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 dr