401k Withdrawal
RolloverUSA.com presents some useful information regarding 401K Withdrawals, Rollover and Options after taking distribution from your 401K plan. Please visit RolloverUSA.com for on-going education and information, as well as access to local registered investment advisors who can meet with you.
401k Withdrawal Options
You can rollover an IRA from one account to another at any time, but if you are a victim of a corporate layoff, or considering changing jobs or about to retire and you are thinking of rolling over or contemplating withdrawal of funds from your 401k plan, then you have several options depending on your age, provided you are no longer working for the employer providing the 401k plan.
Your 401k withdrawal options are as follows if you are over the age of 59 ½ but under 70 ½:
-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS. The 20% tax that is withheld will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return.
-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. Amounts less than $5,000 will usually be distributed to you regardless of you age. (check with your plan sponsor)
-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business).
Your 401k withdrawal options are as follows if you are under 59 ½
-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS, and a 10% withdrawal penalty. The 20% tax that is withheld, but NOT the 10% penalty, will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return. Some 401k penalty free withdrawal exceptions are here.
-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. Amounts less than $5,000 will usually be distributed to you, less a 20% withholding tax, regardless of you age. (Check with your plan sponsor)
-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business)
Your 401k withdrawal options are as follows if you are 70 ½ or older
-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS. The 20% tax that is withheld will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return.
-Leave it with your employer 401k plan but start taking the required minimum distribution.
-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. In this event, you will be taxed 50% of the required minimum distribution. Amounts less than $5,000 will usually be distributed to you regardless of you age. (check with your plan sponsor)
-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business). You still have to take the required minimum distribution even if you roll it over to an IRA.
source: rolloveraid
Early Retirement Planning using IRA and 401(k)
Retirement planning is more important than ever with the current downturn in the economy. There are many ways to plan for retirement and sifting thought all the option can be confusing. However, the way to financial freedom and a successful retirement isn’t really that complicated. The main thing to remember is that you should start saving and investing as much money as you can and as early in your life as you can, to give your money the time to grow over time. Time and sound money management are the keys to create wealth for your golden years to come.
This article aims to explain the differences between a 401(k) plan and an IRA (Individual Retirement Account). These are two of the most popular retirement savings plans available that makes retirement planning easy, even for people without any financial sense.
401(k) Plan
What exactly is a 401 (k) plan? A 401k plan is an employee-funded and company-sponsored retirement plan. Some companies also offer to match the employees’ annual contribution.
A 401(k) plan is an excellent retirement planning option because taxes on the contribution and any return on investment are deferred until you start to take money out from the plan when you reach the permissible age to do so without penalties. Taking part in a 401 (k) plan saves you money on income taxes and gives your money the power to make more money tax deferred. Over time, the return on that extra money invested can produce thousands of more dollars toward your retirement fund.
To take full advantage of this retirement plan, you should consider contributing the maximum allowed by law, if your situation allows it. The current maximum contribution you can make to your 401 (k) is limited to 10% of your salary. If you can’t afford to contribute the maximum 10%, try to contribute at least up to the amount that your employer will match. Any matching contributions made by your employer are not counted toward the 10% limit.
It should be noted that there are penalties, in addition to paying the regular taxes on that money, for taking money out of the plan before the allowed age, so be sure that the money you put aside is money that you can do without for the foreseeable future.
The tax-deferred 401 (k) plan should be a part of everyone’s retirement planning portfolio
IRA (Individual Retirement Account)
An IRA, or an Individual Retirement Account, also provides either a tax-deferred, though a traditional IRA, or tax-free, though a Roth IRA, way of saving for retirement.
A traditional IRA allows you a maximum tax-deductible contribution of up to $4,000 a year, or 100% of your annual income, whichever is greater until the age of 49. If you are over 49, you are allowed to contribute an extra $1,000. A Roth IRA allows a non tax-deductible contribution but offers greater flexibility than a traditional IRA. For the first five years, money contributed into a Roth IRA can be withdrawn without being subjected to a penalty or tax, which has already been paid, but the money earned in the account will be taxed as original income. After five years, both contributions and earnings in the account can be withdrawn without penalty or taxation.
There are limitations to a Roth IRA, however. The amount you can contribute to the retirement plan may be limited or not allowed depending on you income.
You are not limited to picking either the 401 (k) or the IRA. You can have both as long as you work for a company that offers a 401(k) plan and you earn an income.
Regardless of whether you choose a 401 (k) plan, a traditional IRA or Roth IRA, or both as your financial planning for retirement, the key to successfully meeting your retirement needs is to plan for you retirement as early as possible and save as much money as you can afford and as quickly as you can to let time work to your advantage and to grow from your investments. By the time you retire, you will need to be able to cover the cost of living, in addition to any expected medical expenses. This is especially important in today’s age because our life expectancy is going to continue to increase, so you want as much money as possible available when the time comes for your retirement.
Get the right tools to calculate how much money you need for retirement by visiting http://www.bestretirementinvestmentplan.com/” - a website that offers information on early retirement planning including tips on setting retirement goals, do-it-yourself retirement planning software, and professional retirement planning services to help you plan for your retirement.
Article Source: Early Retirement Planning using IRA and 401(k)
External Environment and Stock Selection
The world is moving at the speed of thought; you must devote more time and efforts to pick the right type of company for your investment needs. Every hour, whether we are awake or asleep, there is somebody who is taking a call on particular company or on industry. Somebody is buying stock, commodities or currencies, which can affect your investments in a particular fashion. This is market dynamism where negative sentiment in the US market can change sentiments in the Indian market. Rise in value of one currency can erase gains of your hard earned portfolio investment.
Here we are going to talk about external environment and stock selection.
Every company operates in an environment. Company’s financial position, products or services, business and marketing strategy, employees and workers, skill of the people working in the company, etc. form the internal environment of the company. Government policy, tax structure, interest rate, competition, political climate, socio-economic scene, etc. are part of the external environment. There are people who divide these two into controllable environment and uncontrollable environment - as a company as an entity or its management may control most things within the organization, have a say in its overall development but external forces are out of the company domain for control. Thus, study of these external forces affecting the performance and profitability of the company need analysis before taking any investment decision.
To explain it further, let us take example of Sugar and Cement in India.
India is one of the largest producer and consumer of sugar in the world. Sugar as a sweetener forms part of our daily food intake. Sugar production depends on the availability of sugarcane. Low production of sugarcane will result into low production of sugar; hence price of the commodity rises. Rising prices of sugar may result into high inflation. Though, sugar has a very low weight in wholesale price index but being item of mass consumption, effect of rise in price may become intense. Government will have to take some immediate steps to curb the price.
Supply of sugar in India is controlled by central government in form of levy and free sale. Price of levy sugar is always lower than that of free sale sugar.
In 2004 and 2005 sugar production declined due to unfavourable weather in India and Thailand and high divergence of sugarcane by Brazil to produce ethanol (ethanol is mixed with petrol and diesel, as crude oil prices were rising we witnessed a global shift towards ethanol or biofuel at global level), price of sugar shot up in international market. Indian sugar producers were able to reap higher profits on back of better price realization. But in July 2006 government banned all exports of sugar from India. India was expecting bumper crop of sugarcane for the season beginning in October 2006, but government did not allow any sugar exports till January 2007. The decision to ban sugar export resulted into higher supplies in the country and price of sugar in India came down from Rs. 20 per kg in July to Rs. 14 per kg now. Since last two quarters Indian sugar companies’ profitability has declined. They are unable to manage high inventory due to high production and low profitability due to lower price realizations. Thus, external forces changed the fate of companies operating in this sector.
Cement sector has the same story, after a decade of low demand, lower operating rates and low profitability companies operating in the sector was not able to perform. Since 2002 the fate of the sector changed. With high economic growth, higher spending on infrastructure demand for cement started rising. Companies were able to scale up their production and were able to fetch higher prices of cement. Performance of companies improved on higher demand and lower supplies of the sector. Stock prices also went up.
Face off between government and cement manufacturers’ started in May 2006 when Commerce Minister first indicated that rise in inflation is mainly fuelled by cement prices. Manufacturers held a meeting with Commerce Minister and agreed to sell cement for government projects at 5% lower than the market prices. The issue was settled then. But, with excise duty change announcement in budget the situation has become worse. Cement manufactures had to bend to government demand for price freeze for one year. Finance minister wants all cement companies to announce price cut. Mr. Chidambaram argues that cement producers are involved in profiteering and has just allowed duty-free imports of cement. This pressure tactics by government will hurt profitability of cement companies and has resulted into erosion of shareholders’ wealth.
Understanding of external environment is must for stock selection, especially in those sectors, which operate in commodity domain. Different commodities have different usage. When prices of one commodity rises it affects inflation, high inflation results into high interest rate. Any price rise has political echo and government will be forced to take political decision, which may generally have a negative impact on the economics of companies. It is advisable for investors to stay away from those sectors or companies where government interference is very high. This advise is particularly true for commodity based stocks which are the backbone of any economy, unbridled price increase is never tolerated ultimately these companies are expected to earn only normal profits.
Author is widely recognized as the Online Share Trading specialist and Online Share Trading Portal tips. Investmentz India provides tips on Online Share Trading Sites, online share market and online share trading in India.
Article Source: External Environment and Stock Selection
Reality Companies and Retail Investors
Roti Kapada aur Makaan… We have all heard about these basic necessities of life since our childhood. House has symbolized security, stability and progress for the erstwhile nomadic human race… in investment markets, this is recognized as an asset class. Real Estate refers to something related to land, permanent fixtures or building attached to it. In simple language one can term real estate as an immovable property. The boom in real estate market touched the retail investor through investment in Real Estate IPOs, which have flooded the stock exchanges.
The demand for real estate comes from enhanced economic activity as a result of constant growth in GDP over past few years and the optimism that this growth will continue for a few more years. Commercial and housing needs itself in our country is huge. This is due to historical reasons, current size of the population, demographic changes, economic growth and change income levels that we are witnessing. It is estimated that every year for next 25 years or so, about 7 million new small to medium size houses will be needed to take care of demand. When all this young population enters workforce, commercial space is further needed employing them and so on. So there is no debate about the potential of this sector.
Before we make a case for investment in real estate it is important to understand the risk return profile of various asset classes. It is important to note some fundamental differences between other markets and real estate markets. Most large markets have ease of transaction and low costs there of which is not the case with real estate market. The table below shows that there is a probability of high return with comparatively lower risk as compared to stock market. However do not forget that if the real estate company shares are listed on stock exchange then one has to combine the profile of shares as well as real estate investment.
Investment Avenue
Return Volatility Liquidity Risk
Stock Market High High High High
Bond Medium Medium High Low
Bank Deposits Medium Low High Low
Precious metals High Medium Medium Low
Real Estates High Low Low Medium
How does one participate?
Traditionally, mode of investment was simple one-dimensional where you put your money to buy a house, land or property on outright basis. Buying a house involves large cash outflows; sometimes it is as high as entire life’s savings. Minimum investment in a house ranges from Rs. 2.5 lacs to 5 lacs to 10 lacs and so on depending on the type of city that you choose for your residence.
Real Estate Funds:
Participating in real estate funds is an alternative. As expertise used by the fund managers diversifies the risk to the investors over many projects and companies. However, such funds have not come in a large way due the issues associated with the underlying real estate industry itself. The industry is opaque in nature due to legal issues related to transfer of property, title deed, high cost of transfer from one party to another, etc. The industry needs to do all that it can do to address these issues if they want to grow the size of this market rapidly.
This leaves little choice to the investor wishing to participate in this opportunity via organized markets except buying shares. So let us examine this alternative.
On one side there is a demand for housing but this activity has not got the recognition of industry by the Indian Banking Industry as well as financial institutions. The companies in this sector have largely relied on private finance and paid exorbitant interest rates. Large amount of unaccounted money also finds a resting place in this industry since organized sector finds it too risky to lend and thus demands high interest rates.
Several companies have therefore tapped the capital markets to raise funds for development. The real estate market has not however changed its practices to attract low cost capital. Equity is an expensive source of capital. Further the inherent risks in the real estate market are also being passed on to the retail investors by virtue of investing in real estate companies.
When we buy shares of the real estate companies, valuation of these can be a difficult and often treacherous task. Many a companies are traded on potential profitability of these companies discounted for interest-discounted Cash Flow basis leading to extremely high price earnings multiples. Often the risks associated with ownership title, project execution, space salability and factors alike are totally disregarded. This leads to what one calls a bubble and can burst with severe implications. Therefore the underlying risk in real estate market needs to be understood.
The risk factors of real estate companies are as follows:
Land reserves being in third party name is first major risk. There is no legal assurance whether the development valuations will really materialize. The gestation period of the projects are also very long hence keeping a track of which land availability and problems thereon is difficult. Since the land is not in the real estate company name same cannot be offered as collateral for lending from the organized sector. These companies have a debt equity ratio that is very high and interest costs are therefore very high. The sensitivity to interest rate fluctuations is high.
The next risk is again linked to long gestation period. Profits can get lumpy or bunched up when projects near completion. Quarterly results will not be able to give indication about the company performance. Monitoring the company on quarterly basis and reviewing your decision where to stay invested or not is also something, which is difficult. A long-term view on these stocks would be necessary. Investing in short term would not give the real reward on investments. This could also become a major reason for volatility.
Acquisition of land and development rights over immovable properties and title of land are governed by certain statutory and government regulations, which also governs various requirement of transaction document, payment of stamp study, registration of property documents. Any change in current regulation by government will have tremendous effect on the companies and their fortunes. Framework for Special economic zone (SEZs), is still in the pipeline, if any change could effect the companies who have got in principle approval for SEZ developments and Slum Rehabilitation Scheme (For Mumbai based company), which is a different model for development of infrastructure in and around Mumbai also faces problems if any amendment is brought by Slum Rehabilitation Authority. Thus the entire development can be in jeopardy if political compulsions make the government change its policies.
Outsourcing has been a boon to India in IT Industry. However the success of outsourcing in real estate development industry is yet to be tested. The real estate company signs a development agreement, gets contractors to do the construction activity and all the equipments used for the same are also outsourced. Hence the Real Estate Company is more in the business of facilitating development rather then itself doing the development. Low wages paid to construction workers, poor living conditions has led to migration of labour from project to project. Assuring quality from untrained labour force is a challenge by itself. Information on the level of competence of the contractors is not easily available. The aspirations of real estate companies are such that development done by them in 50-60 years of company’s existence is sought to be done many times over in 1-2 years. This is a big challenge to the management skills of owners of these companies.
Author is widely recognized as the IPO investment India specialist and Demat account tips. Investmentz India provides tips on ipo investment, online share market and online share trading in India.
Article Source: Reality Companies and Retail Investors
Subprime Mess
We are now part of a global economy. In the short run issues, which affect the world markets also, affect us, though there may not be a direct co-relation to the extent of impact. One such issue that is currently affecting all of us is sub-prime crisis in United States. This is a new word in our financial dictionary. The meaning is simple, that which is not prime is sub-prime. Prime word is used in relation to rate of interest. Lending at a prime rate is done for those borrowers who meet certain safety criteria. There is a guarantee that borrower will payback principal as well as the interest. The lending is against an asset, which is also saleable easily and can be liquidated into money if there is a default.
To make it simpler for understanding in Indian context, it is like borrowing from the bank which is at a lower rate say 12% pa and borrowing from a Marwadi money lender who is ready to lend to you at any time, without any paper work and that too on assets against which bank will never finance, but the rate of interest which is 24 %. This high interest is for the risk of default. Now if the banks or finance companies start lending like the marwadi on high interest rates, against assets, which are not easily saleable then, you can imagine the crisis when the borrowers fail to pay and the depositors who have given money to the bankers as depositors want their money back.
Post 9th September 2001 i.e. the World Trade Center attack; there was fear of recession in US economy. The rates of interest, which were in the range of 7%, were brought down to 4.75 %for sometime and further to 1% in a short span of time. This was done to lower the cost of production so that various goods and services become cheaper and people buy more. Though the goods become cheaper, the money that was not spent i.e. saved started earning lesser and lesser return. However, if the money was used as margin money for loans to buy assets such as property there were large numbers of tax sops available against installment and interest payment. Hence, the entire mind set of the citizens moved from saving to taking loans for purchase of assets be it property or shares or commodities. This led to over leveraging i.e. citizens borrowing more than their capacity to service the debt.
The activity got a further boost when all the participants in the financial system wholeheartedly started selling this concept. There were enough financial brokers who marketed these loans. These loans were securitized i.e. The loan portfolio was further converted into a loan (debt security) and sold off to another investor who was willing to lend. This parcel contained good and bad loans therefore the percentage of prime and sub-prime could be varied and different packages of loans could be sold. Rating companies also gave investment grades to such loans so that it facilitates securitisation and marketability. More money flowed in since the rates of interest were much higher compared to other investment options. After securitization these loans could then be sold in small parcels in the market so that large number of participants could be attracted in the market. These parcels were called CDO’s (Collateralized Debt Obligation). Hence loan business, which was restricted to a handful of bankers, or finance companies became everybody’s business.
The lenders expected that the property prices were likely to increase due to the huge demand as a result of free flowing loans to a large number of borrowers. In the event of default, property could always be sold off and money realized. As the defaults started there was seizure of assets and the politicians got the wind of it. It was a good opportunity for the politicians. Politicians started protesting since citizens who could not pay were being made homeless. The television publicity that was given to this event put the entire country’s financial system on alert.
Genuine demand for homes was put on hold since citizens expected property prices to come down due to huge supply of houses in the market as a result of payment defaults. The lenders for home finance also became wary since they were afraid of defaults hence free flowing money was largely curtailed. Short term money was generated due to sale of CDO, which was invested in long term loans. This mismatch created a crisis, since the short term lenders demanded their money back and the inability to recover the loans on overnight basis led to many fund managers, such as BNP Paribas and Bear Stearns & Co to stop withdrawal of money.
This financial crisis spread to stock market also. There was lot of free flowing money in the stock markets as a result of large scale leveraging. There was also fear of economic slow down since people who buy houses also buy lot of white good such as televisions, refrigerators ovens etc. This would lead to fall in demand for many companies, which thrive, on household sector. There was a steep fall in share prices in US markets followed by fall in share prices in Asian markets. India could not be left behind; we also had a more than1000 point fall.
The fall of share prices in India was due to two reasons. The first being dominance of Foreign Institutional Investors (FII) who were expected to pull out money from India since they had to pay back obligations of their US investors. The second reason was Private Equity money , which is made available to Indian companies. This money flow would slow down if the private equity funds did not manage to collect the money that was promised by investors in US and other foreign countries.
Indian markets have corrected since this was a crisis that did not affect directly. The US finance markets and their bankers have made money available to pay those investors who panicked with the unfolding of events. Is the problem over? We do not know since close of US $ 100 of sub-prime debt is part of $ 375 billion debt in US. Each time there is news of default the markets react and following US markets the Asian markets react followed by India.
Only advice we can give to investors to keep vigil on international events as this kind of problems will surface off and on in the near future. Let us remember, our economic fundamentals have not changed, they continue to be bullish. Advance tax collections are on the rise and GDP growth of 8% +. If you are not in the market use theses falls as an opportunity to buy. Traders will lose money since these falls can be sharp, unexplainable and sudden. Sometimes our markets may react to other markets, whereas sometime they may not. Long term investors should treat this volatility as an opportunity.
Exciting times are ahead for investors but nightmares for traders.
Author is widely recognized as the nri online trading account specialist and portfolio management services tips. Investmentz India provides tips on portfolio management services india, online share market and online share trading in India.
Article Source: Subprime Mess
What is day trading in stock market?
Day trading signifies buying and selling of financial instruments in a single working day of a stock exchange. The financial analysts who participate in Day Trading are called Day Traders. Day Trading was initially reserved for stock brokerage firms and professional investors, but with the advent of online stock trading, day trading has become the buzzword for general investors who even trade from their homes.
Day trading comprises different styles of trading. The styles are defined according to the time frame. In Short Term Trading like Scalping the focus is on small returns because in this form of trading the stocks are held for a very short time within which they are purchased and sold. The other extreme of Day Trading is Long Term Trading or Position Trading where stocks are held all throughout the day.
Day Trading also comprises different types of trade such as Ranging Trades, Trend Trades and Counter Trend Trades.
Trend Trades operate on the basis of the current price movement. A good reference of Trend Trades is buying of stocks if the market is bullish. In Counter Trend Trades the pendulum swings in the opposite direction, a trader would sell the stocks when the market is bullish. In Ranging Trades a trader adheres to both Trend Trades and Counter Trend Trades.
Moving averages, current market price calculations, and channel breakouts are used to determine the trend of the market. It is important to note that Day Traders who believe in Trend Trades do not try to forecast future markets or prices they simply Trend ride the trend in an attempt to maximize profits when prices are high in order to minimize losses at low points in the trend.
Day Traders can also be segregated on the basis of the number of trades they do. Few Traders indulge in many trades and there are some who makes only one trade and would hold it for the entire day till they don’t come across the best deal.
There are some other strategies as well according to which Day Traders attempts to earn benefits. The most important among them is Shorting Stock. It is a technique in which a Day Trader would borrow stocks from another broker and would sell them. He hopes that this would bring down the prices of the overall shares and would offer him an opportunity to buy shares.
Each school of thought related to Day Trading has its shares of pros and cons. In some cases profit is garnered on investor behavior while some follow the trend.
Author is widely recognized as the Online stock trading india specialist and Online share market tips. Investmentz India provides tips on online share broker, online share market and online share trading in India.
Article Source: What is day trading in stock market?