Gas Prices Went Down But Where Did the Money Go?

Contributed by: Angela Palacios, CFP®

After oil and thus gas prices sharply declined late in 2014, many were expecting consumers to run right out and spend what they’d saved.  What has surpised everyone is that isn’t happening.  The chart below shows the direct correlation between the decrease in what consumers are spending at the pump (the light blue line) and the increase in their savings account dollars (the dark blue line).  As consumers are spending less, they are saving more.

There are a number of reasons contributing to these increased savings rather than spending:

• Most did not expect the temporary reprieve in gas prices to last

• Prices of many other goods are perceived to be increasing

• People are starting to recognize the importance of having a few months of living expenses set aside in the bank as a safety cushion

While all of these are probably contributing factors causing this “savings” to not be spent, I would hope the main reason for the pattern is the last bullet point -- people recognizing the importance of having some money set aside for a rainy day!

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Angela Palacios, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Part 5 – A Year of Lessons on Money Matters for your Children and Grandchildren Contributed by Matthew Chope

Contributed by: Matthew E. Chope, CFP®

If you know where you’re headed, then you have a better chance of getting there.  This applies in money matters and in life. To help you chart your course, try making a list of the top 100 things you want to accomplish in your life.  The idea here is that if you know what you want to accomplish and what’s important to you, it might help you start on the path that will get you there.

Finance Your Goals

Along that path, I don’t think you should be concerned about spending money, especially if it’s towards these 100 things.  This is what money was meant for.  Money is not an end, but a means to an end.  Part of your money is a temporary store of value to be used towards the goals in your life.

Do you think you could become president if you don’t intentionally set that goal? In my own life, I’ve seen how writing down my goals has helped me find the path to achieving them since I already know the end. Writing down goals will also help you invest in things that will lead them toward that end. You’ll be able to make choices differently than someone who has not considered what’s important to accomplish in life.  Feel comfortable spending money alone this path.  This is what is important to you.

Focus on What Matters

I think Oliver Wendell Holmes said it best:

“Most of us go to our grave with our music still inside us.” 

I have seen many clients get to the end of their lives with much of the music still buried within them.  Their time was spent focused on saving money to build wealth for financial independence.  Or they felt that money should not be used unless necessary.  Financial independence is very important, but so is finding a balance to pursue your interests along the way. 

If you don’t have a list of your own, maybe you’ll get inspired by mine. I started this list in my early 20s and have tweaked it over the years. Here are some of my goals:

Fun – Travel

• Paint a beautiful picture

• Swim with a dolphin

Generosity – Giving

• Be someone’s mentor

• Make it possible for my niece to go to college

 Education

• Achieve Master’s degree

• Give many motivational and inspiring speeches

Personal Achievement

• Own a home in a warm sunny climate to escape the winter gray

• Practice meditation and yoga daily

Professional Life – Career

• Contribute to a healthy financial planning practice for 40 years

• Help 1,000’s of people reach their financial objectives in life

Family

• Earn the right to marry someone special.

• Visit my grandparents and find out about their life as much as possible

Health / Fitness

• To practice meditation and yoga daily

• Exercise with a trainer every month to stay doing things correctly

Financial – Monetarily

• To never be a burden to anyone else

• To be financial independent by age 60

Maybe some of these categories or ideas will spark you to start your own list. I believe when you choose something (make a decision) you should put your full potential behind it. But remember nothing is set in stone. My list has evolved since I started it. After a good try, be open to changing your mind. 

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Matthew Chope, CFP® and not necessarily those of Raymond James.

Should Ford Employees Contribute After-Tax Money to a 401k?

Contributed by: Nick Defenthaler, CFP®

Earlier this month, my colleague, Matt Trujillo and I hosted a webinar for Ford Motor employees to discuss the potential benefits of contributing after-tax dollars to their 401k plan.  These Ford workers are not alone. About 25% of companies offer retirement plans with after-tax contributions that are completely separate from the plan’s Traditional 401k or Roth 401k (Columbia Management). Recent IRS rulings have made contributing to the after-tax component far more attractive because, once an eligible distribution event is met, the dollars can be rolled over to a Roth IRA for tax-free growth.  Most employees aren’t even aware their plan offers after-tax contributions and, if they do, there is typically confusion around how it works and if it makes sense for them.

Do After-tax Contributions Make Sense for Me?

In most cases, the after-tax portion is the best fit for someone who is currently maximizing their pre-tax/Traditional 401k but who still has the capacity to save more for retirement.  As mentioned before, the after-tax contribution is a separate contribution type and is above and beyond the normal 401k limits ($18,000 in 2015, $24,000 if over the age of 50 however, subject to the overall $53,000 plan limit).  It is really all about making “excess savings” as efficient as possible.  Tax-free accounts are about as efficient as they come and can potentially save an individual or family hundreds of thousands of dollars in retirement.  For more information, this blog by Tim Wyman goes into greater detail on contributing after-tax dollars into your plan.

Every 401k plan is different and they all have their nuances.  This is why we’ll be hosting company-specific webinars in the coming months to review how the after-tax component works in specific plans and to go over the pros and cons. This kind of information can help you decide if an after-tax plan makes sense for you.  Keep your eyes open for e-mails, blogs, and more on our Facebook, Twitter, and LinkedIn pages for updates on webinars we will be hosting in the near future!

As always, if you have specific questions relating to your company retirement plan, never hesitate to reach out to us. We are here to help! 

Unless certain criteria are met, employees must be 59½ or older and must have satisfied the five-year period that starts with the year the employee makes his or her first Roth contribution to the 401k plan before tax-free withdrawals are permitted.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.  

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

The Truth You Need to Hear: The value of a Dutch Uncle

Contributed by: Timothy Wyman, CFP®, JD

Recently, during a preliminary meeting with a new client, he told us that what he really wants us to be is his Dutch Uncle.  I vaguely recalled hearing the term before, but I asked him to clarify -- just to be sure we were on the same page.  The gentleman, in his 70’s, shared that what he really valued most was to work with someone who would give him frank advice, challenge his assumptions on some important financial issues he was wrestling with, and tell him what he needed to hear rather than what he wanted to hear – and do it with compassion. 

The interaction left quite an impression on me. I am glad that I asked for clarification, because if I would have just waited to Google “Dutch Uncle” after the meeting, I may have only seen definitions that address, “frank, harsh, blunt, stern and severe.” I might have missed out on the “with compassion” part; which is very important.

Frank, Candid & Compassionate

A few years ago I read “The Last Lecture” by Randy Pausch.  First, if you haven’t read it, get a copy now. Along with a box of tissue. Second, if you have teenage or adult children, get them a copy too. Third, if you’d rather watch the video, it’s here on YouTube with over 17 million views. You won’t be disappointed. Randy was a professor at Carnegie Mellon University in Pennsylvania. After being diagnosed with pancreatic cancer, he gave his last lecture titled “Really Achieving Your Childhood Dreams.” That was on September 18, 2007. He passed away on July 25, 2008. One of Randy Pausch’s experiences included a man he referred to as his Dutch Uncle. One day, this Uncle took him for a walk to share the truth that he needed to hear (that Randy’s arrogance was getting in the way of his long term success) in a frank, candid and compassionate way and it became a turning point in Randy’s life.

Sales vs. Advice

The Dutch Uncle analogy can also be used to illustrate the difference between sales and advice -- or perhaps, those acting in your best interest and those that do not.  An advisor, or someone interested in your wellbeing, will provide candid and frank feedback; because they want to see you succeed.  In my profession and from my perspective, this is the true litmus test of an advisor: Are you willing to lose a client relationship because you act as their Dutch Uncle (compassion included)?  If you are worried about losing a client because they might not like what you have to provide, share or recommend in your learned professional opinion; then you are really acting in a sales capacity and not an advisory role. Which is fine, just don’t refer to yourself as an advisor.

Nowhere is there a need more for a Dutch Uncle than in financial planning and investment management. Our brains, frankly, are wired to make the easy or wrong decision too many times.  Here’s one familiar example: Buy low and sell high.  But how difficult is this mantra to follow?  Studies suggest it’s extremely difficult. Can you think about what you were feeling and hopefully not implementing in March 2009 during the Great Recession? I bet a Dutch Uncle was pretty valuable.  Or, how about the question can I retire now? Sometimes the correct feedback is you are ready to retire – unfortunately your money isn’t!  A Dutch Uncle might suggest some tradeoffs such as continuing to work but at reduced hours, trading time for income. A Dutch Uncle might also say, sure, go buy X and accumulate additional debt; but also acknowledge that this action will have an impact on your financial independence.  It’s still your choice, but the funds need to come from somewhere.

If you don’t have a Dutch Uncle perhaps it’s time to seek one out – your success might just depend upon it.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Timothy Wyman, CFP® and not necessarily those of Raymond James.

Volatility and Commodities (go together like a horse and carriage)

Contributed by: Matt Trujillo, CFP®

There has been a lot of press lately about the recent volatility in the crude oil markets.  Every smart person with a microphone is making predictions about how low it could go or where it ultimately might end up. I can’t open a financial website, magazine, or journal without seeing some sort of headline declaring that Oil is going to $10 a barrel!

All of this sensationalism would lead one to believe that this price behavior is something unusual for commodities and oil specifically. It’s a constant reminder how short sighted the media is and why it’s best not to make financial decisions solely based on what you hear on CNBC or Yahoo Finance.

Historical Perspective on Commodities

In fact, try going back over the last 100 years and study not just oil, but all commodities. You’ll see that large double-digit gains and large double-digit losses are quite common and almost expected in these types of markets.  If you have that kind of time (and that level of interest) click here to browse through all the various commodity prices and historical price data.

For those of you that don’t have that kind of time, let’s focus mainly on the last 10 years.  For illustrative purposes, we’ll use the annual performance data found here. This interactive chart shows the historical pricing performance for oil as well as several other commodities over the last 10 years. Using this data, let’s say I invested a hypothetical $10,000, and earned the returns illustrated on the chart. My original $10,000 would have grown to $12,351 after 2014.  This is equivalent to roughly a 2.3% average annual rate of return.  Not really anything to get overly excited about, but the path to get that 2.3% was quite dramatic. A few notable years: 2005: +40.48%, 2007: +57.22%, 2008: -53.53%, 2009: +77.94%, and 2014: -45.58%.  Quite the volatile rollercoaster ride…especially if you end up with a paltry 2.3% for enduring all of the swings!

As you can see, when it comes to Oil price volatility is nothing new. Commodity markets are not for the faint of heart and might make sense as a part of a well-diversified portfolio. If you are considering adding oil or any other commodity to your overall investment plan, please talk to a qualified professional first to make sure that it is a suitable investment for your risk tolerance and time horizon.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matthew Trujillo, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance may not be indicative of future results. Hypothetical example provided in this article is for illustrative purposes only. Actual investor results will vary.Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

How to Know if It’s Time to Refinance Your Home

Contributed by: Nick Defenthaler, CFP®

FIVE years ago we all heard that, “Interest rates won’t be this low for long!” Maybe someone told you to, “Hurry now!” to purchase or re-finance a home?  Well, fast forward to 2015 and 30 year mortgages are hovering at about 4% depending on your credit score, slightly lower than what there were back in early 2010.  It’s pretty incredible to think how long we’ve had such a favorable interest rate environment for homeowners.  Rates have come down even more since the beginning of this year and we’re hearing about the drop more and more in the media.  If you’re thinking about re-financing your home, below are a few items to consider before going through the process:

How long will you be in the home if you’re planning on re-financing? 

Sure, lowering your rate is great, but will you be in the home long enough for the interest savings to justify the closing costs of the loan (typically around $2,000 – $3,000)?  The typical rule of thumb is about 3 years, so if you plan on moving a year after you re-finance, it most likely makes sense not to make any changes.  

Just like investing – don’t try to “time” interest rate changes

Rates can fluctuate dramatically in a short period of time. Over the last few years we have seen a great deal of volatility in mortgage rates.  I believe a 30 year mortgage around 4% is a phenomenal borrowing rate, don’t get greedy and try to hold out to save .25% because you think you know what direction rates are going.  We’ve seen this happen before and rates have increased and clients have missed opportunities to lock in historically low mortgage rates.   

Consider combining into one mortgage

Many folks have two mortgages on their home.  The primary is typically the initial mortgage they took out when they bought the house and the second is often times a home equity loan or home equity line of credit.  I recently met with a couple who was paying almost 5% for their primary loan amount and almost 7% for the home equity loan!  My eyes got big when I saw these figures because I knew immediately this was a planning opportunity for them. They had no plans to move in the near future.  The couple was able to re-finance into one, fixed rate mortgage and they should save thousands in interest. Plus they should pay their home off about 3 years sooner than they would have with their prior mortgages.    

Think you’re still “underwater”?  Think again…

Coming out of the recession, many homeowners were unable to re-finance because their home was “underwater” – meaning what they owed exceeded their value.  Although there were some federal programs that helped these types of individuals, not everyone fit the mold depending on loan guidelines. Some folks are just now seeing their home values exceed their loan balances.  Home prices have risen quite a bit in most areas and you might be surprised at what your home is actually valued at now.  Don’t just assume you can’t re-finance because of your perceived loan to value ratio.  Reach out to your loan provider and get their take and see what your options are.

We always encourage clients to keep us in the loop when deciding to go through with a refinance.  We can be the second set of eyes to make sure, first and foremost, that your needs are being put first and that your personal situation and goals are taken into account when making these big financial decisions.  Please don’t ever hesitate to reach out to us if you’d like to run the numbers past us! 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax or legal matters with the appropriate professional.

Part 4 – A Year of Lessons on Money Matters for your Children & Grandchildren

Contributed by: Matthew E. Chope, CFP®

Try it all and be prepared to make some mistakes.

That’s a good reminder to everyone, no matter the generation. But when it comes to passing on lessons about money matters to your kids or grandkids, I say try to keep those mistakes small and learn from them. Many of us like to have firsthand experience (I know I do) rather than just taking someone’s word for it. But if I could offer advice from my own experience, here’s what I’d say:

Start with Diversification

In my opinion, diversification is probably the number one most important rule in investing.  It will not make you rich but it can help keep you from going poor. You want to diversify your experiences greatly in your 20s because it’s easy to invest a lot of time and energy in one area and end up not liking where you get to.  Imagine climbing a ladder for 5-10 years only to find that it was leaning against the wrong wall! Use this time in life to literally and figuratively invest your time and money in anything that you’re curious about. Try things that make you uncomfortable.

Along the meandering path, realize you are going through this learning curve.  Try to take it all in. Notice your senses, your happiness and fulfillment relating to the different activities you invest in.  Most people get to the last quarter of their life seeking greater fulfillment and happiness from their life.  They never paid attention during the first quarter to the path they were on or the wall they were climbing. 

Along your journey consider that data is not information and information is not knowledge and knowledge is not experience and experience is not wisdom (as you’ll see in the diagram below).  Reflect on where you might be in each investment.

Digging Through the Data to Make Decisions

To take this idea a little deeper, we are continually inundated with data; the internet, TV, radio, people -- some with facts and some with opinions.  A key to financial success for many is being able to distinguishing useful data and information from nonsense. Knowing how to gather a collection of measured data that can be extrapolated into information is the cornerstone of constructive decision-making. 

Knowledge requires thoughtful discernment of information, combined with known truths founded on logic based proofs.  Notice I went far with math from the last statement.  So this is how my thoughts are structured and it works for me.  There may be other ways to get to constructive decision making also, but I believe this will determine a great deal of your financial success in life.  

Facts can strengthen beliefs to formulate knowledge, but this is where you will find disagreement.  My experience has been that a combination of well-formulated beliefs with accepted knowledge provides a basis for openness and understanding.

Throughout the coming years you will go through interpretations of knowledge gaining first-hand experience as events almost seem to repeat.  These experiences might not be exact but understanding the patterns over decades can eventually lead to wisdom.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matthew Chope, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Diversification does not ensure a profit or guarantee against a loss.

Three Reasons to Consider a Family Caregiver Contract

Contributed by: Sandra Adams, CFP®

Many family members are drawn into caregiving out of love. Most times, it is the female child that is pulled into the role of caregiver as a parent ages and has increasing needs. The statistics are overwhelming…

• 66 million people in the U.S. provide unpaid care to a relative or friend.*

• 70% of caregivers report making adjustments to work schedules, or quit work altogether, to accommodate caregiving responsibilities.  Caregivers may reduce their hours at work or forfeit promotions and benefits.**

• A 2011 study showed that caregivers lost $303,880 in wages, Social Security benefits, and private pensions over their lifetime as a result of caregiving responsibilities.**

It is important to understand that caregiving and care needs can have serious consequences for the entire family, and that careful planning is important to ensure financial stability for all parties involved. 

When to Officially Hire a Family Member

In many cases, skilled care is needed, and that care needs to be provided by trained and licensed medical professionals.  However, there are other needs (i.e. transportation, housekeeping, etc.) that can be provided by a family member.  In these cases, you can consider officially hiring a family member under a paid family caregiver contract.  A family caregiver contract is a legal employment contract that defines the care and compensation expectations between the aging parent and the family member providing the care.  Here are three reasons for a family to consider using a family caregiver contract:

1. The family member providing the care (the caregiver) can be receiving financial compensation for providing care, especially when they may have had to reduce or give up entirely their paid employment. The caregiver is provided a chance for continued financial stability.

2. It can help avoid misunderstandings and bad feelings with other family members about who is providing care and how much money is changing hands.  The agreement can be very specific and can be tied to the aging parent’s overall estate planning.

3. If the aging parent ever needs to enter a nursing home or needs Medicaid to pay for long term care needs, the agreement can show that payments for the care to the family member were legitimate and were not made in an attempt to “hide” or “gift” funds in order to qualify for Medicaid.

When it comes to planning for aging parents and coordinating the caregiving roles amongst family members, things can get complicated very quickly.  It often comes down to the one who is nearest, not who has the time or the money, that becomes the caregiver.  Making things fair and giving your parent and the sibling(s) who provide care the best chance for financial stability along the way is the best course of action.  Work with your financial planner and a team of experts to come up with a plan for your family that may include an elder law attorney to consider tools like a family caregiver contract.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

*National Alliance for Caregiving and AARP. Caregiving in the U.S., 2009.

**The MetLife Mature Market Institute, MetLife Study of Caregiving Costs to Working Caregivers, June 2011.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sandra Adams and not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Can You Roll Your 401(k) to an IRA without Leaving Your Job?

Co-Contributed by: Nick Defenthaler, CFP® and Matt Trujillo, CFP®

Typically, when you hear “rollover” you think retirement or changing jobs.  For the vast majority of clients, these two situations will really be the only time they will complete a 401k rollover.  However, you might not know about another type of situation in which you can move funds from your company retirement plan to your IRA.  This is what’s known as the “in-service” rollover and is an often overlooked planning opportunity. 

Rollover Refresher

A rollover is a pretty simple concept.  It is the process of moving your employer retirement account (401k, 403b, 457, etc.) over to an IRA that you have complete control over and is completely separate from your ex-employer.  Most people do this when they retire or switch jobs.  If completed properly, rolling over funds from your company retirement plan to your IRA is a tax and penalty free transaction because the tax characteristics of a 401k and IRA are generally the same.   

What is an “in-service” rollover?

Unlike the “traditional” rollover, an “in-service” rollover is probably something you’ve never heard of and for good reason.  First, not all company retirement plans allow for it, and second, even for those that do, the details can be confusing to employees.  The bottom line: An in-service rollover allows an employee (often at a specified age such as 55) to be able to roll their 401k to an IRA while still employed with the company.  The employee is also still able to contribute to the plan, even after the rollover is complete.  Most plans allow this type of rollover once per year, but depending on the plan, you could potentially complete the rollover more often for different contribution types.

Why complete an “in-service” rollover?

More investment options – With any company retirement plan, you will be limited to the investment options the plan offers.  By having the funds in an IRA, you can invest in just about any mutual fund, ETF, stock, bond, etc.  Having access to more options can potentially improve investment performance, reduce volatility and make your overall portfolio allocation more efficient.

Coordination with your other assets – If you’re working with a financial planner, he or she can coordinate an IRA into your overall plan far more efficiently than a 401k.  How many times has your planner recommended changes in your 401k that simply don’t get completed? (Tisk, tisk!)  If your planner is managing the IRA for you, those recommended changes are going to get completed instead of falling off your personal “to-do” list.     

Additional flexibility – IRAs allow certain penalty-free withdrawals that aren’t available in a 401k or other company retirement plans (certain medical expenses, higher education expenses, first time homebuyer allowance, etc.).  Although using an IRA for these expenses should be a last resort, it’s nice to have the flexibility if needed.

Exploring “in-service” rollovers

So what now?  The first thing is to always keep your financial planner in the loop when you retire or switch jobs to see if a rollover makes sense for your situation.  Second, let’s work together to see if your current company retirement plans allows for an in-service rollover.  It’s typically a 5 minute phone call with us, you and your HR department to find out.  With so many things going on in life, an in-service rollover is probably pretty close to the bottom of your priority list.  This is why you have us on your financial team. We bring these opportunities to your attention and work with you to see if they could benefit your situation! 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

Matthew Trujillo, CFP®, is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP® & Matt Trujillo, CFP®, and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. IRA withdrawals may be subject to income taxes, and prior to age 59 1/2 a 10% federal penalty tax may apply. In-Service Rollovers mentioned may not be suitable for all investors. Be sure to contact a qualified professional regarding your particular situation before electing an In-Service Rollover. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss.

Part 3 – A Year of Lessons on Money Matters for Your Children & Grandchildren

Contributed by: Matthew E. Chope, CFP®

Get the big things right!  Don’t miss the forest through the trees.  Some young people can get lost in their 20s choosing to hang around the wrong crowd, not exactly sure what they believe in, ignoring facts or historical truths or getting trapped in a dead end job. I consider these 4 ideas as significant steps toward gaining greater financial security and strength in your future:

1. Know what you believe in (see more about writing a belief statement below).

2. Choose a career you’re passionate about, one that interests and excites you.

3. Keep the right company.  Surround yourself with people who help you grow and encourage your dreams and ongoing success.

4. Read the right books – understand a little about all the main areas of knowledge.

On Understanding your Beliefs 

Differentiate between truth and beliefs and know that knowledge can be found in the overlap.  Many times our beliefs can be unreasonable and sometimes unrealistic.  So, we need to have a good grounding in what is real, true, and factual vs. just belief. To help you summarize your beliefs, consider writing a belief statement. Here’s a sample:

I believe in myself, 
in the pursuit of happiness, 
the rule of law, 
and building moral wealth.

I believe I am only human, in that lies my greatest strength and my greatest weakness. 
I believe in living for and developing an abundance of good physical and mental Health. 
I believe in playing Sand Volleyball for fun, exercise, camaraderie, and as one of my dearest passions in life. 
I believe in good and honest people - who I call my friends. 
I believe in living a life well lived with meaning and intension. 
I believe in all basic freedoms and human rights 
I believe in the 7 UU principles. 
I believe that most people need to believe in fairy tales; that the harsh reality of this world is too flat, monotonous and dreary.
I believe most people are good.

On Choosing the Best Career

Many people choose careers because someone else thought it would be a good idea for you or because it’s connected to a large paycheck or it has prestige.  Instead choose a career that feeds you and your soul.  If you love what you do each and every day – it won’t feel like work and you can figure out how to make a good living from that. And if you want prestige become that best at what you do!

On Keeping the Right Company

Surround yourself with people that share your values and drive you to be the best person you can be. This can be very difficult. People can’t choose their family and many times feel trapped in long-term relationships that have been built up over their lifetime.  This is where we need to stop and reflect.  Take some time to find the new people that you want to surround yourself with.  I typically choose smarter people, selfishly always wanting to be learning from my peers or mentors.  I choose people that have similar beliefs and values, people that are auspicious! It does not mean we agree on everything and that is ok.  We find comfort in people we agree with, but  we find growth in those you don’t.   

On Finding the Right Books

When it comes to reading the right books, I suggest asking people you look up to who seem to know a lot about the big subjects of mathematics, ethics, natural sciences, human sciences, history and the arts.  Ask them how they came to know so much about these subjects and consider learning more about them over your lifetime. I like taking the approach guided by the chart below, created by international teacher of history, theory of knowledge and humanities Edwin M. Van Olst. He suggests that when you encounter what he calls Knowledge Issues, you can use the chart to identify the challenges and guide your way to greater knowing.

Any opinions are those of Matthew Chope and not necessarily those of Raymond James. 

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.