Finance chat with Christopher Lund - Dec. 11, 2006

Christopher Lund, president of Lund Financial Group, has worked in the financial services industry since 1990. He is a Certified Financial Planner and a member of the Financial Planning Association of Massachusetts. He received a bachelors degree and an MBA from Bentley College.

Christopher_Lund: Hi everyone and good morning, my name is Christopher Lund and I am the president of Lund Financial Group which has offices located in Mansfield and Quincy.

nhguy: Can a person roll a traditional 401K over into a Roth401K?

Christopher_Lund: Hi, this is an excellent question and one I think many people will be considering. At this juncture in time you are going to see individuals doing 401k transfers into Roth IRAs. I do not believe today there is a way to change your regular 401k into a Roth 401k. That may change in the future as the Roth 401k is brand new as an employer sponsored retirement plan option.

jacob: if I open a 529 plan, can I utilize that money for my further education, or it only applicable for my children who will goes college after 8 years later

Christopher_Lund: Hi Jacob, this is a great question to ask if you envision continuing your own education. The 529 savings plan has both a custodian and a beneficiary. As the custodian you can change the beneficiary at least one time per year to anyone you choose. Don't forget that for each custodian you can contribute as much as $12,000 per year per beneficiary. Hope that helps and best of luck.

Mike14511: I'm 28 and put 7% of my weekly pay into a 401K through my company. At that point, I have recieved every match possible. My question is should I put the additional 3% into the 401K to max at 10% or use that 3% and begin a Roth IRA instead?

Christopher_Lund: Good morning Mike. I'm glad to see you are already contributing the 7% to ensure you get 100% of your companies match. I get this question often and the answer often depends on your income as well as your marginal tax bracket. The Roth IRA is phased out after certain income limits are reached. If you are below the limit then a Roth is a great option since your marginal tax bracket typically isn't above 25%. If you are above the limit I would encourage you to put the 10% or up to $15,000 per year into your 401k. The phase out for Married Filing Jointly begins at $150,000 AGI. Good luck.

just_graduated: I'm going to law school in the fall... and I'm getting married to a man who makes 60k/year. What's the best plan for us as I enter law school?

Christopher_Lund: Congratulations on your acceptance into Law School! I take it you are concerned about saving for retirement as well as funding your education. There are several tax incentives that you may use that can help offset the cost of education. They include the Hope and Lifetime Learning credits which will offset education costs. There is also a tax deduction for education loan interest expense. Best of luck.

Mrs__Peel_2: I've been thinking about cashing out my IRA and 401k to put together a down payment on a home. I know this is an allowed disbursement. Do I need to pay the money back?

Christopher_Lund: Hi Mrs. Peel, you've asked an important question because you have several options regarding finding money for the down payment. In regards to using either your IRA or 401k proceeds, if you take a withdrawal then you will have to pay ordinary income taxes and potentially a 10% early withdrawal penalty if you are under the age of 59.5. That is unless this is for a first time home purchase, which is an exception to the 10% penalty for up to $10,000 in a one-time withdrawal. Another option is to borrow from your 401k, which you would have to pay back. I would call your employer benefit line to identify what options your 401k provides. Best of luck.

ruRich: Do you recommend paying of a $3,000 student loan balance or saving. This will be my only debt (other than mortgage) come January. I have no savings. I contribute to a Roth and a 403b. Thanks.

Christopher_Lund: The quick answer is it depends on how many more months you have left on your student loan and what interest rate you are paying. As a rule of thumb, if you can save at an interest rate above that at which you are borrowing then it doesn't make sense to pay off your debt early. Don't forget ofcourse you may be able to deduct your student loan interest as well. In reality, I often see many people pay off these loans early, simply because if feels good to know you are out of debt. I hope that helps.

sammy: I plan on retiring in about 12 years after my kids are out of college -- the oldest just started high school. I have more than $100K just sitting in a low-interest savings account. We do you suggest I invest it -- cds? Tbills; stocks?

Christopher_Lund: Hi Sammy. Planning for education expenses and your own retirement is a very challenging endeavor. As a first step I would identify what your likely college expenses will be for all of your children if they are going to attend college. Do you already have enough saved for those costs or will you have to borrow? Next I would identify how much you need to have saved yourself when you retire in 12 years. If ultimately you identify that the $100k will be used for your retirement then you can afford to take some more risk in order to earn a better return than what CD's or T-Bills offer. Consider a diversified portfolio of investments to reduce risk. You may decide to seek professional help if you find this too comlicated.

Jen: ATt what age is someone eligible for catch-up contributions and how do they work?

Christopher_Lund: Hi Jen, I take it you may have reached the magic age of 50 and are thinking about retirement in the not to distant future. These so called catch-up provisions do begin at age 50 and they allow you to contribute additional monies to your 401k's and IRA's. There is a $5000 catch provision to bring your total eligible 401k contribution up to $20,000 in 2006. If you are contributing to an IRA then you get a $1000 catch to bring your 2006 contribution up to $5,000. If you feel you are behind in your retirement savings this is a great option to really sock away as much money for retirement. I hope this helps and keep saving.

jacob: this year I have contributed about $12000 to my 401k, which doesn't include my company's contribution which is about $4000, I know the limit is $15000 in 2006, should I reduce my contribution to $11000 so total contribution is close to $15000

Christopher_Lund: Jacob, I am a big proponent to maximizing your retirement contributions, even beyond the point in which you may receive a match from your employer. Unless you really need the $1000 for some other purpose I encourage you to make the extra retirement contribution. Lastly don't forget you can actually contribute as much as $15,000 per year into your 401k!

I_m_at_work: Is there a standard % of income that marks a safe level of debt - i.e., student loans, credit cards, personal / car loans, etc. ?

Christopher_Lund: I see many individuals these days with a very high percentage of their income going to debt payment. As a general rule most experts would suggest not exceeding perhaps 25% of your income to debt payment. This can be challenging particularly if you are just starting out in life and have student loans, car loans and you want to purchase a home. Just remember in the end debt is often the enemy of growth. I advise paying with cash as much as you can until you can afford items that are not essential. Items that you would look to put on credit cards typically do not fall into this category. Remember a little spending discipline can really pay off in the long run.

tp18ma: My employer has a minumum employee contribution of 2% and they will match it by 8%, is that very competitive ?

Christopher_Lund: Hi there, if I understand how your employer's plan works they will put in $8000 of employer contribution if you contribute $2000? In terms of what other employers provide in the way of 401k matches, this would appear to be a fantastic matching program. I would however, double check the company match provision with your benefits office as it does seem extremely generous. I hope you are putting more than the 2% if you can afford it.

Juana_la_loca: and decreased my contribution to my 401k to 9%, and noted only a 120/month increase in my liquid cash & 240 less per month going in to my 401k.

Christopher_Lund: HI Juana, the difference you see in take home pay vs. how much is being contributed to your 401k each pay period is a result of the additional taxes you are paying on the income that was previously being contributed (pretax) to your 401k. I would suggest double checking with your payroll or human resources department on the amount of tax witholding you have. Your employer may have made a change withour your knowing as well. I hope that helps and enjoy your second property.

jacob: $15000 limit in 401k contribution includes both employer/employee contribution OR only employee contribution?

Christopher_Lund: HI Jacob, the good news is the $15000 annual 401k contribution limit is for employee contributions only. Your employer can contribute additional $'s that will result in an even greater total contribution. Keep saving!

Christopher_Lund: I'm sorry everyone our time has run out. I thank you all for asking such great questions. If you have additional questions feel free to email me at chris@lundfg.com or visit my website at lundfg.com. Best of luck in all of your financial and personal endeavors.