401(k), IRAs, FCM... Which one and how much?

Recently, clients have been asking me for advice on optimizing contributions to retirement accounts.  With all the different retirement accounts available —401(k), 403(b) or 457 plans, traditional IRAs, Roth IRAs, regular brokerage accounts—it can be challenging to know which are best, and in what combination.  It is important to optimize saving for retirement.  Decisions today can make a significant difference in future wealth.

I net out my recommendations below.  However, first, let me share my view of employer-sponsored retirement programs:

401(k), 403(b) or 457 plans

Pros:  Overall, they are beneficial. These programs lower your taxable income.  The auto-investing option instills discipline to save and invest.  And employers who match are giving you free money.

Cons:  Employer-sponsored programs restrictive and costly to the employee.  Many companies have mediocre investment options, and they provide limited information on those options.  Fees are plentiful, yet remain hidden or unclear.  And the opportunity cost for FCM clients is high.  The money you put into your 401(k) remains untouchable (or un-investable by FCM) until you leave.  Clients are rarely eligible for in-service withdrawals unless they reach a certain age or tenure.     

Recommendations

Given my opinions above and FCM's focus, I suggest the following for most working clients*:

1. If you have access to a 401(k), 403 (b) or 457, maximize the employer matching contribution limit.  Fund to the $17,000 annual contribution limit for 2012.  If applicable, add an additional $5,500 catch-up contribution.
2. Add to your traditional IRA or Roth IRA at FCM. The limit is $5,000 for individuals under 50 at the end of 2012. $6,000 is the limit if you are 50 or older.  If applicable, add an additional $1,000 catch-up contribution.
3. If you are self-employed, contribute to your SEP IRA at FCM for additional tax benefits. The maximum dollar allocation in 2012 is $50,000.   This is a great vehicle.  And the tax-deferment on compounding growth makes it advantageous for clients who invest in FCM's Focus 20.  
4. Consider making a nondeductible contribution to a traditional IRA. Tax-deferment on compounding growth benefits those invested in the Focus 20.
5. Invest additional savings into your FCM brokerage account.  It is important to continue adding to your portfolio to optimize growth.  Auto-investing is a good option to ensure discipline.
6. As part of your routine, rollover your 401(k) to FCM after leaving an company/employer.  This allows me to start managing those funds on your behalf.

That is the general action plan.  For more information: contact me, www.IRS.gov, and/or your tax professional.

- Paul

* Disclosure: Information in this post is in no way intended as personalized investment advice and should not be interpreted as such.

Client Checkpoint: Are you Auto Investing?

At the start of the new year, two common resolutions are to become more physically and fiscally fit.  Central to success in both areas is discipline.  I go to the gym everyday at the same time for a rigorous workout.  While I welcome you to join me, I can't make exercise discipline easy for you! Fortunately, I can help clients establish long-term, investment discipline.  It's simple, and it's called Automatic Investing.  

How it Works

With Automatic Investing, you invest a specific amount of money in the Focus 20 and/or Fixed Income Portfolio each month from your checking or banking account. You decide the dollar amount and which day of the month to make the transaction.  The money is automatically transfered (via electronics funds transfer) and invested.

Why Automatic Investing Helps You

At FCM, I focus on growing and preserving your funds.  However, to optimize long-term growth, clients should continue to add to their accounts as they can.  Auto investing ensures this discipline.  It also prevents cash from building up and sitting idle in bank accounts.

Getting Started

Getting started is easy and economical.  Folio does not charge additional fees for this service.  Contact me to set-up your Automatic Investing program. 

 - Paul

Year-End and Tax Information Schedule

Below is a link to important year-end deadlines and tax information posting dates:

2011-2012 Schedule: Year-End and Tax Information

Welcome to the FCM Journal

Happy New Year!  Welcome to the FCM Journal.  For many years, I have kept a wire-bound notebook next to me as I work.  Everyday, I log notes as I evaluate the Focus 20 Portfolio, the Fixed Income Portfolio, other stocks, and the market.  It is also in this journal that I address client questions and answers.  

I will continue my detailed pen-and-paper routine.  However, from time to time, I now will publish my insights, FAQs, and general reminders within the online FCM Journal.  I will be succinct...netting out what I think is important for clients to understand or act upon. This forum should provide continuing education on the FCM investment approach and views into my current thoughts. 

Please contact me with questions, comments, or suggestions.

Best regards,

Paul Quinn

Founder & Investment Manager

Focalpoint Capital Management LLC

Photo taken returning from Bridger Bowl, Bozeman, MT last week.