hotel (this saved me $60 / night on a recent stay).

Warranties – All car warranties are different. Every new car purchased will include a warranty from the manufacturer. Certain used cars also come with a warranties. Review the warranty when you are in need of any repairs and see if the costs are covered. Also, before the warranty expires, have the car inspected and have any qualifying repairs performed.

Employers sometimes match employee’s 401(k) contributions by using company stock. Once the stock is deposited to the account the employee can sell it (although they may be restricted to holding it for a certain amount of time first.) Employees also amass company stock through ESPP, or Employee Stock Purchase Plans, in which the stock is offered to the employee at a discount. I often find that employees hold on to company stock, letting it build up to become a large portion of the account. This is dangerous for a couple of reasons.

When a client comes to me in this situation he (or she) usually tells me that they “know the company” and are very confident in the stock. But how well do you really know the company? Unless you’re in a top management position you don’t know what decisions are being made that could affect the bottom line. And if you did know, the stock you would be given would come with a lot more restrictions on your ability to sell it. In addition, any company can succumb to poor or fraudulent management. Remember Enron anyone?

Another reason to diversify is that your income is dependent on that company. Why should your investments be dependent on the same risk? Why open yourself up to the risk of losing your income as well as some percentage of your portfolio, both for the same reason?

Finally your company may well be financially strong, with good long-term prospects. But forces beyond their control – like the market downturn we have just experienced – could reduce its value. I often think of a prospective client who walked into my office in 2007 with a $1 million 401(k), all in GE stock. He “knew the company” and wasn’t going to diversify until the stock hit $40 (it was around $36 at the time.) Needless to say he didn’t hire me because my advice was to diversify. I thought of him over the next few years as I watched GE hit $40 briefly – and then sink to about $5 during the recent recession. I certainly hope he sold when he said he would.

CDs are often recommended as good short term investments by financial planners. If you need to keep money aside for emergencies or an upcoming expense, CDs are an alternative to savings accounts or money market funds. Their yields, depending on the length of the CD, can be better than bank accounts. However, unlike bank accounts, most CDs come with a penalty for early withdrawal. And the penalty generally increases with the length of the term.

Bankrate.com conducted a survey of early withdrawal penalties at 100 banks in the top ten markets. They found that CDs with maturities less than 1 year generally had a penalty of 3 months interest. 12 month or longer CDs usually charge 6 months interest. But 5-year CDs had penalties as high as 20 to 25 percent. What might not be as clear is that “interest” means the total interest you would earn if you held the CD to maturity. Therefore if you withdraw your money before you’ve earned enough interest to cover the penalty, the bank will take some of the principal.

To avoid penalties, consider the purpose of your savings. If you are setting aside money you anticipate using for a particular purpose in the future, such as a down payment on a house, a tax bill or a new car, tailor the CD to that event. Buy a CD that will mature at the point that you need the money. If you have no definite purpose, then consider laddering your CDs – for instance buying several CDs that mature at 6 month or 12 month intervals. Laddered CDs are also a good idea in the current low-interest rate environment, so that you have more opportunity to roll over to a higher rate CD should interest rates begin to rise.

I have a 401(k) from work which my employer matches 50 percent. It has about $68,000 in it as of today and I contribute 17 percent, bi-weekly. I also have an IRA which I pay a quarterly fee to have managed and the return is about 13 percent. However, I do not contribute new money to my IRA. I'm wondering if I should contribute to both accounts simultaneously.

Based on the information in your question, I would generally recommend that you contribute to both, your 401(k) and your IRA if you are able to afford it from a cash flow perspective. It is difficult to do a side-by-side comparison of your two accounts, however I would suggest that you continue to fund your 401(k) first. At a minimum, you should fund your 401(k) enough to receive the full amount of your employer's matching contribution. Your employer's matching contribution is effectively free money which you should not pass up if you can afford to make your contribution.

After funding your 401(k) enough to receive your employer's matching contribution, I would evaluate the advantages and disadvantages of contributing more money to your 401(k) or to your IRA account. Some of the key factors to evaluate are:

1) Investment options - Evaluate which account offers you the best selection of investment choices to help you create a diversified portfolio within that account and/or across all of your investments. This includes evaluating the quality and performance of those investment options. Keep in mind that an account with a higher number of investment choices is not necessarily better than one with fewer choices if the investment options offered are not as good.

2) Costs - Evaluate the cost to invest in the options available in each account as well as the costs to maintain the account. This includes transaction fees, commissions, advisory fees, mutual fund expenses, etc.

3) Tax benefits - Evaluate your current tax situation in the context of contributing to each type of account. For example, contributions to an IRA may be tax deductible, if you qualify, but contributions to your 401(k) may reduce your taxable income.

4) Investment Risks - Evaluate the risks associated with each investment offered relative to your own risk profile.

A recent article by US News and World Report shed some interesting light on just who really is "middle class' and who is not.  If you have always wondered how you fit in, check out these statistics from the article:

Income: Household income for the middle class ranges from $51,000 to $123,000 for the typical four person, two parent household with the median income being $81,000.

Housing: The median home size for those in the middle class is 2,300 square feet

Cars: The typical family has car expenses of $12,400 for two medium sized sedans.

Saving for College: The typical middle class family saves just over $4,000 per year for their two kids.  The article says that this amount of savings should cover 75 percent of the expenses at a state university.

Medical Expenses: It seems that the average middle class family spends just over $5,000 per year on health insurance and other out-of-pocket medical expenses and the article notes that this category is the fastest growing expense in a family's budget.

Vacations:  Now here is where it gets interesting.  The article says that the average cost of a family vacation for four is $3,000 and that families that are slightly more affluent spend about $6,100.

Retirement Savings: The study indicated that the target savings goal should be 3.2 percent of income.  (However, if you have ever run even very basic retirement projections, you know that, depending on your age and current savings, a much higher savings rate is probably much more appropriate.  Shoot for at least 10 percent if you can manage it).

Everyday Expenses: The average middle class family spends about $14,000 per year on the somewhat descretionary spending categories of food, clothing, entertainment and other expenses.

Net Worth: The typical household has a net worth of about $84,000 but obviously that number varies widely with age and other circumstances.

Mortgage Payments and Other Debt: The average family devotes 18 percent of their disposable income to mortgage payments, car loans and credit cards. 

 

 

 

 

One of the many ways parents can save for their children's college education is to use Coverdell Education Savings Accounts.  These accounts, which were previously called education IRAs, were never as exciting as 529 accounts because the amount you were allowed to contribute was very low - $2,000 per year per child - and there were income limits as well.  Income phase-outs on contributions started at $95,000 for individuals and $190,000 for joint filers.  In comparison, the contribution limits for 529 plans are upwards of $300,000 and there are no income limits.

However, one of the neat features about Coverdells was that the money in the account could be used for pre-college education expenses.  So, if your son or daughter were attending a private elementary or high school, you could take tax free withdrawals from the Coverdell to cover those expenses.  With 529 accounts, withdrawals have to be for qualified college expenses.

So, Coverdells did have their place, and some people really liked them, but now the rules for Coverdells are changing.  Starting next year, withdrawals from Coverdells that are used to pay for expenses for private kindergarten through 12th grade will no longer be tax free and it appears that the contribution limit will fall from $2,000 to $500.  (It is possible that Congress will step in at the last minute and prevent these changes from happening, but that seems unlikely.) 

If you have a Coverdell now and still contribute to it, you should give some thought to using the money in the account for expenses that you will incur this year.  In addition to private school tuition, you can use Coverdell money to pay for books, computers, tutoring services, room and board expenses, school uniforms and transportation to and from school.  Given the relatively low contribution limits, it is unlikely that very many people have large Coverdell balances, so cleaning out the account by the end of this year might be pretty easy.  But what if you don't have any expenses to claim this year?  There is no problem there either as Coverdell money can just as easily be used for college expenses.  Remember, the only "catch" with using Coverdell money for college age students is that any money remaining in the account when the beneficiary turns 30 will generally be distributed (and will be taxable) unless the person who originally opened the account changes the beneficiary.

In recent years, Health Savings Accounts, or HSAs, have become more and more popular.  But what exactly are they and what are the benefits of having one? 

HSAs are IRA-like accounts that are used in conjunction with high deductible health care plans.  (A high deductible health care plan has a deductible of at least $1,150 for singles and $2,300 for families.)  If you have a high deductible health plan,  you are eligible to contribute to an HSA.  The contribution limits are $3,050 for individuals, $6,150 for families and $7,150 for people who are 55 or older and signing up for a family plan.  Money contributed to the account is tax deductible, earnings on the invested funds are tax deferred and withdrawals are tax-free if they are used to pay for qualified medical expenses. 

Typically, someone would sign up for a high deductible health care plan and simultaneously make either a lump sum contribution to the HSA or sign up for monthly deposits.  Money deposited into the HSA can be used to meet any medical deductibles and expenses you might have throughout the year. 

With any luck, your medical expenses will be low and you won't need to spend all the money that accumulates in your HSA.  Funds left in the HSA can stay there for years.  In fact, many people establish HSAs with the intent to never use the funds in the account.  In this situation, contributors plan to  pay any and all medical expenses out of pocket.  This allows them to accumulate substantial assets within the HSA.   If money is left in the account for years or even decades, you could have a nice retirement nest-egg in place.  And once you turn age 65, you can take withdrawals from the account without any penalty.  (Ordinary income taxes would still be due but there would be no penalties.)  If you use HSAs in this manner, it is like being able to make a double contribution to an IRA.  One other point to note:  money invested in HSAs is generally invested in low yielding money market accounts but there is nothing preventing you from investing your HSA funds in equities and really building up the account over time. 

When choosing an HSA custodian, be sure to shop around as fees can vary dramatically.  For example, some custodians charge monthly maintenance fees while others do not.  Also, if you do decide to open an HSA, be sure to keep meticulous records.  One of the neat aspects of HSAs is that you are not required to submit reimbursements in the year expenses were incurred.  So, you could pay some expenses out of pocket for a while and then decide to seek reimbursement in later years.  As long as you are keeping good records, this would be no problem.

"I'm getting a bonus soon. Should I put it in my 401(k) and avoid the tax? My coworker told me it doesn't make a difference, since I have to pay tax on it when I withdraw it later."

Banking your bonus money is a great way to boost your savings. But the type of account you choose can also make a difference. I think your coworker is wrong – putting the money into your 401(k) makes a lot of sense.

Your ability to put some or all of the bonus into your company retirement plan depends on how much you're on track to contribute for the year without the bonus. The contribution limit in 2010 is $16,500 for individuals under age 50 and $22,000 for those 50 and older. Look at your most recent paycheck to see how much you've contributed to date and add to it the remaining contributions for the year. As long as you're under the limit you can add some or all of your bonus money. If your company matches your contribution then you don't want to hit the limit before December 31st because you will probably lose out on some of the match, so be careful not to put in more than is needed to get you just to the limit (besides, that excess contribution will have to be withdrawn anyway.)

Another benefit of the 401(k) is, as mentioned above, the company match. You may earn more of a match by increasing your contribution.

We can't know for sure what tax bracket you'll be in when you retire, but if you think it will be at or less than your current bracket then it makes sense to utilize the 401(k) instead of depositing the money into a taxable account. All of the growth that your money earns over the years will be able to stay in the account and compound, boosting the chances of long-term returns that exceed that in a taxable account.

As an alternative, if your income is less than $105,000 and you are single, (or $167,000 if married) and you are in a very low tax bracket you might consider using a Roth IRA. You won't get the tax deduction now but the money will grow tax-free for retirement.

March is Spring break time, when thousands of college students head to warm climates for week of sun and fun. However you don't want to be carefree and footloose with your money. Here are some tips for smart spending:

1. Figure out how much money you have to spend during the trip so you know your budget.

2. Plan on using your debit card, or your credit card only if you know you can pay it off in full when you return. Students typically have very high credit card rates, and your trip can easily cost double or triple if you charge it and then pay it off in increments. For example if a $500 charge on a card with a 20 percent interest rate is paid off at $10 per month, the total cost will be $1,040.

3. Pack the hotel room – sleep as many as you can to a room, but be sure to check with hotel management before doing so. You want to adhere to their rules.
4. Buy your own food. Find a local grocery store and buy a cheap cooler to bring at least drinks and snacks with you during the day.

5. Limit alcohol consumption. This is not only for health and wellbeing purposes, but because those fruity drinks are very expensive.

6. Don't bring all your bank and credit cards. Bring only one card and keep very good care of it, along with your ID and/or passport.

7. Use ATMs sparingly. Most likely you will be paying a fee to use an out-of-network ATM machine. Take out enough money to last you 2-3 days to limit these fees.

Spring is just 10 days away. It's a good time to clear out the garage and the basement — and your financial files too. One important aspect of being in control of your finances is being organized. When your documents are organized it means you can find what you need quickly, are more likely to pay your bills on time and are less likely to be caught by surprise by an expense. You know what you have and where it is.

Here are some tips for organizing and better managing your paperwork:

1. If you don't have a shredder, buy a good cross-cut model. Never toss documents into the trash barrel. Shred everything with personal information.

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In a few weeks high school students across the country will start receiving acceptance letters from the colleges to which they’ve applied. Hopefully your student will get into the school of his or her dreams. You might wish you were dreaming when you see the tuition bill, however. Even though tuition increases were only around 4 percent last year – less than the long-term average of 6.5 percent – it is still getting harder and harder for families to afford to foot the entire bill. Here are a few tips that might help you manage the cost of college:

• Ask the college if you get a discount for paying the entire year's cost up front.
• Some colleges give a discount if you allow them to debit your bank account directly.
• See if you can spread the payments over 12 months, instead of paying larger sums 2-3 times during the academic year.
• Be realistic about meal plans – will your child really eat 3 meals a day in the dining hall? I don’t know any high schooler who doesn't get up 5 minutes before they have to dash off to school, skipping breakfast on a regular basis.
• Have your student earn some college credits while in high school. Local community colleges are a great way to take basic freshman year courses for a fraction of the cost. This can be done during their senior year (note to parents of 10th or 11th graders) or over the summer.
• Defer college for a year. Once you are accepted, many schools allow students to postpone starting for one year, allowing the student to work and earn money for tuition.
• Work part-time while in college. I would suggest holding off on this for the first semester, but once the student is acclimated they may find they have plenty of time to fit in a job that can earn them enough for spending money, travel costs, books, etc.
• Finally, if you apply for financial aid and the package you are sent isn’t feasible, call the Financial Aid Dept. and talk to them. Explain why the aid package doesn’t meet your needs and see if they can be more generous.

Money market rates are at their lowest levels in over 20 years, and have been for a while. Are there any alternatives that can get you a higher interest rate while still giving you the security of cash?

There are a few options when it comes to parking cash. Money market accounts are probably the most popular because they give you the liquidity of cash – you can get your money back at any time – and an interest rate that is usually better than a checking or savings account. But the rates can really vary. I went on line and found rates ranging from 0.10 percent (one-tenth of one percent) to 1.5 percent. Shopping around can make a difference. If you're comfortable banking over the web, on line banks such as ING Direct or HSBC Bank offer competitive money market rates.

CDs are another option. Their rates, however, are very similar to money markets. Bankrate.com quotes average 6-month CDs at 0.98 percent and 12-month CDs at 1.44 percent. These are not terribly different from money market rates, and you have withdrawal penalties.

Short-term bond mutual funds are another option for cash. For instance the Vanguard Short-Term Bond Index Fund invests in good quality bonds with maturities of less than 3 years. It has averaged a 5.30 percent return over the past year. But bond mutual funds come with the risk of loss. The Vanguard fund has a low risk of loss and low expenses, but never the less more risk than cash or CDs.

Right now I have not found any alternative to cash that pays a decent rate without a risk of loss. After all, in these uncertain economic times it's the promise of safety that is driving down rates. But if you're willing to assume a little risk, a short-term bond fund might fit the bill.

A little over three years ago, my wife made the wisest decision in her life: she married me.  I must admit, this event also worked out pretty well for me.  However, subsequent to our nuptials, I no longer qualified to fund my Roth IRA (my wife is a highly compensated public school teacher).  This all came to an end yesterday when I funded what is known as a “back-door” Roth IRA.

 

A few years ago, President Bush signed the “Tax Increase Prevention and Reconciliation Act of 2005”.  One of the beautiful parts of this legislation was the ability for anyone to convert a Traditional IRA to a Roth IRA.  This clause of the legislation became effective starting January 1, 2010. 

 

Yesterday I executed the “back-door” Roth IRA strategy.  This eliminates the income limitations and allows almost anyone the ability to fund a Roth IRA.  While I had known about this process, it sounded as though it was a bit convoluted and would take some time.  In the end, neither of these concerns had any justification.  I had an existing account at T. Rowe Price and completed the process online.  The entire process took me less than 15 minutes. 

 

Here is how the process works:

 

Step One: Fund a Traditional IRA.  Almost anyone under the age of 70 ½ can fund a Traditional IRA.  There are income limits on these being deductible. But we don’t want to make a deductible contribution anyway.  You can put $5,000 into the Traditional IRA per annum ($6,000 if you are 50 or older.)  If you act now, you can fund for both the 2009 and 2010 tax years.  Consequently, my wife and I could fund up to $10,000 each.  Total elapsed time to complete: four minutes.  (As a side note, does anyone else notice the age discrimination that is widespread throughout the tax code?  Why should those over 70 ½ be shut out from this process?)

 

Step Two: Convert the Traditional IRA to a Roth IRA.  I had to fill out a form and submit it to T. Rowe Price.  I just answered a couple basic questions and presto, the Traditional IRA that I had funded on Tuesday is now a Roth IRA.  I will not have any tax consequences, as I already paid taxes on the funds in the account (I am not taking a deduction for this.)  Total elapsed time to complete: ten minutes.

 

If you have been shut out of the Roth IRA in recent years due to the income limitations, you are back in business.  A married couple can fund $20,000 into a Roth almost immediately.  This is exciting stuff (at least for an accountant).  Any questions or concerns, feel free to submit a question in the bottom right of this webpage or shoot me an email.

 

This process is very effective if you have no other existing IRA accounts.  If you have other existing IRA accounts, you should discuss this with your tax professional to determine other possible tax implications of the conversion.

The cost of many prescription and over the counter drugs, specifically generics, has declined in recent years. I give full credit to Wal-Mart for this wonderful price reduction. When they introduced prescription drugs for $4 / month, everyone thought they were crazy. Now every major drug retailer has followed there lead and has a similar program in place. No federal government program was needed to bring down the costs, just a great retailer like Wal-Mart. (As a side note - it amazes me that Mayor Menino wants to keep Wal-Mart out of Boston. Apparently his union supporters take precedent over low cost, life saving medicine for the citizens of Boston.)

However, prescription drugs that maintain their patent protection are still very expensive. Methods to cut cost are not so apparent. Nevertheless, I recently heard of a method that in some cases can cut and individual’s drug cost in half. Furthermore, it is so simple; I am ashamed it never had crossed my mind. The process is as follows: simply ask your doctor to prescribe to you two times the required dose of the drug you need. Then, simply cut the pill in half. The single pill becomes two pills and you get twice the drugs for usually the same price. My understanding is that most drugs cost the same amount regardless of their dosage. If you need 30 milligrams of a drug once per day, ask for a 60 milligrams prescription. Obviously, you need to confirm with your doctor that this is an option and will not reduce the efficacy of the drug. For certain drugs, i.e. those in capsule form, extended release, etc. it is not an effective option. However if the doctor agrees that the drug can be split without reducing efficacy, it may be worth a try.

Flexible Spending Accounts (FSA) are a great way to reduce your taxes but you can lose money if you don’t spend it before the end of the year. FSAs allow you to set aside money on a pre-tax basis for deductible medical expenses that are not covered by your health insurance plan. However, any funds left in your FSA account are forfeited if not spent by the end of the coverage period which is typically Dec. 31. Some plans will allow you to get reimbursed for expenses incurred after Dec. 31 but it depends on your particular plan so be sure to check with your employer.

FSAs are employer-sponsored accounts that allow employees to make pre-tax contributions. The contributions can be used by the employee to pay for out-of-pocket medical expenses (i.e., deductible medical expenses that are not covered by the employee’s health insurance plan). Employee contributions in a FSA are “use-it-or-lose-it” meaning that the employee needs to spend the money in the account before the coverage period ends otherwise the unused funds will be forfeited. The coverage period depends on your employer’s specific plan however, many plans follow the calendar year.

If your coverage period ends on Dec 31 and you have not used all of the funds in your FSA here are some medical expenses that are typically covered.

* Deductibles and co-pays for medical and dental visits and treatments.
* Medical expenses for dental treatments including fees paid to dentists for X-rays, fillings, braces, extractions, dentures, etc. Generally, teeth whitening expenses are not deductible medical expenses.
* Fees for acupuncture or chiropractic treatments.
* Medical expenses for an inpatient's treatment at a therapeutic center for alcohol addiction. This includes meals and lodging provided by the center during treatment.
* Fees for ambulance services.
* Medical expenses for breast reconstruction surgery following a mastectomy for cancer.
* Medical expenses for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent.
* Contact lenses needed for medical reasons and the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. You can also include expenses for eyeglasses and laser eye surgery or radial keratotomy.
* Medical expenses for in-patient care at a hospital or similar institution if a principal reason for being there is to receive medical care. This includes amounts paid for meals and lodging.
* Insurance premiums you pay for policies that cover medical care.
* Medical expenses for psychiatric care and psychoanalysis.
For more information about deductible medical expenses, visit the IRS’ web site and review Publication 502. http://www.irs.gov/publications/p502/ar02.html#en_US_publink100014786

My job usually takes me to Western Europe once or twice a year. In the last ten years, I have probably crossed the Atlantic about 20 times. In my younger days, I used to enjoy this very much. However, the illusions of grandeur are no more.

Traveling abroad is very expensive. The dollar is weak and we unsuspecting travelers often end up in overpriced tourist traps. If your job or a vacation takes over the pond, here are a few things that can save some money or a little time:

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I recently checked my I-Bonds and saw they were earning zero percent interest. I also found a note “P5” which said there was a 3 month penalty being assessed. Why would I be assessed a penalty? They have not been touched since I bought them?

Last month I wrote a post about the zero percent composite rate currently being earned in I-Bonds and how that rate is calculated (http://www.boston.com/business/personalfinance/managingyourmoney/archives/2009/06/understanding_i.html). In that posting, I also mentioned how I-Bonds are subject to a penalty if redeemed within 5 years of when they are purchased. Specifically, I-Bonds issued in May 1997 or later will be penalized for 3 months worth of interest if they are redeemed within 5 years of their issuance date. This penalty is noted on the I-Bonds using the “P5” notation. You will see this notation when you look up the current value of your bond using the U.S. Treasury’s Savings Bond Calculator (http://www.treasurydirect.gov/indiv/tools/tools_savingsbondcalc.htm).

If you look up the value of your bond and you see a P5 notation on it, it means that your bond would be subject to the penalty if you redeemed it at that point in time. In other words, it means that your bond has not exceeded the 5-year holding period yet. Furthermore, the value or yield on your bond (at that point in time) already reflects the penalty. Keep in mind that you only get penalized if you redeem the bond. If you continue to hold it, the P5 notation will be removed once you exceed the 5-year holding period and the value of your bond will reflect an amount without the penalty.

According to a list published by the Pension Rights Center, almost 200 companies have eliminated or reduced the employer match on 401(k) plans since December of 2008. Many of the companies on the list like Chrysler, Ford and GM are in dire financial condition but some of the others are big names and may surprise you -- NCR, UPS, Hewlett Packard, Morningstar, Paychex, Xerox, Forbes, NPR and AARP.

The loss of the employer match can have a noticeable impact on how much you are able to save for retirement. If you earn $80,000 a year and your employer matches 50 cents on the dollar for your contributions up to 6 percent of pay, a single year of missed matching will cost you $2,400. If the matching is suspended for several years, and you "miss" several decades of growth of the money, the impact is pretty dramatic. To mitigate the impact, you should consider increasing your own contributions and contributing to other savings vehicles like traditional and Roth IRAs.

Is this happening to you? Has it caused you to stop participating in your company's plan? Write in and tell us about how you are dealing with the change.

What is the difference between a money market mutual fund and a money market deposit account?
Good question! As investors continue to move money into more conservative holdings such as cash and cash equivalent investments, it is important to understand the difference between a money market mutual fund (sometimes known as a money market fund or a money fund) and a money market deposit account.

Money market funds and money market deposit accounts are similar in that they both usually invest in short-term, fixed income investments such as U.S. Treasuries. By definition, short-term, fixed income investments are those with maturities of less than one year. Both money market funds and money market deposit accounts usually offer higher rates of return than traditional savings accounts due to the fact that the short-term investments they use have the potential for higher returns. Both types of investments offer flexibility and liquidity as you can often write checks against these accounts and make ATM withdrawals from them.

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Happy New Year to everyone. Like me, you are probably happy that 2008 is behind us and hopeful that 2009 will be better for the economy. Let's start the year off right with one resolution. If there is one thing we can all do to better our circumstances it would be to save more.

As a nation we save less than 3 percent of our income. According to the Employee Benefit Research Institute most people between the ages of 19 and 39 have less than $10,000 in savings. Almost 60 percent of workers over age 55 have saved less than $100,000. Nobody under age 60 can be really sure what Social Security benefits we'll receive when we reach retirement, so the onus is on ourselves to save what we need if we hope to retire.

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My wife and I have a monthly mortgage payment of $3,200 per month and our combined income is $180,000. We each made the maximum contribution to our 401(k) accounts of $15,500. I calculated that for the past 3 years, if we had redirected our 401(k) contributions to pay down our mortgage we would have done much better. Do you think it is wise to pay off our mortgage as opposed to contribute to our 401(k) account?

Wealth management, like life, has many risk and reward opportunities. Over the Thanksgiving holiday, my wife, daughter and I piled into our car and drove to New Jersey to visit relatives. We were fortunate to hit little traffic and for much of the way I set the cruise control at 72 miles per hour. I wanted to get to New Jersey as quickly as possible, but did not want the risk of getting a speeding ticket. I felt that at 72 miles an hour, I was unlikely to get a ticket in a 65 mile per hour zone. This was the maximum speed I could drive without significant risk of being pulled over. Unlike Burt Reynolds in “Smokey and the Bandit”, my appetite for risk of receiving a ticket was pretty low and I did not want to encounter Sheriff Buford T. Justice (Jackie Gleason).

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We just had a son and want to open some type of bank account. Any suggestions? He is too young for ING or HSBC account, can we do some other type of high interest, risk free account? Money market?

Congratulations on the birth of your new son! I think it is a great idea to start a savings plan for him. It was not clear if your intent for this savings account is to use it for future educational expenses or as a general way to save money for him. If you are looking to start a college savings plan, there are many options available to you. Some of the more common ones include 529 college savings plans, prepaid college tuition plans, Coverdell education savings accounts and custodial trust accounts. Many college savings plans will offer tax advantages that you will not receive from most general savings accounts, money market accounts or CDs (certificates of deposit).

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Good news! The limits on several retirement plans are due to increase in 2009. Be sure you visit your payroll/benefits office to sign up for the maximum contribution permitted.

In 2009, you can contribute $16,500 to your 401(k). That is $1,000 higher than in 2008. If you are age 50 or higher, you will be able to contribute $22,000 - an increase of $1,500. These increased limits also apply to 403(b) plans and 457 plans.

Unfortunately, there are no increases in the amounts you are able to contribute to traditional and Roth IRAs. Those limits remain at $5,000 and $6,000 if you are age 50 or older.

While these increased limits are good news, there is also some bad "tax news" to throw into the mix. That bad news comes in the form of a higher Social Security wage base in 2009. In 2009, wages up to $106,800 will be subject to 6.2 percent in FICA taxes and 1.45 percent in Medicare taxes. In 2008, the limit was $102,000 so this increased limit causes an extra $298 tax bill for employees.

Web-based banks like ING Direct, HSBC Direct and Emigrant are extremely popular among savers looking for great rates. They often pay significantly more than your local bank and credit union.

The only "downside" associated with these banks is that you do not have instantaneous access to your money. Usually, it only takes a day or two to move money from the on-line account to your local checking account but as a recent Wall Street Journal article detailed, waits of up to four days are possible. That's a long time when you need the money "yesterday" to pay for a new car or some other expensive purchase.

The Wall Street Journal article explains that funds transferred between two different banks aren't really sent "on-line" as many would expect. Instead there are several steps and these steps are often intentionally slowed down to give banks more time to spot potentially fraudulent activity.

In one example, a client of an online bank needed money quickly to buy a new car. She requested a transfer on Monday morning but the request wasn't processed until Tuesday and on Wednesday the transfer was still listed as "pending." Long story short, the money wasn't available to be used until Thursday.

Most of the online banks clearly state that the transfer process can take as long as four days so really, the burden is on the customer to plan ahead and be aware that it can take as long as four days to have money in your hand ready to spend. Another alternative outlined in the article is to use paper checks. This would entail opening a small checking account at the same bank as the online checking account. In this case, you could very quickly transfer money from the savings account to the checking account and then you could write a paper check which would probably clear as fast or faster than waiting for the previously described bank to bank transfer to happen.

I recently bought a fixer upper condo with a 30-year mortgage. I'd like to renovate the kitchen but would have to tap deep into my rainy day fund to do so. With the economic uncertainty of late, I'm hesitant. How much would you recommend someone keep in their rainy day fund?

I think you should trust your gut instinct on this one and not tap the emergency fund to pay for the kitchen renovation. I'm sure it is tempting because it is a ready supply of money but with all that is going on in the markets right now, you absolutely need an emergency fund.

How much do you need? It varies with an individual's personal circumstances. If you are single, you might want a bigger emergency fund than a married couple who really only needs one income to get by. You should also consider your past employment history. If you are a tenured professor, you can probably have a smaller emergency fund than someone who has a history of working six months to a year at a string of past employers. Also consider your compensation structure. People whose compensation is straight salary might have a smaller emergency fund than someone whose compensation varies widely because they are paid on commission.

So the short answer on what size emergency fund is appropriate is "it depends". The typical size is three to six months of "must pay" expenses. "Must pay" expenses are things like the mortgage, your rent, the car payment, utilities, etc. If you are saving $250 a month for a vacation at the end of the year, I wouldn't include that because that is a discretionary expense. Likewise, if your normal entertainment budget is $700 per month because you eat out a lot and go to a lot of movies, you might reduce that amount drastically if you were unemployed so you wouldn't have to include it in your emergency fund calculations.

The key point is that the emergency fund is not 3 to 6 months of income or take home pay, it is 3 to 6 months of non-discretionary expenses.

I don't know much about finance. My spouse and I only make $80,000. We have no debt but we also have only a small 401(k) and a small savings account. I am concerned that we are not well prepared for retirement but I'm not sure what we should be doing. Is it worth it for us to hire an adviser?

Great question. From your brief description, it seems like you probably don't need anyone to manage your money for you but you could definitely benefit from some professional advice. There are a good number of financial planners that work with people on an hourly or per-project basis. Good places to find these planners include:

The National Association of Personal Financial Advisors' website,
The Financial Planning Association's website, and
The Garrett Planning Network website.

When you call someone that you might like to hire, ask them if they do hourly or project-based work. Expect these individuals to charge approximately $100 to $200 per hour. Since you are paying by the hour, you should be as organized as possible. Have all of your statements and documents assembled before the meeting and prepare a list of questions or topics that you would like to cover. Sending your list of questions in advance of the meeting is also a good idea.

If you just want to get an idea of how well prepared you are for retirement, you can check out some of the many retirement calculators that are available on-line. You can also visit the investor centers of many of the national brokerage companies like Fidelity and Schwab.

According to a recent study by Fidelity Investments, more than a third of the nation's parents have decreased the amount they are saving or have stopped saving entirely for their children's college education. Given the current level of financial anxiety out there and the recent increase in unemployment, this statistic really isn't surprising, but with the market down, now would be an excellent time to be investing new money.

The study also found that 60 percent of parents have at least started saving for college but only 30 percent are investing in a dedicated investment vehicle like a 529 plan. This is interesting because the survey results indicated that most parents can afford to pay just 21 percent of expected college expenses, but parents who save in 529 plans can afford to pay for 40 percent of the expected college expenses.

An even more startling statistic was that 35 percent of the parents surveyed expect that they will have to delay their retirement in order to meet college expenses. These individuals are taking a risk that they will be healthy enough to continue working and that they will have jobs to work at.

If parents are saving less, the remainder has to come from somewhere and the study indicates that 55 percent of parents will be expecting their children to work part time while in college, 44 percent plan to have their children live at home while commuting to college, 37 percent will be encouraging their children to attend a less expensive public school and 23 percent will ask their children to graduate in fewer semesters.

Also, more and more parents will be relying on student loans. In 2007, 52 percent of parents planned to rely on loans to help meet college expenses. In 2008, that figure had risen dramatically to 62 percent.

The American Association of Retired Persons (AARP) conducted a survey last month of over 1,600 baby boomers (defined to be those age 45 and older) and found that 34 percent of the participants are considering a delay in their retirement age and a full 20 percent have stopped contributing to their 401(k) plans over the past year.

That's unfortunate because with the market hitting new lows on what seems to be an everyday basis, now is very definitely the time to keep buying and, if at all possible, increase your contributions. I know that that is easy to say but sometimes hard to do as it does take some faith and a belief in the capital markets.

It also requires some confidence in your personal financial situation. The AARP study further revealed that 27 percent of those surveyed were having difficulty making their rent or mortgage payments and that 13 percent had taken a premature withdrawal from their IRA or 401(k). If your situation is that dire, it probably does make sense to turn off the 401(k) contributions for a while to get yourself back on more solid financial footing. The taxes and penalties associated with a premature withdrawal make it a last ditch option. However, if you are simply worried about the market because it keeps dropping and you have an adequate emergency fund and a well diversified portfolio, the thing to do is keep contributing. Two or three years from now, you will look back on all this market turmoil and wish you had bought more.

For more information about the AARP study, check out this article in the Wall Street Journal.

I have $2,000-$3,000 to either put in a retirement account or use to pay down debt but I am not sure which would be best for me at this time.

I am 65 and work. I intend to retire at 70, but could do so sooner. My debt includes a $68,000 mortgage at 4.78 percent; $9,000 home equity loan at 4.88 percent; credit card loan of $7,500 at 3.99 percent and a second credit card loan of $8,500 at 1.99 percent.

Considering the current state of the financial markets and how close I am to retirement, should I invest the $2,000-$3,000 in an IRA or use it to pay down my debt?

My inclination is to use the extra money to pay down debt or possibly to supplement your emergency fund if your emergency fund is on the low side. None of your debt is at a high rate (which would ordinarily make me want to see the money invested) but you will be retiring soon and it would be nice if you could enter retirement with as little debt as possible.

Right now you have $16,000 in credit card debt. That is quite high. I see that the rates are low, but I have to wonder if these rates carry an "expiration" date. If these rates are fixed, I would leave use your extra money to pay down some of the more expensive debt, like the home equity line. (That being said, you should still be trying to pay down your credit card as aggressively as you can.) You are not living within your means if you carrying that level of credit card debt.

These days, with the market so rocky and the job market looking worse and worse, there is definitely something to be said for having a ready supply of cash. In this blog, I have always been an advocate of having an emergency fund. Generally, I recommend a fund equal to 3 to 6 months of your necessary monthly expenses.

Now, more than ever, this emergency fund is critical. If you are worried about your job and your financial security, build this fund up to 6 months of expenses as quickly as you can. Money in the bank can do a lot to ease a worried mind.

A recent Wall Street Journal article suggests that as the big banks get bigger, the best deals for savers might be found at the smaller banks. For example, the average yield for a six month CD is just 2.09 percent but if you are willing to shop around and consider out-of-state and internet banks, you can quite easily find rates that approach and possibly exceed 4 percent.

What many people are doing is keeping a small checking account at the large institutions so they can have easy access to a branch office and large ATM network but they also have accounts in far-flung locations to capture more favorable CD and money market rates.

Credit unions are also becoming more and more popular and they often offer the best rates on CDs and consumer loans. Like regular bank accounts, deposits at credit unions are insured for up to $100,000. Many people don't even consider credit unions because they think the membership criteria is very narrow and they incorrectly believe they won't qualify. Years and years ago, it might have been somewhat difficult to join credit unions, but these days, the membership base for most credit unions is very broad. You might be surprised to find that you are probably eligible to join at least one or two credit unions based simply on where you live or where you work.

I'm 23 years old and fortunate enough to be gainfully employed with very modest debt. My parents shouldered a lot of my tuition payments, but now I realize they should have been saving for their own retirement.

My father recently lost his job, and is 62 years old. Other than Social Security and his pension plan,they have nothing saved. I was thinking about opening up a retirement account for them.

What do I need to know? Should I set it up in their names? What's the best place to put the money, knowing that they'll probably be drawing on it in 5-10 years? Could this count as a gift and therefore be a tax deduction for me?

First, I think it is great that you realize (and so obviously appreciate) the sacrifices that your parents made to get you through college. It is unfortunate that it now appears that their own retirement is in jeopardy. However, the good news is that there are several ways you can help them out.

Assuming your Dad had at least $6,000 in earned income this year, he is able to open a traditional or Roth IRA in the amount of $6,000. You could gift him this money and he could use it to open the IRA in his name. (Unfortunately, you won't be able to take a tax deduction for this gift.) Your Mom could also open a traditional or Roth IRA if she has earned income in 2008 of at least $6,000 (I am assuming she is at least 50 years old). If your Mom does not work, she could open a Spousal IRA assuming your Dad earned at least $12,000 this year. There are many factors to consider when deciding between a Roth and a Traditional IRA and it would take many paragraphs to explain all of them. Which option is better for your parents depends on their personal circumstances, but I'd urge you to look closely at a Roth assuming your parents met the income limits ($159,000 to $169,000 for joint filers).

There are a few rules about gifting that you should be aware of. In 2008, anyone can make a gift to anyone else without the need to file a gift tax return if that gift is $12,000 or less. So, you could give your Dad $12,000 and your Mom another $12,000. This gifting "limit" is based on the calendar year so you can gift again in January, 2009. Plus, in 2009, the amount you can gift increases to $13,000. So you can give each of your parents $12,000 this year for a total of $24,000 and $13,000 each in January for a grand total of $50,000.

Another way you could help your parents would be to volunteer to pay any medical expenses they may be incurring. If you pay the amounts owed directly to the hospital or medical provider, the amount paid does not count against your annual gift tax exclusion. Eligible medical expenses would include any medical expense that would be deductible for income tax purposes. It is critical, though, that the payment be made by you and directly to the provider.

As far as how you should invest the money, I really can't say without knowing more about your parent's personal situation and their tolerance for risk. You, however, might want to do some research on target date funds. Fidelity, Vanguard and T Rowe Price all offer target date funds and picking them is pretty easy because you would simply choose the fund that has a "target date" closest to the year your parents expect to retire and/or need to access the money. A fund with a target date of 2010, for example, could be appropriate for people expecting to retire between 2008 and 2012. It is important to note that these funds can lose money, so if you want to to be absolutely sure that you would never lose a penny, these funds are not for you.

The Federal Deposit Insurance Corporation (FDIC) is hoping to receive permission from Congress to insure greater amounts of deposits. Currently, individual deposits up to $100,000 and retirement accounts up to $250,000 are fully covered by the FDIC.

Even before this proposal was drafted, savers were been able to obtain additional coverage by titling their accounts in certain ways. However, savers were often confused by the different types of accounts and bank employees weren't always very clear in explaining the rules.

Under the new proposal, up to $250,000 in deposits could be insured and the cost of the increased coverage would be incurred by the member banks in the form of higher premiums. This would be good news for investors who have previously distributed their money across many banks in order to obtain full insurance protection. Mutual fund companies, however, are generally not in favor of this proposal because they think it might give banks an unfair operating advantage. To read more about this proposal, check out this recent NY Times article. Also, to learn more about how FDIC deposit insurance works and to estimate the amount of coverage available for your deposits, visit the FDIC website.

"I don't even have one K, let alone 401 Ks" said 23 year old Zack Teibloom in a recent New York Times article.

I had to laugh when I read that quote but what wasn't so funny was the rest of the article that said that only 49 percent of eligible workers in their 20s participate in the 401(k) plans offered by their employers. Less than half! That is pretty discouraging, especially when you consider that most employer's plans provide some form of matching. That means that many workers in their 20s are turning down totally free money.

This is an incredible shame because, as a financial adviser, I know that the people who are well on their way to a secure and fulfilling retirement are almost always the people who started saving even a small percentage of their income as soon as they started their first professional position. It is amazing what saving even 5 or 10 percent of your income can amount to if you start when you are 22. We are talking about four to five DECADES of compounding growth. People who don't start early and wait until they are in their late 30s and early 40s can usually never catch up. The amount they need to save is just too great.

And now is an incredible time to start saving for retirement. When we see a market downturn like we are seeing today, everything you buy is at a reduced price.

My advice to young investors:

Absolutely sign up for your employers 401(k) plan as soon as you are able.

Contribute as much as your budget will allow, ideally enough to capture the full employer match.

You will be saving for 40 years, so a high allocation to equity mutual funds is appropriate.

Whatever you do, don't cash out your balances when you change jobs. Forty percent of workers in their 20s do and that is a huge mistake even when it doesn't seem like a lot of money is involved.

What are the rules for converting a traditional IRA to a Roth IRA? Are there any strategies to avoid paying or reducing the immediate tax bite?

In order to convert a traditional IRA to a Roth IRA in 2008 or 2009, your modified adjusted gross income (MAGI) must not exceed $100,000.

These rules change in 2010 when the $100,000 limit is lifted and you will be able to do a conversion regardless of your income. Of course, any amount that you convert will be subject to income taxes. However, there is another "bonus" arriving in 2010 -- if you do a conversion in that year, it is assumed that you are not paying the taxes until you file your 2011 and 2012 returns. That means that actual payment will not occur until 2012 and 2013.

The surprising thing is that the government actually wants you to do it that way. If you want to pay the taxes due in the year of conversion, you need to specifically elect that treatment on your tax return. While it might seem that the government is being especially nice, many suspect an ulterior motive -- higher tax rates are expected to be in effect in those years. So, it just might make sense to do the conversion in 2010 and pay the taxes right away. If you think you might do a conversion in 2010, it might be a good idea to start saving money to cover the tax bill.

I am 60 years old and only have a small amount in my 401k - approximately $90,000 (in a Fidelity Freedom 2015 account). I know I will never be able to retire on what I have but I don't want to lose the little bit I do have. I want to know, given how the market is going down, should I continue to contribute 15 percent of my salary to my 401k or contribute less and put some after tax money in a savings account?

I would urge you to consider continuing your 401(k) contributions. I know that it can be scary when the newspapers are splashed with headlines about one crisis after another, but you need to stick to your long term plan. If you continue to contribute to your 401(k), the shares you are buying on the days that the market is down 450 or 500 points are incredible bargains. Literally, everything you buy is on sale.

The only real way to "win" the investment game is develop a well diversified portfolio and make a promise to yourself that you will stick with the plan in good times and bad. You have to suffer through the bad in order to capture the good. You can't just have the benefit of equity market returns without also accepting the volatility that comes along with it.

The Fidelity Freedom 2015 is probably a good choice for you if you will be retiring in your mid to late 60s. It gradually becomes more and more conservative so you don't have to think or worry about changing your investment mix.

I am very concerned about my in-laws' financial situation. They are in their mid- and late-60s, still working, and to my knowledge, have no retirement money saved. The only thing that I see as an asset is their house, which is probably worth over $1 million, though I'm certain they have a number of loans against it.

What financial issues should we anticipate as they get older? In cases like this, will the responsibility of paying for their medical treatment (should it be necessary) or debts fall on us?

This is certainly a very tough situation. It seems to me that your in-laws will almost certainly have to continue working well into their 70s and possibly longer. You (and they) have to hope that their health is good enough to permit that.

I would suggest approaching your parents with your concerns. It is possible that they have some retirement savings that you are not aware of. Tell them that you are concerned about their future financial security and ask them if they think they might need some professional assistance. There are many financial planners who do financial "check-ups" and maybe you could arrange one for your in-laws. Cost for these kinds of meetings would be approximately $500. You won't get a full plan with this type of consulation but the planner can make the "tough calls" about what kind of retirement your in-laws will face if they can't change their habits.

If your in-laws started aggressively saving right away, they could still build a retirement nest egg. They should also probably delay taking Social Security until age 70 so they can receive the largest possible benefit. It might also be necessary for them to sell their home, pay off their loans and move to a less expensive property when they retire. They may even have to relocate to a less expensive area of the country.

You would generally not be legally responsible for any of your parents expenses or debts but you might feel an emotional obligation to help them out if their situation becomes particulary dire. If you think this will be the case, you should adjust your financial plans accordingly.

This is one of the big reasons that financial planners always tell clients to save for their own retirement first. It doesn't do anyone any good if parents direct all of their excess savings to their children's college tuition at the expense of their own retirement.

From an investment standpoint is it better to put $3,000 in a flex account to cover my medical/child care or put the $3,000 in a tax deferred 401 plan? If I put it in the flex, I will save $900 in income taxes, but I don't know how to figure if that is really the way to go. Thank you.

I actually don't think this is an either/or question. You would only consider allocating $3,000 to a medical and/or dependent care flexible spending account (FSA) if you knew that you would have medical or childcare expenses that total at least $3,000. If it is a "given" that you have those costs, you will be paying $3,000 in expenses one way or the other. If you can use before tax dollars to cover the expenses by paying for them using an FSA, that is a pretty good deal because you will be getting a "discount".

Your question suggests that you might have $3,000 "extra" to invest. Contributing that amount to your traditional 401(k) would be great and doing so would reduce your taxable income by $3,000 -- just like contributing $3,000 to your FSAs. In addition, the $3,000 contributed to your 401(k) will grow tax deferred for many, many years

FSAs are a great employee benefit and nearly everyone who is eligible should consider participating. In a nutshell, FSAs are tax advantaged programs offered by employers that allow employees to pay eligible medical and childcare expenses using pre-tax dollars.

When you use an FSA to pay for these types of expenses, it is like getting a free discount on expenses you would be paying anyway. The discount is equal to the tax you would have otherwise paid on the money you contributed to the FSAs.

In this example, the person's taxable income is reduced by $3,000 and the "discount" they capture is equal to the tax they would have paid on that $3,000. The exact savings will vary from person to person depending on their marginal tax rate.

You can use a medical flexible spending account to get reimbursed for eligible medical expenses and you can use a dependent care flexible spending account to get reimbursed for qualified childcare expenses for children under the age of 13.

There are no statutory limits on contributions to medical flexible spending accounts, but employers often impose their own limits of $3,000 or $5,000. The limits for dependent care flexible spending accounts are $5,000.

These accounts really are worth the added headache of the associated paperwork. For example, have you ever considered laser eye surgery? This procedure can cost as much as $5,000 and it is not generally covered by insurance. If you can plan ahead and allocate $5,000 to your medical FSA, you can "save" $1,650 on this procedure if you are in the 33% marginal tax bracket. That's probably worth the cost of submitting the required reimbursement forms.

My husband wants me to resign and relocate so we can be together, but I'm not sure how I can retain the same security my employer provides. How can I began to assess this difficult decision?

There are certainly a lot of factors to consider in this situation. Here are my thoughts from the "financial front":

Does your employer provide the health insurance for the family?

If yes, you need to confirm that your husband can get coverage for you and any other family members at a reasonable cost or plan to arrange for COBRA coverage (which will likely cost more than what you are currently paying.)

Does your employer provide you with life insurance benefits?

You don't want to find yourself without life insurance because you have left your job. If you rely on employer-provided coverage, get a private policy instead. But apply now so you won't be without coverage for any period of time.

Does your employer provide you with disability insurance?

If you leave your job, you would lose this very important coverage and the odds of suffering a disability are much higher than most people think. Most people would never think about going without life insurance but disability insurance is actually more important because you are much more likely to be disabled than to die. In fact the average person has a one in five chance of being disabled for a period of time before age 65.

Does your employer offer a retirement plan with a company match or, even better, a pension?

If your employer offers a great retirement plan which would be difficult to find elsewhere, you might want to think hard about leaving this benefit behind.

Have you prepared a realistic budget?

This is essential. If you don't have a firm grasp on your expenses, how do you know that you can afford to live on just one income even for a couple of weeks? It could take several months for you to find a suitable job in your new location. Do you have a sufficient "supplemental income" fund available to tide you over?

Do you have an adequate emergency fund and income reserve?

Assuming that you don't have a job waiting for you somewhere else, do you have an emergency fund equal to three to six months of your typical expenses? If your finances are shaky now, leaving a job voluntarily is probably not a smart move.

How does your credit look?

If your credit isn't in the best of shape, it might be wise to postpone a move and work on improving your credit. A poor credit history can impact your ability to get a new job.

Obviously, money and finances shouldn't be the only factors considered, but they certainly are important. Good luck.

Approximately one year ago, Vanguard instituted a controversial beneficiary designation policy. Under the new policy, which took effect in September 2007, customers must have identical beneficiary designations for all IRAs of the same type. There is no issue if you have only one IRA at Vanguard. However, if you had multiple IRAs and each IRA had a different beneficiary designated, it is time to re-check your beneficiaries.

Here is an example: let's say you had four contributory IRAs at Vanguard because you wanted to leave one IRA to each of your four children. Previously, you could have designated each child as the sole beneficiary on each of the IRAs. (Among other reasons, you might have wanted to arrange things this way if there was a significant age difference between the four children.) Under the new policy, the only beneficiary recognized by Vanguard would be the individual listed on the last beneficiary designation form that Vanguard processed. In this example, the fourth child might have been the last beneficiary added and that child would receive the proceeds from all four IRAs.

Vanguard says that it sent letters to the 170,000 account holders who would be impacted by this change but some Vanguard investors complain that the communication was not clear enough. Also, if Vanguard did not hear back from account holders, it changed the beneficiary designations for them -- a pretty bold step.

To learn more about this peculiar arrangement, read this article in Forbes. In the meantime, remember that the beneficiary designations must only be the same for each "type" of IRA. The three recognized IRA types are rollover IRAs, contributory IRAs, and Roth IRAs. So you can specify one beneficiary for a contributory IRA and another for your Roth, but you can no longer specify three different beneficiaries for each of your three Roth IRAs. The workaround to this problem is to name all three individuals as beneficiaries on a single Roth IRA or consider moving your accounts away from Vanguard. If you are not certain who your beneficiaries are, it never hurts to double check. This is true no matter where you keep your accounts.

I am a federal government retiree and 68 years old. I currently have $122,500 in my Thrift Savings Plan. I did not yet roll it into an IRA. What is a good company to roll the TSP into -- Vanguard? T Rowe Price? Fidelity? Which company might have the lowest fees?

All three of the companies you mentioned would be solid choices. However, I would probably put in a plug for keeping your money where it is. The government's Thrift Savings Plan (TSP) is as close to perfect a plan as you will likely find.

There are only five fund choices available but those five include a government securities fund, a fixed income fund, a common stock fund, a small cap fund and an International stock fund. All five are index funds and all of them have a rock-bottom expense ratio of .015 percent or 1.5 basis points. That means the fees are only 15 cents for every $1,000 invested! You would be hard pressed to find lower expenses in many other places.

The plan also now offers 5 lifecycle plans, so if you are retired and want to put your retirement savings on "autopilot", you could choose one of the 5 target retirement funds. If you have an average risk tolerance, you would choose the lifecycle fund that most closely matches your year of retirement. If you wanted to be more aggressive, you could choose a lifecycle fund with a date later than your retirement date. This is a wonderful plan and you probably shouldn't be in a rush to leave it.

A lot of the people writing in to this blog want to know how much they need to be saving for retirement. There are a lot of calculators out there that will help you answer that question and I wanted to call your attention to one that I really like. It is called a "Ballpark E$timate" and you can complete it on line or in paper format.

There are a couple of things that I like about this calculator. First, it is very simple to use. Second, it gives you helpful pointers about how to use the calculator. For example, one question asks how much annual income you want in retirement as a percentage of what you currently earn. The instructions suggest you use:

70 to 80 percent if you want to cover all the basics and you will have employer-paid retiree health insurance,

80 to 90 percent if you will be paying Medicare Part B and D premiums and expect to do some traveling while retired, and

100 to 120 percent if you will need to cover all Medicare and health care costs, want a very comfortable retirement lifestyle and need to cover the possibility of long term care.

You can also fine-tune the calculator to account for an average life expectancy or a longer life expectancy. By answering less than 20 questions, you can get a pretty accurate projection of how much you need to be saving. The "answer" is quoted as an annual dollar amount to be saved and as a percentage of your current income. The calculator will also tell you how much of your current income you can replace in retirement if you do not save any additional money.

This calculator has a special version for federal government employees covered by the Civil Service Retirement System (CSRS) and there is also a Spanish version available as well.

My wife and I are in our mid to late 20s and we are trying to determine what the next financial step for us should be. We do well financially, have saved 5% in 401(k)s since college, own a home in a good community, have an adequate emergency fund and carry very little debt besides our school loans. We feel like we are ahead of the curve but don't know what to do next.

What should we do with any savings we can squeeze out? We have only a small amount of equity in our home, should we make extra payments on the house? Should we open a Roth IRA? Sooner rather than later, we hope to start a family. What can we do now to provide for ourselves and a family in the future?

Sounds like you have a fantastic head start. You mention that you hope to start a family sooner rather than later - does that mean that one of you might be staying home with children? If yes, you might need a much larger emergency fund and perhaps a "supplemental income" fund -- a pool of money to replace some of what you will lose if one of you stops working for a few years or decides to work less hours. Even if you have prepared a budget and you think you can live on just one income, it is always a good idea to have some "just in case" money.

If you both plan to return to work after having a baby, my answer is still the same because the cost for infant daycare in our area is unbelievable. If you really think you will be having a baby in the next year or two, I'd direct your excess savings to your emergency account so that you have some flexibility.

Alternatively, if you are fortunate to have a relative nearby who will watch your baby for you, I'd direct your excess savings to your 401(k) or a Roth IRA. You have been saving 5 percent of your pay since college, but to really be in good shape for retirement, that figure should be closer to 10 or even 15 percent if you can manage it. I'd add the extra money to your 401(k) if you have not yet captured your full employer match. If you have captured the full match, I would suggest contributing to the Roth.

I like saving in Roths because the Roth is an incredible retirement savings tool. You don't get a tax deduction for contributing to a Roth, but all money withdrawn from a Roth in retirement is tax free (my two favorite words) and there are no required minimum distributions ever. Also, if you absolutely needed the money for a reason other than retirement, Roth IRAs have a unique feature: you are always allowed to withdraw your regular contributions at any time without a penalty and free from taxes.

Given your ages, you and your wife would each be able to contribute up to $5,000 to a Roth IRA this year.

For more parenting news and views, check out BoMoms.

Is it a smart move to move my 401(k) from my former employer into an IRA? I retired 6 months ago.

This is probably one of the top 10 questions asked of financial planners. Unfortunately, the answer is the dreaded "it depends." There are a lot of fine points to consider and that is probably why a third of all workers leave their money in their old 401(k) plan when they move on.

Probably the number one reason for leaving the money in the 401(k) is the top-notch creditor protection. Federal laws protect 401(k)s from being attached by creditors, but IRAs do not enjoy a similar level of protection. The protection afforded to IRAs has greatly improved since 2005 but the protection afforded to ERISA (401(k)) plans is still superior.

Also, there is a neat provision in 401(k) plans that allows terminated or retired workers to begin withdrawals at age 55 instead of age 591/2 with IRAs.

One notable advantage of moving to an IRA is the much larger pool of potential investment choices. 401(k) plans are famous for offering only a small number of investment choices and sometimes the choices they offer have extremely high fees. These fees can have a tremendous impact on the amount of money you will have at retirement.

If your money is invested in an IRA, you can assemble a low cost portfolio specifically tailored to your needs. Also, people tend to work for many different employers in the course of the working lives and consolidating into a single IRA can make everything much easier to manage. Who really wants to keep track of 6 or 7 old 401(k)s each with a relatively low balance? The odds are decent that you will forget about one or two along the way.

Finally, if the beneficiary of your account is someone other than your spouse and that person wants to spread any distributions over their lifetime, the IRA might be better. That is because 401(k) plans are not required to allow a non-spouse beneficiary to take distributions over their lifetime. They CAN allow this, but they are not REQUIRED to allow this. If this consideration is important to you, check with your plan to see what distribution options are permitted and be sure to check in with your advisor or accountant because there have been several "flip-flops" on this issue over the past two years. First, the option was thought to be mandatory, then it appeared to be discretionary, and the interpretations have gone back and forth since then.

If you decide to move the money into an IRA, open the IRA first and then tell your old employer that you want to do a direct rollover or a trustee to trustee transfer. When you do this, your employer transfers the 401(k) directly to your IRA.

My goal is to purchase a home by the age of 50. That gives me four years. Assuming that my salary will grow slightly over the coming years, what do you think about borrowing from my 401(k) to make the down payment? I am single but I have been unable to save much every month. I make $40,000 per year and would like to buy a $200,000 home.

With a salary of $40,000, the monthly payment that you make to cover principal, interest, taxes and insurance (PITI) on your condo should not exceed $1,000. If I assume $200 in property taxes and $50 for homeowners (both pretty conservative estimates), that leaves $750 available for the principal and interest payment. If I further assume a 6 percent mortgage rate and a 30 year fixed term, you can afford a mortgage of approximately $125,000.

That means that you would need to make a down payment close to $75,000. That is a pretty large down payment. If you don't have any savings available elsewhere, and you are looking to borrow that amount from your 401(k), I would advise against doing so for several reasons.

First, there are limits on how much you can borrow from your 401(k). Generally, total outstanding loans cannot exceed the lesser of $50,000 or half of your current account balance. If half your account balance is the lower of the two amounts, a loan of up to $10,000 is possible even if $10,000 is more than half your account balance.

Second, I just hate the idea of having to borrow from a 401(k). Some points to consider:

1. Some plans do not allow you to contribute to a 401(k) while you have a loan outstanding so you would lose any employer provided match, and

2. If you were to leave your employer (voluntarily or involuntarily) the loan would be due immediately. If you failed to repay it within 30 to 60 days, it would count as a premature distribution and be subject to taxes and a penalty.

3. There is also the question of how you would pay the loan back. In my opinion, borrowing from a 401(k) should be an absolute last resort option and if you feel the need to borrow from a 401(k) to afford a house, you probably really can't afford the house.

If you have done a really, really great job of saving in your 401(k), another option might be to decrease or eliminate your contributions to your 401(k) for a very small number of years and accumulate some money that way. If you pursued this option, you would have to be diligent about resuming your contributions as soon as you bought the house. With this option, there is always the danger that you might end up using the money for other needs, and then you would have a smaller retirement account balance and no house, so it has drawbacks as well.

This is a very tough decision because buying a home is certainly an admirable goal. I would just advise you not to extend yourself too far and not to endanger your future retirement. You will certainly find people who will tell you that you can afford a much larger mortgage than $125,000, but don't believe them. Prepare your own budget and determine what seems reasonable for you and your personal circumstances.