Your Wealth Questions

Your Wealth Questions

Retirement Planning Question: Moving a 401(k)

Q: I am a 60 year old single female with a few 401(k) accounts from previous employers that total about $200,000.00. These are separate from my existing 401(k). I am currently not contributing to them. Last year, they reflected an increase of 8%. If I move these funds to your firm, how much better do you think I might do? I know there is no guarantee. Is the $2500.00 annual fee  that I see on your website the only expense I would have annually for you to manage those funds.

A: To start, we actually have a solution that doesn’t require a $2,500 minimum fee. We built out an investment platform to be able to serve clients with no minimum investment. So the fee schedule is as follows:

·         1% on assets up to $250,000

·         0.9% on assets from $250,000 - $500,000

·         0.75% on assets from $500,000 - $1,000,000

The only additional fees are the trading costs at the custodian where your assets would be held. This is similar to the advertisements you see about $7.95 trades at Fidelity, etc. We are cognizant of these costs and try to keep these trading low.

As far as the old 401(k) accounts are concerned, at a minimum we’d recommend you roll the money out of the plans and into an IRA. You will likely be able to choose the same investments in an IRA as you would in the 401(k) but you would not be participating in the 401(k) Plan fees and expenses (which are probably not broken out for you to easily see). 

From a performance standpoint, 8% is pretty good. It’s all relative to the amount of risk we’re taking though. We manage accounts that range from All Growth allocations to All Income allocations so you’d expect different performance levels for different risk tolerances. You are correct about there not being any guarantees, but I will tell you that our goal is not to “beat the market”. We believe in a strategic investment strategy. In other words, our goal is to achieve our fair share of return given the amount of risk we’re taking while “paying for ourselves”. So, for example, if you could get 6% in a balanced investment strategy, our goal is to get 7%, thus “paying for ourselves”.

I hope this helps. At a minimum, we’d recommend you move the 401(k)s that you’re not participating in to an IRA. The chances are really good that you’d be able to buy the same (or at least very similar) investments in the IRA as you’re currently invest in the 401(k) but lower your fee structure.

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Retirement Planning Question: Portfolio Mix

Q: With the market falling due to fears of interest rates increasing, I was wondering if I should change my investment mix. I took a $12,000 hit yesterday and I plan on retiring in 3 to 5 years. I have nearly $600,000 in my 401(k) with a mix of bonds, US Equity, and Special Sector.  Can you please steer me in the right direction? I do not want to lose my nest egg during the stretch run of my career.

A: Please be advised we are unable to give specific investment advice without engaging you as a client and each individuals situation is different. When trying to decide how to allocation a portfolio we would consider age, assets, risk tolerance, tolerance, etc. However, a base line allocation might look something like this:

US Equity: 30%

Foreign Equity: 15%

Real Estate/Alts: 5%

Fixed Income: 48%

Cash Equivalents: 2%

Keep in mind the is a baseline allocation and each asset class can be adjusted plus or minus a few percentage points. In addition, fixed income should be invested in government, corporations and high yield bonds and US Equity should include large cap, mid cap and small cap positions.

Financial Planning Question: After Tax Contributions

Q: In the book "You Can Retire Sooner Than You Think" there is a section on Roth IRAs that says, "Contributions are made with after-tax dollars and can be withdrawn at any time without penalty." Recently, I visited a Financial Advisor who told me there is a 10% penalty even for contributions. Can you tell me who is correct?

A: Distributions from Roth IRAs are designed to be tax-free in retirement. A distribution from a Roth IRA is not included in the owner’s gross income and is not subject to the 10 percent early withdrawal penalty if it is a “qualified distribution.”  Distributions that do not meet the definition of a qualified distribution may be subject to income tax and the early withdrawal penalty.


Qualified Distributions – are distributions from a Roth IRA that satisfies both the following tests:

1. The distribution must be made after a five-taxable year period, and

2. The distribution satisfies one of the following four requirements:

a.      Made on or after the date on which the owner attains the age of 59½

b.      Made to the beneficiary or estate of the owner on or after the date of the owner’s death

c.      Is attributable to the owner being disabled, or

d.      For first time home purchase (lifetime cap of $10,000 for first time homebuyers)


Nonqualified Distributions – Any amount distributed from an individual’s Roth IRA that is not a qualified distribution is treated as made in the following order

·         From regular contributions

·         From conversion contributions on a first-in-first-out basis, and then

·         From earnings

In the event a distribution is not a qualified distribution, the first layer will be return of adjusted basis (from after-tax contributions), followed by post-tax conversion contributions.  Since these contributions have already been taxed there will be no income tax consequences (although there may be a penalty). The final layer consists of tax-deferred earnings on contributions and conversions within the Roth IRA, which will be subject to tax and penalty if the distribution is not a qualified distribution.

Distributions will generally not be taxable to the extent that total distributions do not exceed total contributions and conversions.

Retirement Planning Question: Rebalancing IRA

Q: I just rebalanced my Rollover IRA investments and I have my cash allocation sitting in a money market fund that has a very low return. Where can I invest that in a very low-risk fund (such as an ETF) to get a better return?

A: A lot of people have been searching for ways to increase the yield or interest they earn on their cash in this low-rate environment. The more yield investors stretch for, the more risk you take on.  You might consider a short duration bond fund or something similar.

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