GET YOUR SAVINGS IN GEAR

Acacia: I am 34 with virtually no retirement savings. I do have a Freedom Fund (IRA) account with Fidelity. How much should I put away? I do have one dependent and my salary is between $40-50K/yr.

Carolyn McClanahan: Rule of thumb recommendations are to save 10% of your income. Consider maximizing a Roth IRA and if you have a 401(k), save at least as much as you can to get any employer match.

Linda: I'm in my mid 20s making around $120,000 a year and contributing 15% of that to a 403(b) account with Diversified Investments. While in school I was contributing to a Roth 401(k) (2 years) when I could because I knew I would exceed the income limit afterward. I don't get a match for my 403b (we have a pension fund that has a 1 year waiting period that they match on). Allocation wise I have it as 8% bonds, 50% large cap, 27% international and 24% small and mid cap. What do you think of these mutual funds, my allocations and once I reach the max of the 403(b) for tax-benefit purposes where else should I put my money?

Carolyn McClanahan: I think that this is a good allocation given your age. You probably don't have a lot of choices in your 403(b) account. Consider funding a non-deductible IRA for now. You will be able to convert this to a Roth in 2010, but you will need to save money to pay tax on this conversion. Also save money in taxable accounts to provide you with tax diversification in the future. In your Roth, consider adding an allocation to commodity mutual funds as yet another diversifier. Keep stock funds in your taxable accounts.

Kano: I am 47 and disabled, I am expecting a lump-sum settlement of $100,000 soon and I have a 401(k) worth about $15,000. I have a monthly income of $3,000 after taxes. I owe $92,000 on my house, $28,000 on a second mortgage that is not tax-deductible and $8,000 in credit-card debt. What would be my best strategy to secure financial success?

Tim: Put together a solid budget using one of the online tools or consider buying a program such as Quicken or Microsoft Money. Consider paying off the credit-card debt, if it has the highest interest rate. Then look at the $28k of non-deductible second mortgage. Would be good to know why the second mortgage is not tax-deductible.

Reda Giordano: My husband and I are retiring within the next 6 months. We are now managing our accounts, but we do not want to keep doing this as we would like to travel and spend more time with our family. Also, we will need the income from two of these accounts and leave our pension to grow in the other account. Who would you recommend to manage these accounts for us? Thank You.

Carolyn McClanahan: I would recommend a fee-only planner. The best place to find these are on the NAPFA Web site - www.NAPFA.org.

Mark in Franklin, TN: My wife and I are extreme savers by most standards squirreling away 28% of our income. I'm 38 and my wife is 32, and we've accumulated nearly $700K in 401(k)s, 529s, Roths, Roth 401(k)s and taxable stock and money-market accounts. Our questions revolve around whether to take all/most of our $150K in taxable stock accounts to convert our $330K in 401(k)s to Roth accounts in 2010. We're still contributing the max $15,500 to our 401(k) accounts through deferrals and $5,000 each to Roths in 2008 regardless and have $50K in emergency funds/cash. My wife would like to "ease up" a bit and take up to $40K of savings out for a kitchen redo, carpet/floor upgrades etc. With no debt but our mortgage ($300K value/$50K owed) we could likely do both but I just wanted to know what was the smartest move? Do we have to bite off the Roth conversion all in 2010 ... or can it be done gradually over time? Thanks for your insights.

Carolyn McClanahan: Since we have no idea what future tax rates are, your question is difficult to answer. In short, it is good to have a diversification in types of accounts just as you do. I would not recommend using all of your taxable money to do the conversion all at once. Based on how things look today, it will be better for you to gradually convert over time keeping yourself in the lowest tax bracket possible. Also, you are doing a great job saving! But life requires balance, so consider easing up a little to have the quality of life you desire. Remember, money is a tool, not the object. A great book you may want to read is "The 7 Most Important Money Decisions You'll Ever Make" by Mary Claire Allvine.

Mike: How is your Social Security monthly check calculated? Does a part-time job/salary during the last year or two before claiming SS negatively affect it?

Tim: Social Security benefits are calculated in an extremely complex manner, so there's not really an easy answer for this portion of your question. There are two tools you can consider investigating. First, at www.ssa.gov, there is a benefits calculator. It is pretty good, especially if you have your history of earnings. The other tool is the Annual Statement you should receive every year.

Rachel Smith: Just wondering if we are on track. We have about $500k saved up in a variety of mutual funds, IRAs and CDs. Our kids have 529 plans, ages 8 and 10 with about $10k saved up each. We have been putting $700 per month and will continue that into our mutual funds and also max the IRA contributions every year. For our kids, each gets $100 per month into their 529 plan. Are these reasonable amounts that we are socking away or should we be putting out more? We'd like to retire with an income around $100k (in today's dollars). Thanks in advance.

Tim: Big unanswered questions: How old are you, when do you wish to retire, of your income what percentage is the $700, do you have access to 401(k) or 403(b) accounts, do you have a retirement cash flow analysis, what is your current tax situation, and how did you come up with the $100k figure? It sounds like you're taking the right steps. You don't mention 401(k) or Roth accounts. Consider adding to these if you're eligible. Whether you're on track or not is much more difficult to definitively answer.

Tom: I'm 57 and thinking about a long-term care policy. What types of plans are there? Will Medicare or Social Security pick up any monetary slack?

Micah: There are a multitude of plans out there, but the most salient variables to focus on are: * Benefit period - how long a period, in total, the LTCI policy covers. Popular options are 3 years and 5 years, but there are others and you need to determine what is best for you. * Monthly benefit - the maximum amount the policy will cover. * Elimination period - amount of time that passes between the event triggering your qualfication for the insurance to begin paying and when it actually pays. One of the most common periods is 90 days, but again check to see what's best for you. * Rider that allows the policy to cover home health care. There are many, many other options available on these policies, so make sure to check into what is best for you. Hope this helps.

Gail Gutierrez: I have an IRA rollover account that I have had for many years, and it's not doing as well as I would have liked. It is a Nicholas II fund. What are my options to better this account and how do I change it?

Tim: Find a fee-only advisor who will develop an asset allocation for you as part of an Investment Policy Statement. Then implement the Policy and its asset allocation using a set of high quality no-load or no-transaction-fee mutual funds. Rebalance the account every quarter to return to your original asset allocation. Depending on your age, you may want stay away from "in vogue" investments such as natural resources, real estate or commodities. Use resources such as Morningstar or find an AIF (Accredited Investment Fiduciary) or AIFA designee to help you select the investments.

Michael: I recently rebalenced my 401(k) portfolio for the new year as the stock market has been very volatile. Currently my asset mix is 10% bonds, 20% international, 40% large cap, 30% small cap. My current distribution is 30% international, 55% large cap, 15% bonds due to the stock market volitity. Should I redistribute to include a % for small or mid cap funds? If so what percentage and why?

Micah: The answer to a small/mid-cap allocation is yes, because of the diversification benefits and because small cap in particular outperforms large cap over long periods. As to what percentage, I'd look at a total of 5 to 10% of your total portfolio between the two. Given your allocation, I'm assuming you're a bit younger and the volatility of small/mid cap is something you can accept. One last point - some argue that mid-cap is not really a true asset class, but rather a convenient classification. That may be true, but I've found some really good stock pickers' funds in the mid-cap category.

Josh: If I open a Roth IRA this month, can I still make a $4,000 contribution for 2007 and a $5,000 contribution for 2008?

Carolyn McClanahan: Yes, you can do this as long as you make the 2007 contribution before you file your taxes.

Anne: I often see guidelines that state retirees need 80% to 90% of current income to maintain their standard of living. Can this be adjusted downward if a retiree will no longer have some of the larger expenses they did while they were working? For example - no more mortgage payment, and no more 401K deferrals. Just wondering. Our mortgage payment and 401(k) deferral are the 2 largest expenses we have!

Carolyn McClanahan: The numbers you see are a rule of thumb and do take the factors you mentioned into account. Early retirees increase their spending usually on things like travel. As you get older, health-care expenses take a greater bite.

Bill Traver: Is it worth deferring my salary in a 401k if there is no match, I don't need the forced saving, and I may be in a higher tax bracket when I retire?

Carolyn McClanahan: The only benefit in your situation is that 401(k) plans are a protected asset, so if you are ever sued, no one can touch it.

Tom L.: Would an immediate fixed-income annuity for a portion of my portfolio increase the expected longevity of the portfolio? I am 68 and retired and am having trouble keeping my withdrawals at 4%.

Carolyn McClanahan: This is an excellent idea. Make certain to use a good provider that has no loads or sales charges. It is better to buy small portions over time, as the payouts will be higher as you get older. Also, interest rates are very low right now, so the return will not be as good as you will probably get in the future.

Ann: I'm 65 single, still working and plan to keep working for a few more years. My income is $80,000 and I expect $3,000.00 in pension and Social Security at 66. I have $280,000.00 in tax-deferred accounts and contribute 20% plus $5,000.00 catch-up. I also have $80,000.00 in a taxable account. I currently have a $168,000.00 mortgage. I'm inclined to not pay down my mortgage, but invest it very conservatively in CDs. Should I be paying down the mortgage instead?

Tim: Let's assume your mortgage is 6%, fixed and that your mortgage interest is fully tax-deductible. Your effective mortgage rate is a little greater than 4%, so that's your return based on your monthly interest payment. On the other hand, you can buy CDs in the 4-5% range maybe even a little more today, but CD rates will almost certainly fall as interest rates fall. So the investment return is about the same, today. The rate of return in this example for your mortgage is fixed and the investment return on the CDs will likely fall in the near future. Finally, once you pay off your home, you own it. If you invest in the CDs, what will the proceeds be used for in the future?

Andrew: Hi. I'm 44 and have a net worth of approximately $1 million ((50/50 between equities (2/3 US and 1/3 foreign mutual funds) and cash (CDs)). I no longer want to work and spend no more than 3% of my portfolio in a given year. I've also budgeted for a 4% annual inflation rate, and assume that I won't start receiving Social Security payments (my conservative estimate is $20K per year) until I'm 70. According to my spreadsheet, I have a large enough portfolio so I will only need to work if I want to. Do you concur, and if not, what would you recommend that I do? Thank you.

Micah: If I understand what you're saying, you are withdrawing no more than 3% of your total portfolio value per year presently - so with a portfolio of $1m, you're taking $30,000 this year. If that's correct, then the portfolio withdrawal rate would seem to be sustainable. I would suggest that in year 2, you ignore your portfolio value and simply take what you took in year 1 - $30k in this example - plus inflation. Thus, if inflation was 4%, you'd take $31,200 in year 2. The reason for doing this is that you'll keep your real spending level constant - you'll be able to buy the same amount year after year. I'd also recommend you consider increasing your allocation. Studies (actually a study by a guy named William Bengen - you can find his book on withdrawal strategies on Amazon.com) have shown that if a portfolio is to support you over a period of decades, you're better off with an allocation of 60% TO 75% in stocks. Ultimately, though, your willingness to accept risk is one crucial component in determining your overall allocation.

S.Y. Ling: What is the strategy to buy a home in the San Francisco Bay Area where median home price is approximately $800K while mortgage higher than $400K is not available these days?

Micah: Mortgages are available above $400k, but requirements to qualify are much more stringent given what's happened to the mortgage market. If you find that you cannot qualify, your best option may be to find a landlord willing to work with you on a lease-purchase arrangement. A lease-purchase arrangement is an agreement allowing you to rent - or lease - the property for a specified period of time, with the option to purchase the property. If you can't qualify for a loan now but think you may in the future, a lease-purchase agreement will often give you first shot at buying the property when you can get a loan.

Nikki M.: I'm in my late 20s and saving for retirement in 401k and Roth IRA accounts. My question is where to find the best retirement needs calculator. The ones I've used differ by large amounts and it is never clear how much I really need.

Micah: That's a tough question - I've had several folks tell me that the Fidelity site has a good retirement calculator, but I have not used it myself. What I'd suggest is that whatever calculator you use, understand the underlying assumptions the calculator is using, and ask yourself if those assumptions are valid and also if the assumptions relating to the individual (allocation, spending level in retirement, etc.) are accurate for you. Lastly, at some point, you might want to speak to a planner about having a plan done for you. Typically, the software planners use is a good deal more detailed and customizable than the simple retirement calculators that you find on the Internet.

melvin: I am 39 years old and single. I earn $200K/year. I have no credit-card debt and owe 30K on a 300K mortgage. I have 250K in savings. I am concerned about the markets and low interest rates. What should I do with my retirement dollars? I do not have life insurance, should I?

Micah: At your age, you're very much investing for the long-term, so I'd encourage you to pick out an appropriate, diversified allocation of stocks and bonds and stick with it - likely something in the 80/20 or 70/30 equity/cash and fixed-income range. Don't try to time the market - very, very few people are able to outearn the market by doing so. As to life insurance, it sounds as if your assets would more than cover your debts and no one else is dependent upon your income, so based on the limited info above, I don't see why you would need life insurance.

Dave R: I'm confused about which funds are taxable in retirement. I know Roth distributions are not, and traditional IRAs are, but what about 401(k) distributions (only the pre-tax deposits and growth, right)? How about annuity payouts? I know if you work Social Security MIGHT be taxed until you reach 70, but what if you don't work at all? Thanks in advance, Dave

Micah: 401(k) and IRA distributions are taxed as income, and payouts from retirement annuities are taxed the same way. For payouts from after-tax annuities, whatever the annuity company reports as income is taxed as income, and what they report as a return of your original investment is not taxable. Whether or not Social Security income is taxable depends upon your combined income level. The following link to the Social Security site provides information on what portion of Social Security is taxable: http://www.ssa.gov/pubs/10035.html

Pammie Chan: Can I still benefit from Social Security income if I have an IRA or 401(k) plan from my company? If not, why? Thank you very much for your time! Pammie

Micah: Pammie - whether or not you have a 401(k) or an IRA has no bearing on your Social Security income.

Kenneth Delano: I am a U.S. Soldier, and I regularly contribute 15% of my total gross income to the Thrift Savings Plan. Currently, this is my only retirement vehicle. I am 26 years old, in the 15% tax bracket, married with 2 young children, and do not intend to retire from the military. I anticipate retiring at around 65 years old. My question is, would I be better off choosing a Roth IRA with no-load actively managed funds, choosing a Roth IRA with index funds, staying with the TSP, or choosing some other means of retirement savings? Any advice or insight would be greatly appreciated.

Tim: Definitely consider the Roth IRA. Your tax bracket in retirement may very well be higher than it is today. If you are confident your tax bracket will be higher in retirement than it is today, consider stopping your TSP contributions and using a regular investment account. I know this may sound like contrarian advice (and it is), but when you look at tax rates, this can make good sense. The reason you put money into a tax-deferred account is to pay less tax later. Well, if your tax rate will be higher later in life, then you will pay more taxes on a greater amount since TSP distributions are at ordinary income-tax rates (typically as high as 35% plus state income taxes). On the other hand, if you use a regular taxable account and invest for the long term, then your gains when you make withdrawals are at long-term capital-gains rates, currently maxed out at 15% (may go up to 20%, but should not go any higher). Finally, as for the type of funds, so long as you use no-load or no-transaction-fee funds you should do fine for both performance and low expenses. I'm not sure if disagreements over the index funds versus actively managed funds will ever be settled.

Marc: My company offers the Roth 401(k) along with the traditional 401(k). The choices are great, mostly Vanguard and index mutual funds with low fees. Should I still contribute to a Roth IRA or is the Roth 401(k) an acceptable alternative? I cannot afford to contribute the maximum to the Roth 401(k), so I currently split my contribution 50-50 between the traditional/Roth 401K plans to the maximum limit and plan to increase the contribution to the Roth 401(k) as budget permits.

Kathryn Nusbaum: Marc, Given that you have such great choices to select from in your 401(k) plan, a separate Roth IRA is not necessary. You are doing the right things by making the maximum contributions to your 401(k) plans and increasing your contributions as your budget permits. You may also want to think about committing a portion of your raises to your retirement savings. That way, as your income grows, you are also increasing your savings. Roth IRAs are a great choice for additional savings once your 401(k) is maxed out. Just keep in mind that for 2008, your ability to contribute to a Roth IRA begins phasing out at $101K if you file single on your income tax return and $159K if you file married filing jointly. Well done – keep saving!

Jaime: My boyfriend & I are both turning 25 this year and are beginning to plan for our future together. We will be moving in 2009 and starting new jobs. We have not begun saving for retirement yet, but would like to begin doing so. For two young people, what are the best options to begin saving for retirement outside of typical retirement options, such as a 401(k) through work?

Kathryn Nusbaum: Hi Jaime, Most retirement savings vehicles such as IRAs that are outside of the employer-sponsored plans require that you have earned income in order to contribute. If you are employed, and you have a 401(k) plan available, I would encourage you to save there first. This is usually the easiest way to save since the money can come right out of your paycheck and there are often employer matching provisions. If you are concerned about the 401(k) plan because you are worried that you would lose something when you leave, remember that anything you contributed and the earnings associated with your contributions are always 100% vested. That means that the money is yours. The only thing your company would be able to hold back is a portion of the proceeds they contributed, if any to your account. You should look into your company’s vesting schedule. If you do not have a plan available to you, but you have earned income, a Roth IRA is an excellent choice to begin saving for retirement. I would recommend that you open a Roth online at an institution with extremely low fees such as Vanguard. Initially, you can begin investing in their STAR fund which requires a $1,000 minimum. As your money accumulates, you can move it into one of their Target Funds. The fact that you are already thinking about saving at 25 is great. In a matter of years, I think you will be shocked at how powerful your money will begin working for you. There is nothing like saving early!! Well done.

Petrinamosley: I am 38 years old and have 60k in my 401(k) plan @ wk and I want to start an IRA. I save 10% in my 401(k) and I want to try to max out my IRA so if I am not able financially to max out the IRA how bad would it be if I put in $2,000/$3,000 a yr? Also, should I try to get a spousal IRA for my husband too?

Kathryn Nusbaum: Hello Petrina, Before you begin saving in an IRA, make sure you are contributing the maximum amount to your 401(k) plan. You are able to contribute up to $15,500 into your 401(k) plan in 2008, unless the 10% that you noted is the maximum amount stipulated by your employer’s plan. If the 10% is the maximum then a Roth IRA is a great choice as long as your combined income with your husband is below $159K (assuming you file jointly). Saving $2-$3K is much better than saving $0. If your husband does not have a retirement plan available to him at the present time, then, yes, a spousal IRA is a great choice. Again, if your income is below that $159K mark, you can contribute $5,000 into a Roth IRA for your husband. If your income is above that limit, you would still be eligible to contribute up to $5K in a non-deductible Traditional IRA.

budd hartz: I am 60 yrs.old and my wife is 60 also. We each have an IRA. Mine is 639k all in money market. Hers is 62k all in money market. We have a joint savings account of 316k. My wife plans on working until we are both eligible for Medicare. Would be nice if she could retire sooner but medical insurance cost in Ohio is crazy. Plus we have preexisting medical problems. My wife is a nurse and earns about 40k yr., which is enough for us to live on. Our home is paid for. The stock market is so uncertain and volatile so I am reluctant to invest there. What do you think we should do? Thank You, Budd & Sundae

Roger: Budd, Thank you for your question. If I am understanding the facts you presented, the IRAs and the savings account are all in cash. I also am going to assume that you can live on $40,000 per year. I can certainly understand your comment about the stock market being volatile, 2008 YTD is a prime example. I would say, however, that you might consider having some portion of your nest egg there. That said, doing some "back of the napkin" math: You have just over $1 million between the IRAs and your savings accounts. Once your wife quits working and you are both drawing Social Security you will need to figure out the shortfall to your budget and draw the rest from the IRAs and the savings account. Conventional wisdom says that you can withdraw 3% to 4% of your nest egg each year. If you leave it all in cash and if you can earn 3% to 4% per year you should be fine, given that you will be getting a portion of your living expenses from Social Security. Risk factors include any potential long-term care needs (assuming that you do not have LT Care insurance); prolonged low interest rates (money fund rates were below 1% just a few years ago); and higher inflation than anticipated. You might consider consulting with a NAPFA advisor in your area for a more in-depth review. If interested please go to www.napfa.org. Best of luck, Roger

Raj: What are the options available to open a 401(k) account that is independent of the employer? My previous employer barely assisted with opening one. My current employer won't offer me one until 6 months later. I am 25 and would like to start saving soon.

Roger: Raj, If you are employed and that is your only source of earned income, you cannot open an independent 401(k). An option to consider is an IRA. You can still open and fund an account for 2007 through April 15 or when you file your return if earlier. The contribution limit for 2007 was $4,000, it goes up to $5,000 for 2008. A traditional IRA allows for a tax deduction for all or part of the contribution if your income is under the limits. A Roth IRA is funded with post-tax dollars, but offers the ability to withdraw the money tax-free down the road if certain conditions are met. If interested, I would contact your favorite mutual fund company, broker, etc. Firms like Fidelity, Schwab, or Vanguard might be good places to start. I applaud you for starting early and would urge to continue funding the IRA (if you go that route) in addition to the 401(k) once eligible if you can. Roger

waynek: I have large IRA and 401(k) investments in a number of mutual funds. None of them offer capital gains information. With company matching contributions in the 401(k), how can I, as an individual hope to determine average cost of the accumulated shares for tax purposes at the time of withdrawal in retirement? Or are tax/capital gains considerations not germane to these types of investments specifically being used for retirement income? Thanks

Roger: Wayne, Thank you for your question. Other than for perhaps determining your return on an investment, no need to worry about capital gains and distributions for the IRAs or 401(k)s. Assuming that all contributions are pre-tax, each dollar is taxed fully as ordinary income at withdrawal. Roger

Enrique Gutierrez: I have money in savings that I would like to invest. I would like advice on how to get in touch with a financial adviser who would give me advice on investment options?

Roger: Enrique, I suggest that you go to www.napfa.org, and look for an advisor in your area. Roger

Dennis Z: I want to retire in 4 years at 62. I would like to pay off my mortgage by that time. I contribute $300.00 a week to my 401(k) [no match from my employer]. Am I better off taking that $300.00 & sending it to my mortgage as extra principal to achieve my goal?

Jeff Kostis: Saving for retirement and paying off your mortgage are both very important. However, this does not need to be an "all or none" proposition. I suggest calculating out how much you need to increase your monthly payment by to have your mortgage paid off in 4 years. This may be less than the $1,200 per month you are contributing to your 401(k). You will then need to make a value judgement for yourself. If you cannot decide due to the number of other issues (taxes, compound interest, etc.) I suggest talking with a local NAPFA planner to help with the "number" side and help lay out your options.

John: IRA Question: I have about 200k in a 401(k) account with my work. I am 38 years old and contribute 10% of a $90k annual salary. My employer matches dollar for dollar up to 5% of my salary. My wife is now at home with our children and she has an IRA from a 401(k) rollover worth about 100k. We are considering converting her IRA to a Roth IRA so we would have some nontaxable money at retirement. Can we convert a regular IRA to a Roth IRA and would it make sense in this situation? Thank you for your help.

Jeff Kostis: Congratulations! You and your wife are off to a terrific start in your savings plans. It is also a good idea to diversify yourself between taxable, tax deferred and tax free savings. In answer to your question, you can convert an IRA to a Roth IRA since your income is under the IRS maximum. If you do the conversion this year, you will need to pay tax on the amount converted this year. Be aware that under the current laws, if you wait until 2010, you can do the conversion and spread out the tax payments over 2 years (2011 and 2012). Talk this through carefully with your tax or financial advisor to make sure you make the right decision for your specific circumstances.

Oscar Hernandez: My wife and I are teachers and are being deducted $300 a month each for annuities as well as 457s. I'm 37 years old and my wife is 35. How much money should we be saving in order to live comfortably when we retire? We both earn about $45,000 a month with a combined of about $5,000 a month after taxes.

Jeff Kostis: The amount of money you need to retire comfortably is different for everyone. Some people view comfort as being able to travel frequently, while others view comfort as a quiet home on a lake fishing every day. In general, most people need about 80% of their preretirement income to maintain their current lifestyle. Since you are both teachers, I assume that you are eligible for pensions at retirement. This will dramatically impact your savings needs. I suggest talking with a NAPFA planner to go through the details of your goals, plans and current situation, then implement the plan.

Barry MARKOWITZ: I started my own company this year and work for another company that has a SIMPLE IRA, which I will max out. What type of savings plan should I put in place in order to take advantage of saving pretax dollars and maximizing savings? Thanks, Barry

Rick S.: Barry, You may be able to deduct another IRA subject to certain income limits which I don't immediately recall. Also, you may be able to establish a Roth as well. The other deferred options are non-qualified; (i) annuities and (ii) life insurance.

Beau: I'm a 23-year-old structural engineer, I am currently doing field work. My base salary is $60K/year but I'm acquiring perdiem for living expenses and food, which is taxable. I acquire about $5,600/mo worth of perdiem. I am investing 20% into a 401(k), $300/wk into index funds, $100/mo into single stock. What tax concerns am I going to have with this situation? I know I am unable to invest in my Roth IRA anymore, but are there any tax breaks that I could take advantage of for expenses for work, etc. or because of the perdiem situation is this unable to be written off?

NAPFA member: First of all, your savings is tremendous. You know how that can multiply over time. The tax situation, and I'm a CPA with a tax degree as well as a CFP, is trickier. You can write those business expenses off under Sec. 162. There are, however, two issues: They are itemized deductions subject to a 2% floor of AGI; and, they are disallowed for AMT which you may be subject to. If possible, you could possibly approach the company for another arrangement but you'd have to be aware of some of the following: workers' comp or lack thereof if a contractor; 401(k) participation, et al.

Jim Dodds: I recently did an in-service withdrawal and a transfer-in-kind of company stock from a 401(k) to a new IRA. The financial company messed up the stock transfer and I don't have the correct number of shares in my IRA. They have not corrected their mistake, and it doesn't look like they are going to. Who and what organizations can I complain to about the problem that the company has created for me? Thank you for your time.

Rick S.: The agency having jurisdiction is the Dept of Labor under ERISA, et al. However, I'm not sure you want that transfer for the following reason: There is something known as Net Unrealized Appreciation which is given favorable treatment in the code, IRC 402(e), I believe. And, I'm not sure if it "goes away" when funds come out of a plan to an IRA. I would hire someone to find that out.

1GOODFRIEND: I am 53 years old and looking to retire in the very near future. I participate in a 457 program at work. Also, I will get a cash payout of monies put into a pension account. Q: Should I leave the contributions in the 457? And should I put the cash from the payout into the 457 plan or roll both into an IRA?

Rick S.: OK. Those are a lot of issues. Let's parse them a bit. Two strands of issues: (i) investment; and (ii) tax. On the investment side, I would talk to someone about, at a bear minimum, asset allocation. TIAA-CREFF has a pretty good selection of funds, and they are inexpensive. On the tax side: Keep the 457 separate even if you roll it over into an IRA. A 457 is not a qualified plan (e.g., 401(k)) and, by way of example, funds are normally not subject to the 10% early withdrawal penalty.

Carmen Salome: I currently have a small retirement 2015 fund with T. Rowe Price. I've only had it since August. It's not making much. I would like to retire in 10-12 yrs. Should I exchange this fund for a growth fund? Thank you.

Rick S.: The short answer: No.

Ike: How would you invest $700,000 with a 5-7 year retirement window?

Rick S.: It depends on your other subjective and objective factors. However, it is not a long-term horizon, 10 years or more, so I would "dial-down" the equities.

angela: I am 40 years old and in between jobs. How should my 401(k) be invested right now? It is currently all in stocks.

Rick S.: Go back to the basics and determine your risk tolerance. Check with NAPFA if you like.

Jerrod Jackson: I am 66 years old and retired in 2006 from a company I worked for many years. Then in September a company that needed someone with my skills hired me and let me work from home. Now I am getting my retirement every month plus my current salary. My question is since my current salary plus my wife's salary is sufficient to meet our financial needs what should I do with the retirement money I receive every month. I also have about $17,000 in a savings account and I would like to invest half of that. I will probably work until 2010.

Rick S.: It sounds like your retirement is a defined benefit plan. Thus, you can't delay it, or couldn't. Investing the money in a taxable account is the simplest method and most tax advantaged.

Mark1956: Pay off my $271K Mortgage balance (5.625% rate), use the money to buy retirement property/2nd home in another state, or keep the money ($200K) in the nonretirement accounts where it is presently? I have about $85K in Roth IRAs and $282K in the Thrift Savings Plan, which with my $41K pension should allow me to retire in 2011 at age 54. Thanks.

Rick S.: I'd be inclined to keep the mortgage as after-tax maybe you are paying 4.75% or so. However, if you are risk averse paying-off may be appropriate.

Barbara: I've tried several online calculators, which all indicate my retirement will be adequately funded (36 yr pension generates 68% of high three salary, plus projected TSP acct bal of $232,000, which I will not draw upon until 65. I will be 62 in 2010. My concern at this late date is it is all taxable except my 7% contributions to the pension, which is credited for the first years of retirement until my contributions are exhausted). My house is paid off in a year, I'll have a decent profit, & plan to relocate to different area, so will have small mortage...Is there anything at this late date I can do to reduce my tax bite?

Rick S.: Pension is pre-tax save the contributions. Unfortunately, it may be time to "pay the piper." Incidentally, I hold a tax degree, et al.

jane: My husband and I have 2 401(k) plans from previous employers (each). Should we roll over our plans to our current employers or stay put? The previous employers have a great diversified plan that has worked so far, but we are both approaching 50 and are serious about getting ready for retirement now (potentially in 15 yrs.).

Rick S.: I think your instincts are good. If you are going to manage the 401(k) yourself than the first plan sounds better. It will also diversify you better.

Larry Callagy: I am a 65-year-old person who has recently inherited a sizable amount. I have been talking with various brokerage houses and am confused as to what is a reasonable fee to be paying for a managed account or mutual funds. On the managed account, I am being told anywhere from .6 for fixed income to 2.0 for equities. We are talking an amount in excess of $1.5 million. I would like to also determine what type of investments I should be in. Thanks.

Rick S.: First tip: Brokerage houses work for the brokerage house not you. Second tip: NAPFA advisors work for you. Fees: 1% is standard but with your money the overall fee could be say .75% including the equities. Now that is just the advisor's fee, there are likely underlying fees.

Chuck Brooks: I am retired and living on my investments. There seem to be 2 ways to get investment advice: 1) a full-time investment manager, charging from .5 to 1% of the portfolio, or 2) a broker, that makes stock or load fund recommendations of specific stocks or funds. I am wondering if there is something in between. Are there financial advisers who will spend a few hours on an annual or semiannual basis and give recommendations?

Rick S.: Chuck: Yes, most CFPs, et al, will want to run the money and take the asset management fee. Some, however, will bill by the hour. However, honestly, I think most are looking for the asset management fee. Contact NAPFA for a by-the-hour person if you like.

Will: Hi. I have a question about wash sale. On September 5 of 2007, I bought 19 shares of Apple stock for the first time. On October 1 of 2007, I sold all 19 shares at a loss. On October 2, I bought back 18 shares of Apple. Is this a wash sale? If it is, do I have to report it to the IRS, consider that I have not made any capital sales in 2007?

Rick S.: Yes, that is a wash sale, no loss should be allowable.

Mee: My husband and I each have recently opened an individual Roth account. We have about $7K combined in both accounts with American Funds through a local bank and are contributing $100 a month to each account. They are B shares with an expense ratio of 1.37. In the near future, we would like to max our Roth accounts. My question is should we continue to contribute to what we have already set up with the bank, or go elsewhere. I hear a lot about no-load funds with lower expense ratios. Where should I go to find these funds and how do I open them?

Rick S.: Yes, forget the B shares. Try various fund companies including: Fidelity, T. Rowe and Vanguard.

Bill B, Houston: I'm 55 and have a substantial amount invested for retirement. Should I assume that there will be no Social Security income for people like me?

Rick S.: Personally, for my clients, I do not make that assumption. However, if you wish to be extremely cautious you can do so.

C Chaney: I am 62, retired with a guaranteed monthly income from teachers retirement, my husband's Social Security and SMALL pension. I also do a LITTLE bit of part-time work. At present I do not have to draw from my IRA. I have a part of my IRA in TMA which lost about 2/3 of its value in August. I have lost on paper about $20,000 with about $10,000 remaining in value. Should I go ahead and bail out and reinvest the $10k balance or hold on hoping that the real estate investments will eventually come back? I do not anticipate drawing from IRA for several years--Thank you.

Rick S.: History shows that investors are their own worst enemies pulling-out in a fashion as you contemplate. Unless, you are getting sick over it, I would generally recommend staying in.

tekr: I am 60, my wife is 59, both working with combined income of about $160,000 year, kids are raised. We plan on retiring in about 3-4 years. Have about $400,000 in IRAs and 403bs and no other savings. Earned about 7% on IRAs during 2007. We both will get small pensions of about $500 month each in addition to Social Security. Have a mortgage and house equity is about $30,000. Have credit-card debt of about $45,000 with interest rates ranging from 12% to 23%. I am thinking of paying off $40,000 of the credit-card debt by taking a distribution from the IRA. Will need to take about $55,000 to net the $40,000 after tax. It seems like we should pay off the debt and start building up the savings until we retire. What do you think?

Rick S.: I think you are right. If the credit card rates are over 10%, you can't be sure to earn that so make certain that your wife is at least 59 1/2 to avoid the 10% early w/d penalty.

Chikako: I have some money in a mutual fund, but not much cash for emergency. Is there any good way of getting cash income from my mutual fund to build for emergency without cashing out the original mutual fund? Thank you.

Rick S.: No.

Mike C.: Income approximately $130,000 combined. My wife and I were both employed by nonprofits and have approximately $210,000 in TIAA-CREF 403(b) plans. My wife currently contributes 8% with a company contribution of 9% (maximum company contribution) to her plan. I changed jobs one year ago. I now have a defined-benefit retirement plan where I am required to contribute 6%. I can get this back if I leave the job, but only my contribution and interest. Should we open a Roth for me or simply max out my wife's 403(b)? Thanks for any advice, Mike

Rick S.: Mike: Make sure the Roth is available with your income, I believe it is 150k. I kind of like the Roth because it gives you tax diversification. 403(b), taxable, Roth, non-taxable. And, let's just assume, that given this country's economic issues, taxes are raised, you can pick and choose the account to some extent from which you are to receive distributions.

JTS: My 80-year-old father will contribute matching funds to his grandchildren's Roth IRAs this year as an incentive for them to invest, learn and work. Is this a good idea? Can a child as young as 5 (earns money for chores) have a Roth in his name with parent-custodian?

Rick S.: That is wonderful. Grandparents can really help in this, and other, regards. I believe the custodial arrangment is OK.

Nikki Chan: Both my spouse and I have been contributing the max Roth IRA amounts every year. We are both in our early 30s. But this past year we both got big bumps in our take-home salary where we'll be over the total combined income level to even contribute to a Roth IRA. What type of funds or other investment options would you recommend we direct essentially the same money we've set aside. We already do regularly contribute and/or open new individual nonretirement funds. Should we just put more in these type of nonretirement funds, or open a traditional nondeductible IRA or something else? Thanks, Nikki

Rick S.: I'd stay away from a non-deductible IRA, unless you have creditor issues (i.e., they are more protected than many other accounts).

Matt: I am 23 years old and I currently earn $60,000. My long-term savings strategy consists of maxing out my Roth IRA contributions and contibuting enough to my 401(k) to get the full employer match (6% from me, 9% from employer). My 401(k) provider recently changed, and I have many more investment choices. Could you suggest an appropriate asset allocation for my 401(k)?

Rick S.: I'd either find an advisor or possibly go online.

wilson: I work for a company without any retirement program. I invest monthly in 2 indexed funds and 2 target-date retirement funds, all are taxable accounts, no IRAs. Can I achieve a comfortable retirement and make money without holding some positions in individual stocks that may give me a higher rate of return?

NAPFA member: Absolutely. Also, individual issues can blow-up much easier. I don't use those for my clients. Also, for someone that is not an investment enthusiast, I believe the target date funds are probably the best thing they can invest in.

Jim: I am 28 years old. I have been very frugal and saved $485,000 (85% is in my taxable account). I just built a $320,000 home. I owe just over $200,000 on my mortgage. Would I be wise to use my investments and pay off the mortgage immediately?

Roger: Jim Thank you for your question. First of all congratulations on accumulating so much at such a young age. Paying off the mortgage may not be the best way to go. Not knowing the details, this may be very cheap money for you. Let's say the interest rate on the loan is 6% and you are in the 30% tax bracket. That means that the after-tax cost of borrowing is 4.2%. Are you doing better than this on your savings? Addiitonally, paying off the mortgage ties up these funds. You might consider sitting down with a fee-only advisor in your area to discuss. You can go to www.napfa.org to find someone near you. Best of luck. Roger

Rachel Sheedy: Didn't see your question on January 15? We received so many questions that NAPFA planners are answering some more of them over the next few days, which will be posted here. If you still don't see your question pop up, you can always try again on January 25, when we host another all-day live discussion.

Rachel Sheedy: Thanks for all your great questions! The first Jump-Start Discussion has come to an end, and we're sorry we couldn't get to them all. There is, however, a second Jump-Start Your Retirement Plan Day coming up on Friday, January 25, in which we'll answer more of your personal-finance questions.

maria: My 401(k) plan has a lineup of mediocre mutual funds. Should I still max out on my contribution there? I've already funded my ROTH IRA. What is the rationale for maxing out my contributions if the returns are going to be mediocre?

Morris Armstrong: That's a fair question...go for the max of the match at least. During the ENRON debacle I advocated Congress mandating that people be allowed to roll money out of a 401(k) into an IRA at anytime so that they would not be plagued by mediocre fund selection but alas NAPFA didn't support that idea so it went nowhere! If the tax deductibility is not worth the difference in performance, then invest outside in funds that are more suitable, but please make sure that you are using the term mediocre correctly and not just looking for outsized returns. You may also want to discuss your concerns as they pertain to the plan with your HR departmemt and see if changes can be made. The DOL is trying to make the 401(k) more investor friendly. Also, perhaps if you look at your overall portfolio you may find that you can use that one great fund in the 401(k) to your advantage. Maybe you should sit with an advisor and look at portfolio construction? I know that I have clients and I do have to consider that best fund in the 401(k) may be just one class and use it to the client's advantage.

Joe Kim: I am rolling over a 401(k) to an IRA. I have after tax funds in the 401(k). Are they eligible for rollover? Should they be treated any differently than the pretax money?

Morris Armstrong: They are eligible for the rollover and will be treated differently. For argument's sake lets say that your entire 401(k) is 100,000 and 10K is after tax. Everytime that you take a distribution 10% will be tax-free and 90% taxed. You may ask your IRA provider if they will put the post-tax in a separate IRA and I believe in 2010 you may be able to roll that into a ROTH. I don't have the lierature I am thinking of on hand at the moment. You may also consider setting up a meeting with a local planner.

Suzie: What is a fixed index annuity and is it true you do not lose your investment dollars if the market goes down? I am retired.

Morris Armstrong: An indexed annuity has its rate of return tied to some outside measure (index) such as the S&P 500. It is very possible that you could wind up with less money than you put in so I would look askance at anyone who says that you cannot. As your provider what happens if the underlying index grows at 2% per year and you want to take out 10% of your money each year for the next five years, what will your balance be and what will the transactions look like.

Maffey: If I purchase a traditional IRA, but do not earn enough to file an income tax return in the year I draw the IRA out, is there any income tax due on the IRA?

Morris Armstrong: May all problems be as simple as this one! Proceeds from an IRA are treated as ordinary income and if you meet the requirements to not have to file a federal return then no tax will be due. However, if the custodian withholds any tax from your payments then you wil need to file in order to get a refund. So the caveat is if you think that you will not be filing then tell your custodian to withhold ZERO tax.

gary cahn: Every investment book I've ever read recommends a stock/bond ratio of roughly 60/40 give or take a bit, depending on one's risk aversion. Given that certificates of deposit are paying roughly what corporate bonds are paying right now (5%) is there any reason why I shouldn't invest 60% in stocks and 40% in CDs rather than 40% in bonds? I would plan on laddering the CDs. To ask my question a bit differently, what do bonds get me that CDs don't, given that both of them are providing an interest rate of roughly 5%

Morris Armstrong: Well they don't give you the maturity flexiblity that bonds do and also they don't necessarily give you appreciation. When a bond has a total return of 8% it is composed of interest plus or minus price appreciation. Having said that, I would not be reluctant to use CDs in lieu of the short-term bond allocation and if you think that interest rates will head up again in the next year, safety of principal. Some of the recent economic data may also want to make you look at inflation protected debt.

Ginger: I heard that all money put into a Roth IRA could be taken out anytime after 5 years. Does that mean that if I open a Roth IRA I can save for a house in it, take out the money I put in plus $10,000 of the earnings without fees?

Morris Armstrong: Well pretty much, you can always access your principal without penalty. If you take the earnings out prior to 59 1/2 then you are taxed and penalized.

Guy Moyer: If an older couple want to gift each of their children land in the amount not to exceed $26,000, what are the tax consequences to the couple and to the children?

Morris Armstrong: There are no tax consequences provided that the children have not received any other gifts from you that year. In addition, while the GIVER pays the gift tax when the gift is over $1 million ($2 mill if both you and your wife have the assets) many people do not realize that on cumulative gifts less than one million there is no gift tax due, it is only a form that needs to be filled out.

ann conte: I have several accounts for my IRAs. I would like to consolidate these. Several are CDs looking for higher rates. I would be 70 and soon have to get distributions. Should I take out CDs before maturity?

Morris Armstrong: Hi Ann Yes you will have to take distributions soon and although the regs say April 1 following the year that you turn 70 1/2 , most people begin at age 70. One huge benefit of consolidating IRAs is that it makes caculating the Required Minimum Distribution easier, and may custodians will do it for you. If you break the CD you may be penalized and that is not good. I would need to know all your holdings in order to be able to answer that question.

Natira Harris: I am 31 years old and am contributing to a 401(k) with company match. I'm not entirely sure how I should allocate where the funds are going, though: foreign? domestic? bonds? how much does it matter? What's a good split for my age, or where can I learn more about how to get the best results?

Morris Armstrong: Get the dartboard ready! Actually you are to be congratulated for participating in the 401(k) and getting the match and realizing that you need a diversified portfolio. While each situation is different you may be able to find help on the 401K website or in various publications such as Kiplinger's. You may also want to read John Bogle's book but keep in mind, he is a little biased towards indexing and Vanguard. There may be a life-cycle fiund available in your plan or you could consider a mix approximating 30% bonds and 70% equities with about 20 or 25% foreign. You could also talk to a planner for an hour or so and enunciate your goals and tolerances.

Karrie: My husband is a sole proprietor as an electrical contractor. Our CPA told us to open a retirement fund. We have no idea where to begin to invest. We have two employees. Our taxable income can be between $150K to $250K in a year. What kind of funds could we use as tax shelters, retirement, and for medical?

Morris Armstrong: Hey, that's 3 in 1! If your husband provides the medical insurance you might want to look into a Health Savings Account. You are allowed to put the deductible into a tax deductible and deferred account and depending on your health situation that may be better for you. The highest deductible is I believe 10K and change for 2008. If your husband can open a SEP IRA or a SIMPLE IRA depending on the amounts that he wants to contribute for both himself and employees. They are different amounts however with a SIMPLE he could probably defer 22K for himself with only minimal contributions for the two employees. If he wants to do a SEP IRA then the same percentage has to be given to the employees as he takes. Three people make it unfeasible for a 401(k). Depending on ages your husband could also do a pension plan where he could fund benefits for the future. This is probably the most expensive option, but if he is older and the other two employees are young and turnover is high it may be an option. I think that you may realize that you will need to find a qualified advisor, acknowledging their fiduciary responsibility to you, and discuss your situation because you have numerous options, the important points being who you want to include in the plan and how much you may be able to put away. The quick and dirty answer is that a SIMPLE IRA may be the easiest.

Launa Nash: I am retired. Can I move my 403B to an IRA without penalty? Thank you, Launa Nash

Morris Armstrong: There is no tax penalty to move your 403(b) into an IRA, however there may be a surrender charge on your current holdings. You will need to ask your current provider if they impose any charges.

Rachel Sheedy: For our last hour, NAPFA planner Morris Armstrong is taking questions.

Thomas: Hello, I am a 18 year old student in college and I would like to know what is in my best interest to have, a CD or a roth IRA account? I have been researching both, however do not have a firm understanding of them.

Jerry: A Roth IRA account is simply a type of account where the withdrawals (after age 59 1/2) are tax-free. A Certificate of Deposit (CD) is a type of investment that can be held inside of a Roth IRA. With a few exceptions, there is a penalty for Roth IRA withdrawals before age 59 1/2.

Josh: Is it true that Roth's income limit is going away in 2010? I read that somewhere and need to know if it's accurate.

Jerry: The income limit on Roth conversions goes away in 2010. The income limit on Roth contributions does not go away.

Mike Mead: When retiring...is it better to draw money each month or each quarter or what from my portfolio? Thanks, Mike

Andrew Chan: Great question! The rate at which you withdraw funds from your retirement and non-retirement assets depends a lot on your cash flow needs, how your assets are invested and your personal preferences. Generally, if you prefer to have your assets invested longer, withdrawing them less frequently may make more sense. However, withdrawing them less frequestly, generally, means that you will withdraw more each time. Typically, I recommend withdrawing from your taxable accounts before your tax-deferred or tax-free accounts so that assets in these accounts can grow tax-free for a longer period of time.

jim: How many funds should a person hold in their IRA to get a good mix?

Jerry: A targeted portfolio fund invests in multiple underlying funds and adjusts the mix as you near your target year, so in that case, the answer could be as low as one. If you are using more focused funds, you want to limit it so that you can have a good knowledge of each fund. Ten funds or ETFs is probably getting close to the high side.

Dennis: I just bought a car, and only have 16 months left until I retire. Am I better off paying off the car during the next 16 months; even if it means I can't contribute to my 401K? Or should I just pay the basic monthly payment and fully fund my 401K?

Jerry: It largely depends on the interest rate of your car loan. This close to retirement, you are probably not taking a lot of risks in the stock market, so paying off a high-interest loan will likely give you the best effective return.

Bert Hudson: When investing for an inflation proof income stream in retirement, should one invest in Treasury Inflation Protected Securities (TIPS) procured from the federal govenment (Treasury Direct) or from a mutual fund, such as Vanguard's Inflation Protected Securities Investor Shares (ticker VIPSX)?

Jerry: Either one can be a smart move. A mutual fund that invests in TIPS will have a little more price fluctuation, but will have a liquid market if you decide to sell at some point.

Wisconsin: My husband and I are 30 and have just had 2 children. We are currently creating our wills and trying to determine whether to put our home in a trust as part of our estate planning. We've had 1 attorney say yes, 1 no. Given the trust costs, is there a solid guideline as to when one should or shouldn't be created?

Jerry: Only a lawyer can give legal advice, so I can't recommend one way or the other. The advantage of having your home in a trust is that it will pass to your heirs without going through probate. However, there is no solid guideline.

Vince: Historically taxes are low. There are higher chances that in some time period in next 20-30 years taxes will be higher. So rather than maxing out in 401(k), isn't it better to put additional money into taxable account now versus putting in a tax deffered account like 401(k)?

Jerry: In general, you want to make sure you take full advantage of any employer matching benefits. After that, it is usually a good idea to have several sources of retirement income: tax-deferred (401k, IRA), tax-free (Roth IRA, Roth 401k), and tax-advantaged (long-term investments).

Chris: I am a government employee and contribute about 10% of my gross salary to a 457 plan, including employer contributions. I also must contribute a certain amount to the government retirement system. I am not elibible for Social Security. My contribution is about 7.5% of gross salary, with my employer contributing more. Many people say to save 10% or more for retirement. Can I count my contribution to the retirement system toward that percentage? To me, it is like investing in a very safe bond. I am vested in the pension plan.

Jerry: Savings recommendations vary widely, and will be highly dependent on your retirement goals and timeframe. 10-15% is a good rule-of-thumb starting point, but it's only a rule-of-thumb.

Emily: I'm 27 and have not started a retirement account yet. My company offers a 403 (b) but is limited in terms of investment types. I'm thinking of a Roth IRA. Where do I go to start this fund? Do I need to go to a financial investment institution online to open one? Banks? I'm clueless! Thanks!

Jerry: A Roth IRA can be opened at pretty much any financial institution (bank, investment company, etc.). Most online brokers allow you to open a Roth IRA by filling out an online application.

Rachel Sheedy: For the 4 p.m. hour, Jerry Verseput of Veripax Financial Management will be taking questions.

Gail: SO many articles and the like direct comments to people who have $250M and up portfolios...what about those of us at the other end with barely $100M and close to retirement...is there any hope or simply despair to look forward to? My husband has been out of work for 5 years so the prospect of saving is not even a possibility..can someone retire on as little as this?

Kevin Reardon: You bring up a great point. In my experience, it isn't how much money a person has that is the key factor in retirement, but rather how much money they have relative to their spending needs. If you can live on your Social Security income, then $100,000 may be enough. Even though people reach retirement age, many see the benefits of continuing to work beyond that age. I would need to know more about your other assets and income needs to make specific comments. You should contact a local financial advisor who can walk you through the steps in analyzing your situation in greater detail. Best of Luck.

Stephen Blair: I'm 24, single and in the military. I want to see where I'm at from a professional's view. Vehicles paid for, no debt, only common living expenses. I rent for $600 a month and my BAH is $784 so I pocket some of that. I put 12% of base pay into the TSP L fund where I have $13,000. I have $7,000 in a Roth IRA, which I started maxing out last year and plan to continue to max out. I have $16,000 in CDs that are about to mature, and $3,000 in a money market for emergencies. I make around $36,000 a year. What should I do with the $16,000 in CDs and how does my overall financial situation look from your standpoint? Thank you for any help you can offer.

Kevin Reardon: Stephen, First, thank you for serving... we appreciate your efforts. Second, you appear to be doing a fantastic job of saving money at such a young age and appear far ahead of the curve for someone in your age category. Your 12% savings rate is great, although 15% is even better, if the budget allows. As for your liquid assets of Money Market and CDs, I would consider keeping most of that in safe investments if you desire to buy a home in the next few years, or just for safety reasons. If a home purchase isn't in your horizon in the near future, keep six months worth of living expenses in money market, and consider investing the rest into a diversified mixture of mutual funds or ETFs. You should contact a local financial advisor who can walk you through the steps in analyzing your situation in greater detail. Best of Luck, and thanks again for your dedication and service to the USA.

David: My 401k offers a self managed option where you can put part of your 401k directly into buying stock. Is this a good idea? Whether you use this money or after tax money, would you buy stocks now and if so which ones?

Kevin Reardon: David, It sounds like your 401(k) allows you to manage the assets like you would within a self-directed IRA. Your investment options in this scenario are unlimited and include not only individual stocks, but any mutual funds, ETFs, and other investments. If you decide to do so, consider consulting with a financial professional who can evaluate your current options, and offer commentary as to the benefits and considerations of self-directing. As to which stocks to buy? Consult a professional, and remember the two rules of investing: 1. Seek to first preserve your principal. 2. Don't forget rule #1. You should contact a local financial advisor who can walk you through the steps in analyzing your situation in greater detail. Best of Luck.

Michael: I have a question about debt priorities. I have credit card debt (about $8000 spread over four cards), a car loan (about $6000), and a tax payment (about $10,000) for a tax year in which I was a consultant and didn't make the full quarterly payments. I've always been told that credit card debt should be paid off first, but is there a better order for me to more effectively tackle this mountain?

Kevin Reardon: Michael, The first step is to identify the interest rates you are being charged on each debt. Seek to payoff the highest interest-rate debt first with any excess funds, while also continuing to meet minimum payments on all other debts. In my experience, credit-card debt tends to be the highest, but make sure. If you own a home, and have equity in the home, consider refinancing your debt into a relatively low mortgage rate, which allows you to deduct the interest and spread out the payments, or take a home equity loan and payoff the debts. You should contact a local financial advisor who can walk you through the steps in analyzing your situation in greater detail and provide more direct advice. Best of Luck.

john macias: I currently own an annuity as part of my retirement portfolio, have owned it for 7 yrs. Annuity is index fund, current value $54,000, surrender value $47,000. Have not participated in index accounts because I don't understand, have averaged about 4% return per year in fixed account. 7 to 10 years to retirement, would I be better off taking hit now and rolling over this low performer into something with better returns or should I ride it out to maturity in 8 more years? How long would it take to recover loss from early withdrawal, and what type of funds should I consider to rollover this money into? This money accounts for about 15% of my total portfolio, all other funds are invested in mutual funds and lifestage type funds. Please shine some light on my situation, and share some strategies for maximization.

Kevin Reardon: John, This is a very complex question that requires 'lots' more information. We recommend you seek the counsel of a financial advisor who can walk you through the multiple steps needed to answer this question. Some unaswered questions that I have: - Is this money in an IRA/403b retirement account, or do you simply view it to be for retirement? - Does the annuity really have a 15 year penalty, or do you have 8 more years until you are 59 1/2? - Is this an indexed annuity, or do you have an index fund inside of a variable annuity? I would suggest consulting a NAPFA advisor in your area.

Jeremy Richart: What's more important: retirement savings or down payment for a house? My new wife and I are recently married and expect our first child. She wants to reduce her TSP (401(k) for govt. employees) contribution from 15% to 5% (govt. matches up to 5%) of salary in order to increase our down payment savings and savings for the new baby. I told her that I would prefer to keep it at at least 10% and that it's more important to save for retirement. Caveat: She wants to quit work for a little while after the baby. We are both 30, have $50k in savings for down payment and live in DC on VA side. She has $40k in TSP, $15k in Roth and I have $8k in Roth. What are your thoughts?

Kevin Reardon: This is a complex question that requires a meeting with a financial planner. Some preliminary thoughts: It sounds like you have the down payment money already set aside. You might end up scaling back your retirement savings a bit, but in general, I encourage people to keep their savings rate at least 10%. If you have a larger paycheck, people end up increasing their standard of living to meet that check, so a forced savings is imperative. Best of luck.

rod clifford: What is wrong with having a lot of different stocks, as compared with a few? Maybe 150?

Andrew Chan: I don't think there is anything particularily wrong with having many different stocks in your portfolio. Some of the benefits of using mutual funds instead of stocks include: diversification, professional management, efficiency, lower costs and ease of use. Generally, mutual funds will allow you to diversify your portfolio across more asset classes with fewer holdings, in a more cost and tax efficient manner than individual stocks. This ultimately means that you will get to keep more of your investments rather than paying fees and commissions.

Rachel Sheedy: For the 3 p.m. hour, Kevin Reardon of Shakespeare Wealth Management is taking questions.

James Russell: I want to open a health savings account. How high does my insurance deductible has to be? How much can I contribute to the account for 2008? Can I use the money for retirement? Where can I open one at?

Andrew Chan: In order to qualify for an HSA, the deductible of your health plan must be at least $1,100 for an individual or $2,200 for a family. For 2008, the contribution limits are $2,900 (individual) and $5,800 (family) for those under age 55. For those over age 55 the limits are $3,800 (individual) and $6,700 (family). HSAs can be set up with a bank, insurance company or anyone already approved by the IRS to be a trustee of an IRA or Archer MSA.

Michael: Is it better to invest or pay off a mortgage early?

Andrew Chan: Unfortunately, the answer to this question is that it depends on your specific financial situation and your preference on carrying debt. In general, if you can earn more on your investments than the interest rate you pay on your mortgage, investing would be better. The problem with this is that it is difficult to guarantee that you can consistently earn more through investing. The other factor is your personal preference. There are many people who do not like having any debt (including "good" debt such as a mortgage). In those situations, paying down the mortgage first may work better.

Neil: I don't fully understand the concept of "load" in a mutual fund. I think it means a sales charge, either on buying or selling specific stocks in the fund, to pay the manager. If that's the case, why would anyone use a "load" fund when no load funds are available? Also, where do they make their money if not on the transactions?

Andrew Chan: Good question! A load mutual fund is a sales charge for shares of the mutual fund that you buy or sell (as opposed to a charge when the mutual fund buys and sells shares of the stocks in the fund). Depending on the mutual fund provider, loads can be anywhere from 4% to 8% of the amount you are investing or it can be a flat fee. I agree that no-load funds are the way to go but in certain circumstances an investor wants a particular fund (because of investment style or fund manager) that includes a load. Loads are one of the ways a fund receives compensation. Others would be 12b-1 fees and transaction fees.

Scott Hight: I understand long-term capital gains in 2008 are tax-free for those in 15% bracket (couples earning less than $65,100). Can these capital gains push you into a higher tax bracket so that you cannot take advantage of this new law?

Andrew Chan: Yes, under current legislation, the 5% long-term capital gains rate does become 0% for 2008, however your taxable income includes capital gains and qualifying dividends. This means that if your taxable income knocks you out of the 10% - 15% tax bracket you will not qualify for the 0% capital gains rate.

J.Scott: My question is if you are married and you have a mortgage, and let's say $45,000 debt between you and your spouse, which kind of financial planner would provide at least some sound advice? A fee-based planner or a regular financial planner?

Andrew Chan: Good question! I would recommend that you contact a fee-only financial advisor. They would be able to make recommendations and provide advice without having a vested interest in any products or services recommended. You can start your search by contacting a NAPFA-Registered Financial Advisor at 800-366-2732 or via the web at www.napfa.org.

SnowBird: What is the best way to see that my investments pass to my life partner in an efficient manner as possible upon my death? I have a trust, and my partner is the trustee upon my death. Wouldn't she be required to pay tax on my 401(k) since it cannot be held within my trust? It seems that the trust is the best way, but not sure. I wonder then, if I should invest more in my investments that can be held under trust, and not as much in my 401(k) to make it better for her in the future. Thanks.

Andrew Chan: I think the trust is a good vehicle to use for you and your partner, but I would definitely review your entire estate plan with an estate-planning attorney. He or she will ensure that the plan that is developed for you will fit your and your partner's personal and financial goals. To answer your question about investing in the trust rather than the 401(k), the 401(k) will allow your funds to grow on a tax-deferred basis whereas the investments in the trust will not. Depending on how long and how much is in your 401(k) the difference may be significant.

Rachel Sheedy: Andrew Chan of Family Financial Architects joins us for the 2 p.m. hour. We're more than halfway through our first Jump-Start Day; we've received several hundred questions and are getting to as many of them as we can. Remember, you can also call 888-919-2345 until 6 p.m. today to talk with a NAPFA planner.

Ohio: I max out my Roth every year. The advice after that seems to be to put at least enough in your 401K to match the employers match. How do you determine, after that match, if you are better off adding to the 401K or putting extra money in an already established mutual fund? Also, if I die, doesn't my beneficiary pay tax on the 401K (not spouse), but the mutual fund (in a Trust acct) would not require payment of taxes to Trustee upon my death?

Carolyn McClanahan: It is important to diversify your investments in a tax-wise manner, and this is exactly what you are proposing. In general, if you know that you will be in a lower tax bracket later (if you think tax rates will not rise,) it is better to put the money in the retirement plan. There really is no good formula to determine which is better, as we have no idea what future tax rates and capital gains will be. I recommend for people to have money in Roths, retirement accounts, and taxable accounts for just that reason. You are correct in that your beneficiary will have to pay taxes on distributions (your spouse will too at some point). Also, based on current law, they will receive a step up in basis on the taxable mutual funds and will not have to pay any taxes, so it is better for them to inherit this asset. Finally, remember to make your taxable investments tax-efficient. Keep bond funds in retirement accounts and put equity funds in the taxable accounts. Look at the history of the fund to make certain it is known for being tax-efficient.

Malcolm Bruce: I am reaching 70 1/2 years of age and hold IRA, 403(b) and 457(b) accounts. Can I calculate the minimum distribution by summing the year-end value of all of these accounts, divide this sum by the distribution period, and then withdraw this amount from any one of these accounts?

Carolyn McClanahan: You can do this for IRAs, but not for the retirement plans. For ease of distributions and record keeping, I recommend to my clients that they roll the old plans into an IRA.

Marguerite: I need to know if I should keep IRA accounts outside the living trust I recently had set up. My problem centers around wanting my son's share of my estate to go to my grandchildren if he is not living and the IRA beneficiary requirements of several mutual funds where I have the accounts give the money to the contingent benficiaries only if both primary beneficiaries (son and daughter) are deceased. Presently the grandchildren are contingent beneficiaries and my daughter has no children. Will the favorable tax rules for inherited IRSs work the same if the IRA is in the trust?

Carolyn McClanahan: This can be very tricky. For example, if a charity is named anywhere in the trust, you may lose favorable tax rules. A good attorney should be able to read your trust document to make certain that it would qualify as a pass-through trust. If it does, then you will receive the favorable tax rules. There are custodians that allow IRAs to go per stirpes (to the grandchildren) - Fidelity has this for sure, so you may want to consider changing custodians. One quick fix would be to split your IRA into one for your daughter and one for your son. The children can be named contingent beneficiaries on the son's IRA.

LK: I'm looking for a fee-based financial planner, but having a hard time with the process. I've asked friends and business associates for recommendations, but nobody has any to give. In fact, most are resigned to just rely on their CPA. I've researched various Web sites to get the names of fee-based consultants in my area, but what specific things can I do to make sure I'm narrowing my decision to qualified planners who best fit my needs?

Carolyn McClanahan: Part of the process is to first identify your needs. Do you want someone who can validate what you are doing or someone that will do it all for you? If your situation is complex, you would probably want a planner that works on flat retainer. If your situation is straight forward, an hourly planner should be fine. A search on www.NAPFA.org should lead you in the correct direction. On the "Consumer Services" tab, they have a "financial-planning checklist" to help guide you on what you should look for in a planner. You can then also use their "Find an Advisor" area. For an hourly planner, a great site to search is www.garrettplanningnetwork.com.

Kathy: I have multiple 401(k)s. Would it be better to consolidate them into one big retirement account? Or because of so much money fraud nowadays, would it be safer to leave them in separate accounts as they are now?

Carolyn McClanahan: My preference is to consolidate them into one rollover IRA. This way, you have greatly improved choices in investments, plus the record keeping is easier. When it comes time to start withdrawing your money, dealing with one good custodian with an IRA is so much easier than trying to get money out of the 401k plans. Dealing with all of the plan administrators and paperwork is a bear. Another reason to roll it all into an IRA is for estate-planning purposes. It is so much easier for your family to deal with one IRA than multiple 401(k) plans. It sometimes takes months to get money out of work retirement plans after a death. A family in duress does not need this hassle.

Rob Walsh: I have a traditional IRA that I may want to convert to a Roth IRA. Is there ever an advantageous time or age to convert it?

Carolyn McClanahan: The sooner the better, because it gets to grow tax-free from that point forward. The only thing that would make me wait is knowing that you would be in a lower tax bracket in the near future. For example, I had a client take some time off between job changes, so we were able to convert to a Roth at a lower tax rate then when she was in a higher bracket. Also, it may be wise to convert portions at a time to stay in a lower tax bracket. The nicest thing about converting to a Roth that people sometimes forget is there are no required minimum distributions at age 70 1/2.

Billy: Is it still necessary to keep IRAs & IRA-Rollovers (from 401ks) seperate?

Carolyn McClanahan: This depends. If there is a tax basis to the IRA, still contributing, or plan on taking early distributions, it is better to keep them separate. Otherwise, you can put them all in one rollover IRA.

Dave Rose: I keep hearing about the 59 1/2 age being key in retirement planning. For example, please clarify the rule about not being able to access 401(k) funds until that age except via SEPP. Is it a gov't set age? How did they select that age? Thanks, Dave

Carolyn McClanahan: The age was set by the IRS and is a government rule. I have no idea how they arrived at 59 1/2. Maybe the person who set the age wanted to retire and they happened to be 59 1/2.

Lidya H: I heard that one can make withdrawals without penalty after age 50 from a 401k with a previous employer. This can be helpful for those planning (or forced into) early retirement. Is this true, and can you please elaborate?

Eileen Freiburger: Lidya, This is a very complicated area in the financial-planning arena since depending on your plan and employer there are many nuances. For the scope of this platform I'd like to keep my response fairly general but encourage you to seek a local Fee-Only NAPFA Registed Investment Advisor at www.napfa.org or call 800-366-2732 to find someone in your area when the actual need arises should this be a situation you are personally in at or around age 55. There are certainly penalty-free hardship distributions in cases of disability and high medical exspenses. However, while the 10% penalty would not apply the distribution is still taxable as income. I'm going to assume what you're asking is the 72T Rule, which does allow for "substantially equal periodic payments" over the life of the owner and future beneficary. However, this is a very complicated process and should never be taken without an objective independent review of a person's personal situation. The 72T rule allows you to take at least 5 substantially equal period payments using various IRS Approved methods. In an IRS schedule that sometimes may deplete the account sooner than it otherwise would have, or as dangerous, force a person to take more funds than they needed and therefore pay more in taxes. A comprehensive fee-only planner would look at this option with an eye towards your cash flow needs and future RMD, (Required Minimum Distributions) and then personalize and help you determine if it's the appropriate offering for you. This review should also be done in conjection with your future tax ramifications, which is why the process of review has no cut and dry answer. So yes, at age 55 there are options, but some feel it may limit your future retirement cash flow and therefore this 10% penatly-free decision may not be the right solution for many people.....Great question, thank you for bringing it up!

Carol A: I'm 63 and have 2 accounts; a 403(B) with ING and an Edward Jones account that only seems to offer investments with a variety of American Funds; ING seems to offer more variety. I'm wondering whether I should be concerned about the fund fees. How can you determine what they are, and how they might affect your return over time?

Carolyn McClanahan: Fund fees are important and affect return. Make certain that the funds offered are also being sold without an initial sales charge (called a load). Fund fees should be available through the provider. Another great place to find fund fees at ratings is at Morningstar.com. Just Google the fund and the Morningstar report is usually listed in the top of the rankings.

Rachel Sheedy: For the 1 p.m. hour, Carolyn McClanahan of Life Planning Partners will be answering questions.

Scott J: My wife and I are expecting our first child, and I am wondering what types of life-insurance products and coverage amounts we should be carrying on ourselves and our new child. (I earn $87,500 and my wife earns $55,600.) Thanks!

Eileen Freiburger: Congratulations on the new addition, this is a very important question. You always want to ask yourself what would the family need if one of us should pass tommorrow. Remember, it's not just salary, but it's also the ability to have access to your 401(k) savings, surpluses and double incomes. Frequently, this comes down to a future quality of life! This is a question that really should be customized to you specifically which I can't quite do with our limited info, so start by knowing general rule of thumb is 7-10X salary, but I personally would also want to know that's enough to cover a large chunk of your mortgage, (or future home), not to mention a jump-start on college savings. We'd have to assume with a first child you're still fairly young, so look at overlapping term insurances. Perhaps $XX dollars for 30 yrs, and another piece for a 10 yr term. This way you have sufficient coverage started for 30 yrs, but for a much lower cost you could wrap around the 30 yr with additional coverage. AS a fee-only advisor we do not sell products, so when NAPFA members suggest coverage we'll usually encourage the term since in most cases it's in the best interest of the client.

Harry Retirement: Our retirement nest egg is entirely in regular IRAs. In about 7 years when I begin to take my minimum withdrawals, I will probably put the money in a money-market fund and then use it for monthly expenses, etc. My question: Is the money that I take out subject to capital-gains taxes and do I need to worry about the cost basis of the money from those IRA investments? Or, do I pay my income tax on whatever I withdrew and then it's like any cash account? Also, once it's in a dividend earning money market, I suppose I will have to pay taxes on the dividends earned?

Eileen Freiburger: Good question! When you start taking your RMD (Required Minimum Distributions), the funds you take out will be considered income. You do not have to worry about cost basis on these IRA funds. I always like my clients to have an idea of the expected RMD amount and in some cases we may want to start taking some funds prior to age 70 1/2. Once the funds come out and are in a bank account you are correct, the interest is now reportable on a 1099.

Pablo: I am 39 and my wife is 42 with a newborn, we both have a 401(k) and she has a 403(b). Should our portion of investments in our retirement plan be more on high risk or low risk at this stage in our lives. I contribute 7% of my salary, and she contributes 10%. We each have about $50k on our accounts at the moment.

Eileen Freiburger: Pablo, Congratulations on your family's addition and starting already to fund retirement accounts! Generally you'd want to be in the "accumulation phase," which means you should be taking more risk. However, that does not mean you choose the highest flier and jump between funds. Set an allocation with divesification. Many plans these days offer lifestyle choices with allocated selections. Look at their allocations. Are your individual choices strong enough to make your own allocation models? At your ages keeping a majority of cash in low risk, (and therefore limited potential growth) could be a mistake. Go for diversification using bonds, large cap, small cap and international holdings. And if your selections aren't very strong keep in mind you could also set up portfolios outside of just the retirement vehicles.

Michael Thorp: I am 62 and considering retirement in the next 2 or 3 years. Right now we have about 40% of our retirement funds in mutual funds (equities). In view of all the talk about recession, I wonder if I should get out of the market for the time being and get into muni bonds, T-bills etc. until things look better. What do you think?

Eileen Freiburger: Michael, This is exactly when the need for an objective planner comes in. It's not just about an expected return, but how much will you need in retirement once you stop drawing an income? Will you still have a mortgage? Will you have a pension and do you start Social Security at 62 or later? What amounts will you be required to pull from retirement accounts at age 70 1/2? What will your age 62 through age 70 1/2 shortfall be that other retirement and taxable acoounts are helping to cover? Try the online planning tools at Kiplinger's Web site to get a sense, but ultimately the answer comes back to how much growth do your accounts needs to support your LIFETIME of future retirement. Once that is known it's much easier to back into the type of allocations. With current life expectancies I do not advocate pulling all funds out of the marketplace. However, this is a very specific question to your own situation and I'd be remiss not to encourage you let a NAPFA, Registered Investment Advisor personally help you. Consder seeking someone in your area at www.napfa.org.

Rachel Sheedy: For the noon hour, Eileen Freiburger of ESF Financial Planning Group will be taking questions.

Rubelstanz: I have a question about LTC insurance. My wife and I are 67 and 64. We are both in reasonably good health We have total assets of $1M including our home (value approx $350K). Should we buy LTC insurance or consider a reverse mortgage if the need arises?

Tiffany: Great question! First, a word of caution. A reverse mortgage is good in very few cases. I would highly recommend talking this over with a NAPFA planner if you take this route. The best bet is to buy LTC from a good quality LTC provider. This will protect your $1m base, should the need arise, leaving more money to your heirs. You may want to contact a NAPFA advisor in your area as he/she will have wonderful contacts on where to get the most for your dollar when buying the LTC policy. NAPFA planners do not make a commission nor make any money from recommeding a company. But, the right policy will help protect your assets. Please visit www.napfa.org or call 800.366.2732 for more information. Hope this helps! Best, Tiffany

Esther: I am an aspiring actor/dancer and I do not plan to have a steady income or job. Since I am not eligible for a Roth IRA or 401(k) what suggestions do you have for the type of account I save in for retirement?

Tiffany: Hi Esther, You may look into a nondeductible IRA. This may help. You will not be able to get the deduction, but the money will at least go into a retirement account. You may also want to call a NAPFA-Registered Financial Advisor in your area. (Find one at www.napfa.org or call 800.366.2732.) Best, Tiffany

Margaret: Do we need to keep paperwork (from purchases, selling) of homes that we no longer own, or can we shred those papers now? We lived in these homes and didn't rent them out.

Tiffany: Hi Margaret! Wonderful question! The safe thing to do is keep the paperwork for a period of seven years. You could easily keep this information with your old tax returns. I would keep the primary pieces of information like interest paid annually, amortization schedules, appraisals ... and shred only the mortgage payment history as you can back that up with bank statements. Hope this helps! Best, Tiffany

Stacia: My husband and I recently started his 401(k) at work. I really wanted to use a target-date fund like the T. Rowe Price 2035 or 2040, but they didn't offer it. After speaking with them, they are willing to add them for us. So are those good funds, and which do you recommend the 2035 or 2040 or are they about the same (return-wise/cost-wise)? Thanks for your advice!

Tiffany: Hi, Stacia! Congratulations on starting the 401(k)! I can't recommend the 2035 or 2040 without knowing more information. When building a portfolio's target allocation, the cardinal rule is to look at both the individual's risk tolerance level and time horizon. There are a few other items to look at, but those are the primary ones to focus on. But, to help you decide between the 2035 and 2040, you can pull up www.morningstar.com and compare the expense ratio for each. Remember, the higher the expense ratio, the lower your return as expenses drain your rate of return. Hope this helps! Best, Tiffany

Rachel Sheedy: Hi, everyone. Problems with the phone hotline have been fixed. If you want to talk to a NAPFA planner by phone to ask your question, call 888-919-2345. The line will be open until 6 p.m. EST today.

Matthew Sumner: Given the option of contributing more to my company's 401(k) or contributing to a Roth IRA, which is the better choice? I am not maxing out the 401(k), but am currently getting the entire company match.

Tiffany: Hello Matthew! This is a very good question! Thank you for letting me know you are getting the full company match. First, make sure your income doesn't exceed the Roth IRA limitations. Assuming it does not and you are eligible to contribute, I may look at the Roth IRA. Persons typically begin contributing to a Roth when they anticipate their tax bracket on going up. For instance, if you are in the 10% bracket now and think you'll be closer to the 28% bracket at retirement, then you would pick the Roth IRA. This creates balance in retirement. The 401(k) will be taxed when you start qualified distributions whereas the Roth was taxed when money went in and will not be taxed when you make a qualified distribution. Hope this helps! My Best, Tiffany

Patrick B: What is your favorite way of keeping track of your accounts and recurring bills (software, notebook, etc.)?

Tiffany: Hello Patrick! Personally, I have the nickname 'tight-wad'. I'm very particular about my tracking system. For the business, we use Quickbooks. For personal accounting, I found Quicken to be too redundant. I stick with my check register. My method can be quite confusing so I'll give a quick example. If payroll occurs on the 1st and it's $10,000 -- it's not but that's a good figure. :) Then, I start deducting all my 'fixed' expenses for the payroll period (utilities, monthly savings, ...). What's left over and didn't get used is transferred into a savings or investment account. It may appear to be living as paycheck to paycheck but it is not. You don't want to 'overload' your checking account. You need to keep your money working for you by transferring 'extra' money into a higher yielding account (savings for short term and brokerage (investing) for long-term). Ultimately, you have to find what works best for you. The method needs to make sense and be easy to use. Then, you will have a higher probability of sticking with it. Hope this helps! Best, Tiffany

Jimmy Bob in TN: In 1998, I did a conversion Roth IRA. At the time, the general advice (as I recall it) was to maintain such an acct separately from any other Roth IRA. Now, 10 yrs later, I would like to move the "conversion Roth IRA" to another company and consolidate Roth IRAs. Do I still need to worry about maintaining the "conversion Roth IRA" distinction? If so, switching to another company would seem impossible b/c of record keeping/tracking. Thanks.

Tiffany: Hello Jimmy Bob! You've come to the right place. The best thing to do is leave the accounts seperate for tax purposes. If you have an accountant (who does hold a C.P.A.) who normally files your taxes, you may verify this with that person. The reason for maintaining the separation is for when you begin distributions from that account. It helps filing your tax return that year be much simpler than if the accounts had been brought together and comingled. Hope this helps! Best, Tiffany

Scott: I have an estate-planning question. I am married, 33 yrs old (wife is 30) with a 4 yr old child. We have been blessed with a good income and solid net worth plus some good life insurance policies. My question is, do we need a will, trust or both and what are the driving factors on choosing what estate planning tools to leverage? Lastly, should I seek an attorney or a financial planner to help implement these? Thanks!

Tiffany: Hello Scott, These are all very good questions. You have a situation in which you need a NAPFA level, fee-only, fiduciary financial plan. The plan will answer your questions as best as possible. Everyone needs legal documents drafted (especially a will and durable power of attorney). Regarding the trust, this depends on your net worth. The NAPFA, fee-only, advisor can pull together your insurance policies, estate, net worth, retirement, investments, taxes, education planning, and any special needs planning and get you on the path to meeting your long term goals and objectives. The planner works with your attorney, tax professional, and insurance agent to make sure your financial health is working as effeciently as possible. I hope I answered your question. You may find a NAPFA-Registered Financial Advisor in your area by visiting www.napfa.org or calling 800-366-2732. Best! Tiffany

Grant: Wife and I are eligible soon for Social Security amounts that are about equal. Is it wise for her to take Social Security at 62 and me to wait until 66 so the survivor gets a higher benefit later?

Tiffany Bergland: Hello, Grant. Generally, it is best to wait closer to 66 to begin receiving Social Security payments. The primary reason, is like you said, the benefit is higher. Unless the cash flow is needed now, it may be best to wait a little longer.

Nikki: My spouse and I got salary bumps last year, and we are now over the max income limit to contribute to a Roth IRA. We already have a number of nonretirement mutual funds. Going forward, should we now direct the money we set aside for the Roth IRA into one of these funds or open a nondeductible IRA? Any suggestions?

Jeff Kostis: First, I suggest that you contribute the maximum to your retirement plans at work. If you are already doing that, I suggest keeping the money in a nonretirement account. This gives you more flexibility if you need the money in 10 or 20 years and it eliminates the Required Minimum Distribution at age 70 1/2.

Rachel Sheedy: For the 11 a.m. hour, Tiffany Bergland of Bergland Capital Management joins us to take questions.

House Buyer: I recently graduated from college and will begin working full-time. I am currently renting, but would like to purchase a house within the next couple of years. If I don't have enough money in savings for the down payment on a house, should I tap into my Roth IRA? Thanks!

Jeff Kostis: It is usually very difficult for a recent graduate to come up with the money for a down payment for a house. I'm glad to see you are starting to plan now. In answer to your specific question, the IRS allows you to withdraw up to $10,000 for the purchase of your first home tax free. Because of this rule, if you don't need to withdraw more than the $10,000 limit for the down payment, this is a good option.

pranay: What is a Spousal IRA? My wife doesn't work. Can I contribute to a Spousal IRA on her behalf?

Jeff Kostis: A Spousal IRA is a special type of IRA that allows a non-working spouse to have their own retirement account, even though they have no earned income of their own. You can contribute up to $4,000 for 2007 and $5,000 for 2008, plus an additional catch-up of $1,000 for 2007 and 2008 if your spouse is over 50. Depending on your AGI and if you are covered under a retirement plan at work, the contribution may be fully tax deductible.

john Brensinger: There are many confusing sources for financial information. Are there any sources that you use to enhance your financial knowledge that you could recommend to us?

Jeff Kostis: The financial world is always changing, from how to allocate your assets, what investments to put in different account based on taxes, etc. I use a wide variety of sources to keep current with the latest trends and research. Many finance magazines have excellent web sites with a lot of educational material in addition to their print version. I regularly read Kiplinger's, Money and Smartmoney in addition to professional journals. I also suggest the American Association of Individual Investors (www.aaii.com) and Morningstar (www.morningstar.com). Both have terrific education sections that are well written and easy to understand.

Jim: I have a small farm and some cd's that I want to leave to my children. What tax consequences will they have if I put there name on the deed with right of survivorship and on the cd's. Thanks

Jeff Kostis: Adding your children's names to the deed would be considered a "gift", thus taxable if the farm is worth more than $12,000 per child. If your estate is worth less than the Exclusion Amount ($2,000,000 this year, $3,500,000 next year), you should consider leaving the farm and the CDs to your children in your will. You should also be able to add your children as beneficiaries to the CDs at your bank. This will eliminate the need to add the CDs to your will. Since you are dealing with a will, please make sure to talk to an attorney before you make any changes.

jim anderson: Can I roll my 401(k) directly into my Roth IRA in tax year 2008? I would like to avoid that step of rolling into a traditional IRA and then to a Roth conversion IRA. When I roll this IRA can I immediately mix it with other money or must it keep its own identity for one year? Thank you

Jeff Kostis: Starting in 2008, you may roll a 401(k) directly into a Roth IRA. However, in 2010 (and only 2010), the IRS will allow you to roll over an IRA into a Roth IRA, pay no taxes on the conversion in 2010, 50% of the taxes in 2011 and 50% of the taxes in 2012. I recommend that my clients keep the funds with their own identity, so if there are any questions or we need to recharacterize the contribution, it is easier to do.

James: I'm 50 and need to build an emergency fund up. I have roughly 150K in retirement funds. Would it be ok to suspend funding a 401(k) for a year in order to build up a small emergency fund?

Jeff Kostis: I would recommend not switching your 401(k) dollars to fund an emergency account. Although this is the easiest way to create the emergency fund, at age 50, you do not have a lot of time to continue funding the 401(k). I would suggest funding your emergency account by limiting daily spending, even in small amounts.

pa leppert: I always hear that one should not take more than 4-6% from their IRA each year after retirement. If one has $1 million in a money market IRA and they receive 5% interest this year does that mean they should only take out $50,000 (5% of principal and also keep the interest or 5% of $1,050,000 (the ending balance))?

Jeff Kostis: The 4 - 6% you quote is for the initial withdrawal in the first year. The rule of thumb is to then increase the amount from the IRA to keep up with inflation. In your example, you would take out $50,000 the first year. Then, if inflation is 3%, the next year you take out $51,500 (50,000 + 3%). Also, please be aware that the most research has shown withdrawal rates over 4.5% run a significant risk of depleting the portfolio.

Rachel Sheedy: With a new hour comes a new planner. This hour Jeff Kostis of JK Financial Planning will answer questions.

Randy: If I am receiving a 72t SEPP from a traditional IRA can I still take advantage of the first time home buyer exemption from 10% penalty from the same IRA? My taxman says yes, my broker says no.

Annette Simon: This is beyond my expertise. If you do not believe your accountant I would consult with another accountant rather than a broker.

James Burkhart: Presently my wife and I have a mortgage on our home in Florida totaling $80,000. For the last 5 years we have not had sufficient deductions to file the long form. In addition, I have sufficient monies in my deferred comp plan from my previous employer to pay off our mortgage and be totally out of debt. Is this a wise move on our part, or should I let my money grow and continue to make monthly payments on our mortgage?

Annette Simon: There are two components to the mortgage payoff decision -- the financial piece and the emotional piece. Depending upon the interest rate on your loan accelerating payments might not make sense. If your interest rate (even without the tax deduction) is less than you could earn on investments then financially you are better off paying at the normal rate. However, many people just sleep better at night when they don't have a mortgage. If paying off the mortgage a little faster helps you sleep at night, it's not a bad idea to do so. At a minimum you can look at it as the equivalent of a fixed income investment with a guaranteed rate of return (at whatever your interest rate is).

James Rennecker: I have the opportunity to invest any amount up to $250,000.00 into a 6% CD that is fully insured. The CD expires in October 2008. Considering the current economy, what would you suggest? I am 66, and still working in my own business.

Annette Simon: That seems like an attractive rate for a CD, however I can't recommend how much you should put into it without knowing a lot more about your financial situation. You need to consult with a fee-only advisor in your area. If you check the NAPFA website (www.napfa.org) and look for an advisor who works on an hourly fee basis you can find someone who will be able to answer your question at a minimal expense.

Rachel Sheedy: Just a quick note: You can also reach NAPFA planners by phone today until 6 p.m. at 888-919-2345. But at the moment the hotline is experiencing technical difficulties. We'll let you know once the phone number's problems are fixed.

Nina Ries: How do I know how much to save for retirement? I hear a lot about saving a million, but I don't think that will do it. My husband and I are 33, professionals and make $250k per year. We expect to work until age 70 (or more), travel in retirement, and we both expect to live to 100.

Annette Simon: The simple answer is to save as much as possible -- saving too much for retirement is a high class problem. One rule of thumb -- you can withdraw 4% a year from a portfolio that you need to live on for many years (35 or more). So if you have put aside $1 million you can pull out $40,000 in the first year. If it has grown in value more than 4% in that year, you 'll be able to pull out a bit more in the next year. Keep in mind too, that if you are doing all of your saving in tax-deferred accounts (401(k), IRA other retirement plans) you will have to pay ordinary income tax on every dollar withdrawn. Your $1 million may only be worth $700,000 or less.

Gary Book: Can minimum required distributions from an IRA be donated to a charity with the result that no taxes will have to be paid?

Annette Simon: Deductions for charitable donations are limited to 50% of your adjusted gross income. If your minimum distribution is a small portion of your overall income then you might be able to offset the tax on it by donating it to charity.

Celia: My husband owns some Lowes stock, which he obtained as part of the employee stock plan. We are fairly young, and would like to buy into some mutual funds with the money from selling those shares and some investing money of our own. Right now the stock is price is really low, should we wait for the value to go up before selling it or sell the stock at any price it happens to be on a low-performing day for the rest of the stock market so we can buy in cheaply (low) into other investments?

Annette Simon: Your instinct to diversify your holdings is exactly right. Trying to time the sale of your Lowes stock is tricky at best. As long as you have held the stock for more than one year, any gain on the stock will be taxed at 15%. If the value of the stock is less than your cost basis, you have a loss that is a valuable deduction on your tax return. I would recommend going ahead with the sale and purchasing a fund or group of funds that give you broad market exposure (to as many asset classes as possible).

Robert H Sauder: Widower with no children. Will my beneficiaries receive my assets at cost basis at date of my death, or do I need a trust?

Annette Simon: As the law currently stands, cost basis is stepped up at the time of death. It does not matter whether your beneficiaries are your children. However, whether you need a trust is a separate issue depending upon a variety of factors (the size of your estate, the estate tax laws in your state and your specific wishes). I would recommend you consult with an estate planning attorney in your area.

Lili Castro: Hello. Please tell me exactly how does maxing out my 401K work - someone had suggested it to me, but I'm not really sure how it works. Thanks.

Annette Simon: If you are under 50 years old you can contribute up to $15,500 this year to your 401(k); if you are 50 or older you can contribute $20,500. Maxing out simply refers to making the maximum allowable contribution. You should check with your payroll or human resources department to find out if you can change your withholding if you would like to do so.

Harold Nash: I am the sole proprietor of a small business and would like to know detailed particulars on how to go about setting up a 401(k) Roth. Do any online brokerages support the 401(k) Roth? Any other details on the 401(k) Roth would also be appreciated. There is limited information regarding the 401(k) Roth plan and the IRS has been of no help.

Annette Simon: Take a look at theonline401k.com. They are a low-cost, turn-key provider of 401(k) and other defined contribution plans including the Roth 401(k). I have not used them personally but know of other advisors who have worked with them and given them high reviews for their service.

Young Investor: I am a young investor with over 30 years until retirement. Should I place my money in a Roth IRA or a traditional IRA? I expect to tap into these accounts after I have started retirement -- when my income levels will have dropped significantly from my working life. Is there an advantage to paying tax on my contributions now versus paying tax on them when I withdraw?

Annette Simon: Roth IRAs are a terrific value for young investors. Although you may expect your taxes to be less in retirement that may not be the case -- if you have saved a lot of money in an IRA you may be withdrawing substantial amounts of taxable income. Moreover, tax rates now are at historic lows -- we have no way of predicting what they will be in 30+ years when you retire. Paying the taxes now and allowing your invested dollars to grow tax free is a huge benefit. I strongly recommend the Roth for you.

Rachel Sheedy: Welcome to the inaugural Jump-Start Your Retirement Plan Live Discussion. I'm Rachel Sheedy, associate editor for Kiplinger's Retirement Report and the retirement content editor for Kiplinger.com. I'll be moderating today's discussion, which will touch on all stages of retirement. Every hour until 6 p.m. today, we'll have a different NAPFA planner answering the questions you've submitted. First up to the plate is Annette Simon, of the Garnet Group.

Jakk: I am about to receive a large inheritance (~$250k) and am not sure how to prioritize where it should go (debt ~$15k/mortgage at 4.56%/home equity at 6.5%/college fund for kids ages 3 & 9/retirement)??? How should I decide what to do?

Jeff Kostis: There is no quick answer. It depends on your goals and what you have already done. I suggest laying out all your goals first, then prioritize between them. For example, you did not mention retirement savings, paying off consumer debt or other common goals above. If you only have these 2 goals, you may be able to fully fund both now - paying off the mortgage and putting enough aside to pay for college for your children.

Bob Rich: Until this year all my mutual funds have been in Roths. This past year I opened a regular acct. What I would like to know is do I have to pay capital gains on the acct if I do not take any money out of the acct? thanks, bob

Jeff Kostis: I assume that a "regular account" is a taxable account. If I am correct, you will need to pay capital gains under 2 scenarios. First, if you sell the fund and the selling price is more than you paid. Second, mutual funds may distribute gains to their fund holders. This is usually done at the end of the year. Some funds are very tax efficient, others are not. Unfortunately, you will not know until the end of the year if there will be a distribution or not. You can call whoever sold you the fund and get the details of what they have done in the past.

mp: As a new homeowner, I have heard that I should adjust my w2. I am single in my 20s. Should I elect to have more deductions taken or less?

Jeff Kostis: Congratulations on your new home! Typically, when you buy a home, you become eligible to itemize your deductions on your tax return due to the mortgage interest and property taxes you will pay. If this is your situation, you may be able to have less money withheld from your paycheck since you will owe less in taxes. If you have a tax preparer already, talk to that person. If not, many software programs like Tax Cut and Turbo Tax come with planning features to help with these types of questions. Lastly, you can always make no changes, get a larger than anticipated tax refund this year, then adjust your withholding next year.

heather may: I am using an HSA to save for future medical costs for when I am retired. How can I weave this account into my overall retirement plan?

Rick S.: What I would do is include it, and its growth, in your retirement planning projections. This assumes that you also include the estimated health care costs beyond Medicare and any supplemental policy.

Dan: I just graduated from law school. Even after scholarships and working during undergrad and law school, I have approximately $80k in student loans. I had very little credit-card debt - which I have already paid off. I have a job, but it does not offer a 401(k) or other retirement benefits until I've been employed for a year. I've contemplated starting an IRA, but am unsure if this would be best given the amount of my loans. How should I balance paying off these student loans - which are upwards of $800 per month - as well as invest for retirement?

Rick S.: Essentially, I would have you look at the following: (i) the after-tax cost of the interest on your student loan vs. (ii) the anticipated earnings within an IRA. That is the rational aspect. The emotional aspect, as you know, is will you feel more at ease by paying down some of the student loans. The rational aspect alone seems to suggest the IRA.

Bob Werner: When real estate is inherited through a beneficiary deed rather than through probate court, what is the cost basis for calculating capital-gains tax if the property is sold after it is inherited? I am contemplating filing such a deed in Colorado to avoid having my heirs go through the time-consuming and costly process of probate, but my adviser says that if I do so, my heirs may lose the "cost basis value at time of my death" and be required to use my original value for tax purposes because the property won't go through probate to determine its value. The only help the IRS gives me is to refer me to a publication, which seems to refute my adviser's opinion. My concern is that the IRS has made a determination that my adviser is right. My house has substantially appreciated in value and were I to execute such a deed and if my adviser is right, my decision would be costly to my heirs.

Rick S.: I happen to be a tax-guy, with tax degree as well as a planner so here is what I recall. Most property owned at death received a tax basis of the DOD value pursuant to IRC Sec. 1014. The slang tax term is "step-up." Now, there are special rules which deal with joint property under IRC Sec. 2040, an estate tax section. My recollection is that, if the joint tenant can prove contribution then it will be includable in the taxable estate. So, becuase it is your property, and you are simply making another a joint tenant it should be includable in your estate. Clarification: the "step-up" is available for property in your taxable estate. This is a broader definition than probate estate. Thus, property in a revocable trust will receive a step-up but not be part of the probate process.

Thelma: I have been needing this type of advice, thank you. First let me tell you that this is the only retirement I have, although I have gotten a late start I am determined. I have been employed in a city position for 5 years, I am in the opers retirement, I am also contributing to the deferred comp retirement as well, I am 52 years old, my income is $25-30,000 a year. My question is I do have more income I can contribute to a retirement account but not on a consistent basis that I can have this money payroll deducted. I don't know what to do or what type of an account to set up, do I go to a bank, to a financial adviser, online I am not talking a lot of money here probably about 60-65,000 at retirement so I don't want it eaten up with a lot of fees.

Jeff Kostis: It is never too late to start or increase savings for your retirement. I am not familiar with the "opers retirement" plan that you mentioned or the details of your deferred comp plan, but in general, you can contribute up to 4,000 to an IRA, plus an additional $1,000 since you are over age 50. These contributions may be tax deductible (again, I am not familiar with the "opers retirement" plan or the details of your deferred comp plan). Your second question is about who to see for help. There are many NAPFA planners that do not have investment minimums. You can also look into members from the Garrett Planning Network or the Cambridge Alliance. Alternatively, companies like Vanguard and Fidelity offer some assistance, but they will most likely suggest their own products. These are two very highly regarded companies, but be aware of any potential conflicts of interest.

Fred Close: Can I contribute $5,000 to a Roth IRA for 2007? To a Traditional IRA? Can my wife contribute $5,000 to a Trad or Roth IRA, or both for 2007? I am 63 and retired and have taken distributions from my Trad IRA in 2007. My wife is 57 and has her own business. We file a joint federal return. Schedule C income is approx 30K. AGI is approx 50K. My wife will contribute 13K to her simple IRA.

Roger: Fred, Thank you for your question. Based on the facts above, you would both be eligible to contribute the max of $5,000 to either type of IRA assuming that both of you had earned income of at least $5,000. This seems to be the case for your wife, I could not tell for you. Earned income is income from employment (including self-employment), but not from investment income, IRA distributions, etc. Best of luck. Roger

Linda: I am 47 years old and recently widowed. I have received one life-insurance policy that was enough to pay off my mortgage, put $15,000 in a CD and max out my IRA. I will be getting another $125,000 from car insurance of the person that killed my husband. I only make $22,000 a year. What is the best way to save for retirement and be able to live off of my wages and insurance $. (My work just started a 401(k) that I have signed up for. Also my husband had a $40,000 401(k) from his employer.)

Carolyn McClanahan: The important thing to first figure out is your true financial needs. A financial planner would then take this number and help you allocate how much of your current assets would go toward paying for your current lifestyle and how much would then go toward retirement savings. Strongly consider engaging an hourly planner to help you with this calculation. A good place to find hourly planners in your area is through the Garrett Planning Network at http://www.garrettplanningnetwork.com/pages/splash/index.htm. Regarding the 401(k) at work, make certain to put in at least the amount needed to get the match from your employer, otherwise you are giving away free money. For your IRA, since you are in a low tax bracket, be certain to use a Roth IRA. This will grow tax-free for life. Finally, roll your husband's 401(k) into a rollover IRA. This will give you more control and make it easier to access when it is time for you to retire.

Bonnnie Rubin: I am getting a large check for the sale of our Tribune stock. Is it considered income in 2007 and taxed as income or is it capital gains at 15% even though the check won't be issued until Jan. 2008?

Roger: Bonnie, Thank you for your question. Not knowing all of the facts connected with the sale of the newspaper and how you held the stock, I would offer the following. Typically most individuals are cash-basis taxpayers meaning that they do not recognize income until received. That said hopefully you received or receive some sort of explanation of your distribution from the company. Assuming the stock was not held in some sort of retirement plan or deferred compensation plan, you might be eligible for capital gains treatment on some or all of the money. You may want to enlist the aid of a local financial/tax advisor. A good place to start would be www.napfa.org. Best of luck. Roger

Richard Dixon: Givens: Filing: Married, Filing Separately Age: 72 One wages job. Two Independent Contr. jobs, so I will have self-employed income to report. Wife's total income: $130K My total income: $26K Where can I get printed information on the ins and outs of having/not having a SEP IRA? One source suggests that I can open such but must honor the IRS requirement to take out $ regularly each year at 1/25 of the amount I put in. (My being past 70 1/2 and all . . . )

Jeff Kostis: The IRS Web site (www.irs.gov) is a terrific resource. You may open and contribute to a SEP IRA, but you must also start to take the required minimum withdrawals since you are over 70 1/2.

Noreen: I am 53 years old with $60,000 in my 403(b) and a 30 yr. mortgage loan of $226,000, which is high due to unforseen financial circumstances. Due to the Michigan housing market, I cannot sell. My question is I have an extra $1,500/yr. Should I put that into my 403(b) that I am not putting any into right now or use that money to pay more on my principal? I do have a secure job in the medical field and make $65K. thank you.

Jeff Kostis: This is a very difficult decision and there is no clean, right or wrong answer. From a pure dollar and cents standpoint, there are many factors that need to be taken into consideration, such as your interest rate, your other savings, employer match to your retirement, tax issues, etc. However, in my experience, the decision really comes down to how long you plan to work and how comfortable you are with having mortgage debt. If you plan to work into your late 60s and don't mind having the outstanding mortgage, you can choose to invest the additional money now and pay down your mortgage in retirement. On the other hand, if you cannot sleep well because of the mortage debt, this would be your first priority. I suggest talking with a financial planner to work through the details of the numbers so you have a complete picture of the options, then make the best selection for you and your needs.

Rich D.: I make less than 100K per year. I have a substantial traditional IRA and would like to know if it's wise to transfer it to a Roth IRA and how I should do it? Also, can I contribute to both at the same time? I contribute to a 401(k) at work.

Roger: Rich, Thank you for your question. Transferring the IRA to a Roth is a taxable event. You are also likely butting up against the income limit for conversion. In considering whether to do this: 1. Can you pay the tax with funds outside the IRA? 2. Is paying the tax now better than paying the tax down the road (if you keep the money in an IRA)? Will your investments grow enough to offset the current hit? 3. Will you be in a lower tax bracket in retirement? If yes, this may favor keeping it as a traditional IRA. If no, then perhaps the conversion is best. 4. You do not have to convert the entire IRA at once. 5. There is no easy answer you need to run the numbers and you need to make some assumptions about the future. As for future contributions, you can contribute to an IRA and your 401(k). Contributions to a traditional IRA will not be tax deductible, therefore you might want to consider a Roth for future contributions. If you feel that you need more in-depth help you might consider searching for a local advisor in your area at www.napfa.org. Best of luck. Roger