Avoid penalties during rollovers. If you roll money over from a 401(k) to another retirement account this year, make sure to avoid fees and penalties. The best way to do this is to have your former employer transfer the money directly to an IRA or your new employer's retirement plan. If you have the check made out to you, 20 percent of your account balance will be withheld for income tax and you could be charged taxes and penalties if you don't meet the 60-day deadline for depositing the money in a new account and replacing the withheld 20 percent.
Rebalance. Volatility in the stock market this year may have caused your current holdings to shift significantly from their target allocations. Rebalance your portfolio by using new contributions to purchase investments in underweighted asset classes or sell some investments that performed well until you reach your target allocation.
Take advantage of advice. You may be offered investment advice through your 401(k) or IRA plan next year. A new Labor Department rule will allow retirement plan administrators to provide investment advice to account holders in 2012. To prevent conflicts of interest, the rule requires that the advice be given by a financial professional whose compensation does not vary based on the investments selected or a computer model that an independent expert certifies as unbiased.
[See Tips for Baby Boomers Reaching Retirement Age in 2012.]
Remember required distributions. Traditional 401(k) and IRA account holders who are over age 70½ must take required minimum distributions from their retirement accounts each year. Retirees who fail to withdraw the correct amount must pay a 50 percent tax penalty on the amount that should have been withdrawn.
Reconsider your retirement age. Retirement at age 65 isn't for everyone. "For those who go through the income and expense review and find that they can't afford to retire comfortably, working a few extra years can really help," says Daniel Goldie, president of Dan Goldie Financial Services in Menlo Park, Calif., and coauthor of The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future. "This allows them to save more, gives more time for their investments to grow, and reduces the number of years they'll need retirement income. It can also allow them to delay taking Social Security, which increases their payment amount."
Save part of windfalls for retirement. Every once in a while we receive a windfall of extra cash, such as a bonus, tax refund, gift, or inheritance. Consider putting a portion of these lump sums aside for retirement.
Talk to someone who is retired. Find out what they wish they had done differently in the final years of their career and early part of retirement. "Resolve to meet up with a few former coworkers who've been retired for at least a year in order to learn from their real-life experiences," says John Nelson, a life planning coach and author of What Color Is Your Parachute? For Retirement. "What you learn may change the timing of your own retirement, and uncover things you'll want to explore—both before and after you retire."
Twitter: @aiming2retire
Reader Comments Read all comments (1)
Brian of OH 11:02AM December 19, 2011