Kim Miller, CFP®'s Answers and Guides

Hi - Are you asking about a 401k account? Assuming you are, you can withdraw your funds if you no longer work at the sponsoring employer. BUT - it is probably a bad idea. The amount of funds withdrawn will be taxable as ordinary income - i.e., it will be taxed just like wages or salary, and you will pay a 10% penalty tax in addition to the income taxes unless you qualify for one of the exceptions. Leaving an employer is not one of the exceptions. What you SHOULD do is a direct transfer to a Rollover IRA account which you can set up at any number of brokerage companies, banks, credit unions or insurance companies. A direct transfer of the funds avoids both income taxes and the penalty tax and preserves your funds for your future. Regardless of the choice you make, you need to contact the company that runs the plan to take any action. Good luck!

Dave - I think you answered your own question in your last sentence. Consider that most Target Date funds are constructed with underlying mutual funds that represent the different stock and bond markets to which the fund manager thinks you should have exposure (there are some Target Date funds that have other asset classes, but the vast majority are built from stocks and bonds). To the extent that the underlying funds are actively managed, the Target Date fund is actively managed. You can see an x-ray of the underlying holdings of almost any Target Date fund at www.morningstar.com. Target Date funds re-balance their mix on a schedule, usually quarterly so you really have two levels of "active" management in many Target Date funds - management in the individual funds and management at the Target Date fund level via re-balancing. (Vanguard offers Target Date funds as well but many of their mutual funds are passively-managed index funds so arguably you would not be getting the same level of active management in a Vanguard Target Date fund, but the difference is probably immaterial). Assuming you have a choice of fund families, check the funds' underlying holdings before making a decision. Target Date funds are marketed as "one size fits all" and I believe such marketing gives investors a false sense of security (hope?). You can get a sense of my meaning by checking the returns of Target Date funds in 2008. Lastly, Target Date funds are fundamentally flawed in that the investor has no idea of what is going on in the underlying funds. Caveat emptor.

Hi - The first question you would need to answer is what am I investing FOR? WHY am I investing? WHAT is my objective? If it is merely to "make money" I recommend you have a conference with yourself and come up with a more specific goal such as "I want to have an income of at least $2,000 per month during my retirement starting at age 65". Most of what we do every day is controlled by our subconscious mind and the subconscious mind does not respond to general thoughts or ideas but to specific goals and objectives. So only after you have determined the WHY should I invest (with as many specifics as possible) can you determine the HOW should I invest. HOW includes not only the type of investment (stocks, bonds, mutual funds, etc) but what type of account/s should I use - 401k, IRA, Roth IRA, taxable account, etc.? Age is certainly a factor - the younger you are the more aggressive you can be as you will have more time to make up for investing mistakes - because you will make mistakes. The most damaging mistake you can make is trading too much. Many investors are convinced they can "time the market" catching the up trends and avoiding the down trends. Surveys have been done that show that a large majority of the people in a given survey (regardless of the survey subject) think they are "above average" at whatever skill the survey is studying. It is mathematically impossible for the majority of people to be "above average" at a particular skill. Investing is no different. Your income could be a factor if all of your take home pay goes to household overhead. This probably seems obvious, but no one should start an investing plan if it takes food off the table. A spending plan can help anyone get a handle on income and expenses and saving and investing should be a part of any spending plan. "Family situation" is too broad to consider here - that could mean anything. To sum up, you want to determine WHY you are investing before proceeding to the HOW.

Hi - First, you should obtain a current copy of your credit report. You can get a free copy at www.annualcreditreport.com. There are three credit reporting agencies and it doesn't make a great deal of difference since they report that same information, but I find the TransUnion reports easier to read. Verify that the accounts are still reported as open - some of them may have been closed by the issuer. There is no hard and fast rule about closing old accounts, but here's what I tell clients. Calculate your total open credit lines - i.e., what is the total dollar value of all of your credit card credit limits? Next, calculate your credit utilization ratio: divide the total you owe by the total credit you have available. Is that number below 30%? Don't close any old open accounts if your utilization ratio is above 30% - your credit score will most likely decline. How old are these credit accounts? They may be your oldest accounts and closing all of them at once will shorten your credit history which can also cause your score to decline. To sum up you want to make sure your utilization ratio is below 30% before closing old accounts and you want to make sure you aren't significatnly shortening your reported credit history. There are several on-line tools you can use to help you with this: www.creditkarma.com is a site run by TransUnion that has proven useful and it's free. Good luck!

I was a Vice President at one of my former securities firms. I have to admit, it did look good on my business card. It did impress my fellow students in my CFP classes. It impressed my wife. It even impressed my mother. In fact, some people I knew professed shock that I would leave a firm at which I had risen to such a lofty title. But what did it really mean? It meant that I was empowered to sign certain documents for the firm so the President didn't have to be bothered. I had no real input in the direction of the firm or it's operations beyond the most mundane day-to-day decisions. But it did LOOK impressive. In most large investment firms, titles are awarded to representatives based on their sales. If the person was truly a Senior Vice President with actual management responsibility (aside from "sales management"), he/she wouldn't be serving retail clients in the first place. Investors better serve their own interests when they focus on the aspects of the relationship that truly matter like "the attention they were getting, or the performance, or the communication, or the fees" than on worthless titles.

Hi - your question is a little vague and you don't give your age (would be helpful to know). If you no longer work for the employer you should be able to cash out your account under the "separation from service" provision - however - the withdrawal may be subject to income taxes and the 10% early withdrawal penalty. If you really need the money, the potential tax and penalty burden is probably not your largest concern. 401k plans are not all alike - I would contact the 401k plan provider and discuss your situation with them to see what your options are. Best regards.

Hi - there are no constraints on participating in a company 401k or contributing to an IRA (Roth or Traditional) as a result of receiving Social Security retirement benefits. The key requirement for contributing to retirement plans is that you must have earned income - wages or salary or self-employment income. Have you reached your Full Retirement Age (FRA) for Social Security? If you have, then there is no "give-back" on your Social Security benefits. If you haven't, then you may lose some of your Social Security benefits depending on how much income you earn. If earned income is less than $14,640 in 2012, then there is no give back. Social Security takes back $1 in benefits for every $2 of earned income that exceeds $14,640. For details, see www.ssa.gov - look in the FAQs for "How work affects Social Security retirement payments". Your social Security benefits may also be subject to income tax depending on your total income although no more than 85% of your benefits will be taxable. Look in the FAQs for "Paying income tax on Social Security benefits". Good luck!

As the other answers point out, you are required to pay the taxes on the conversion for the tax year the conversion was completed. This is a real good reason to meet with an advisor and review your current tax situation - because you don't have to convert ALL IRA money in one tax year but can spread the conversions over several years and pay less tax by knowing where your taxable income is realtive to the tax brackets in any given year. For example, if your taxable income is $10,000 lower than the top of the 25% bracket and your IRA balance is $20,000, you can convert (up to) half of the IRA this year at a tax cost of 25% of hte converted amount instead of converting the entire balance and getting bumped into the next bracket and paying 28% on half of the converted amount. You can decide each year how much tax you are willing to pay to do the conversion. Being aware of the conversion rules and where your taxable income is relative to the tax brackets is key. Good luck!

Hi - The difference between the rate and the yield is the money that your money makes based on the compounding period. The compounding period can be daily, weekly, monthly, quarterly, semi-annually or annually. The more frequent the compounding, the more the yield will exceed the rate. [The interest rate is the % rate that is applied to the account. The annual percentage yield (APY) is the % that your account would earn over a 12 month period at the stated rate based on the compounding period.] The yield will always be higher than the rate as long as the compounding period is more frequent than annually (once per year). With today's low rates you won't see much difference between the rate and the yield but every little bit helps. The bottom line: you want the highest rate with the most frequent compounding. Good luck!