Local stocks slammed as markets tank 5 percent againGreater Cincinnati stocks got slammed for the second day in a row Thursday as investors pummeled the market to its second straight day of 5-plus percent losses. (PG) (ASH) (AKS) (BGC) (OCR) (AFG) (CBB) (CVG) (KR) (M) Steve & Barry’s to liquidateSteve & Barry’s stores will liquidate by early 2009 after its new owners said they would not be able to find financing, Reuters is reporting. Honda cutting back productionHonda Motor Co. is reducing North American vehicle production by another 18,000 units in response to dwindling sales.
401(k) plans are expensive due to excessive management fees and brokerage commissions. Even the so-called no load separate accounts have administrative costs that significantly reduce the net return for the average investor.
Most plan participants are oblivious to the costs associated with the administration of their plan. Also, they do not pay enough attention to the allocation of their investment.
A self-directed IRA hosted by a low cost online brokerage firm provides an opportunity to reduce substantially the ongoing costs related to retirement planning.
In addition, the IRA owner can invest in a wide variety of individual stocks, bonds and commodities to create a highly diversified portfolio. The 401(k) participant must take the total package of a bundled investment to include issues that can jeopardize the total return.
This is not to say 401(k) participation should be avoided. Not at all. But it should be coordinated closely with a IRA to enhance the overall strategy for long-term growth.
It's apparent that Congress must continue to provide expanded retirement planning opportunities for the individual employee. The rules will constantly change, but the writing is very much on the wall.
Companies will no longer provide guaranteed future benefits. Factors which contribute to this include the pressure of worldwide competition, the deterioration of union power, the ever increasing cost of health insurance and the peripatetic nature of the workforce.
Therefore, the individual employee needs to understand how to create a balance between the restrictions found in the 401(k) plan and the significant freedom of choice of the IRA.
Both instruments permit the postponement of income tax. Whether the investment principal is pre-tax 401(k) or tax deductible IRA is irrelevant. At some point the tax piper must be paid.
The strength of both systems is in the tax deferment because, in most instances, this will be a long period of time. In fact, many people choose not to withdraw any money at all from retirement accounts until they are forced to by federal regulation.
As stated earlier, rules change frequently. Therefore, it is important to know what restrictions are in place before making any investment choice. But the basic premise doesn't change.
Analyze both the 401(k) plan together with your ability to open a IRA. If your employer offers a matching provision, commit a portion of your pretax dollars to guarantee no less than the matching amount.
Anything over and above this figure should be allocated to a self-directed low cost brokerage IRA. This gives you the opportunity to enhance your total retirement investment.
If your income exceeds the limitation for deducting the cost of your IRA, do not let this to be the sole reason not to open the IRA. Your freedom of choice and long-term tax deferment can far outweigh your lack of deductibility.
In the final analysis, most people make financial decisions based on their level of comfort. Indeed, this frequently leads to less than desirable results.
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