Investments & Financial Planning

An IRA is an Individual Retirement Account. It is a type of investment account to provide retirement security for the individual. It was created in 1974 by the Employee Retirement Income Security Act (ERISA). Contributions to your IRA may be deductible, and generally, investments in your IRA, including earnings and gains are not taxed until distributed to you. A contribution to either saves taxes, but contribution to the 401K probably has more benefits such as (1) company matching of contributions and (2) the ability to borrow from it in certain cases.

Yes, depending upon the amount of your income and filing status. Deferred annuity income is not calculated as part of the amount of Social Security benefits subject to income tax, whereas taxable and tax-free interest and dividends are.

The answer depends upon the size of your living expenses and your financial objectives, but a reasonable rule of thumb is 6 months.

Yes. As long as you replace the funds within 60 days, you can withdraw the funds and not be taxed or be subject to the 10% penalty if under age 59 1/2 years old.

I believe adequate insurance coverage is a key part of a good financial foundation. That said, you should also check with several advisors on how to get sufficient coverage at the lowest cost. Figure in your long-term objectives. For example an inexpensive 20-year level term life insurance policy might be a much wiser choice than an expensive whole life policy.

Some reasons are greed, impatience, lack of goals, and unsuitable investment strategies which are overly leveraged. Other reasons include out of date publications or relying on out of step experts, as well as failure to understand or take risks.

Usually the late saver never catches up, even if he earns more income and saves more later. The benefits of compounding significantly helps the early saver.

Junk bonds are high yield corporate bonds. Some corporations, often new companies, do not have established credit history and a proven track record of consistent profits available to pay off loan principal and interest. As a result, when raising capital through bond offerings, the companies must pay a higher rate of interest to compensate the investors for the additional risks (e.g. default, late payment, inadequate collateral, etc.). Mutual funds that specialize in junk bonds can be suitable investments for investors seeking high income and are able to tolerate the associated risks. Often the higher interest rate earnings more than offset the portion of defaulted loans. However, seek out mutual funds that are the best performers and the least risky. Most investors should avoid junk bonds of issuers who are highly leveraged.

Some steps you should consider include (1) match the fund objective and risk level with the investor’s goal; (2) find the top funds that are the best on performance, fees and expenses, stability, and management; (3) determine other factors which might affect future performance, such as market trends and outlook; and (4) investigate any soon-to-be issued dividends for capital gains, and consider purchasing the shares after that date to avoid taxes.