MONEY fix my mix

Get Free Help with Your Investing Challenges

Pile of money
B.A.E. Inc.—Alamy

MONEY is looking for people who are willing to share the details of their portfolio in exchange for a free workup with a financial planner.

Has the volatile market caused you to flee stocks for the security of cash and bonds?

Are you close to 100% in stocks but thinking now it might be time to dial back?

Would you like to rework your investments to generate more income from dividends and bonds?

If so, we’d like to help.

For an upcoming issue, MONEY is looking for people who’d be willing to share their portfolio and financial situation in the magazine, in exchange for having a top-shelf financial planner examine their investments from top to bottom and come up with a full and personalized financial plan.

You must be comfortable sharing details of your personal and financial life (including your real names) and being photographed for the story.

If interested, please fill out the form below. Please tell us a little about your investment challenges, and also include a few details about your family’s finances, including income, approximate savings, and debts. All of this information will be kept confidential until we talk and you agree to appear in the story.

Everybody has an investment challenge, so let’s hear yours!

MONEY Ask the Expert

Here’s a Smart Way To Boost Your Tax-Free Retirement Savings

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Robert A. Di Ieso, Jr.

Q: I am maxing out my 401(k). I understand there’s a new way to make after-tax contributions to a Roth IRA. How does that work?

A: You can thank the IRS for what is essentially a huge tax break for higher-income retirement savers, especially folks like yourself who are already maxing out contributions to tax-sheltered retirement plans.

A recent ruling by the IRS allows eligible workers to easily move after-tax contributions from their 401(k) or 403(b) plan to Roth IRAs when they exit their company plan. “With this new ruling, retirement savers are getting a huge increase in their ability contribute to a Roth IRA,” says Brian Holmes, president and CEO of investment advisory firm Signature Estate and Investment Advisors.

The Roth is a valuable income stream in retirement because contributions are after-tax, which means you don’t owe Uncle Sam anything on the money you withdraw. Unlike traditional IRAs which require you to start withdrawing money once you turn 70 ½, Roths have no mandatory distribution requirements, so your investments can continue to grow tax-free. And if you need to take a chunk out for a sudden big expense, such as medical bills, the withdrawal won’t bump you up into a higher tax bracket.

For high-income earners, the IRS ruling is especially good news. Singles with an adjusted gross income of $129,000 or more can’t directly contribute to a Roth IRA; for married couples, the income cap is $191,000. If you are are eligible to contribute to a Roth IRA, you can’t contribute more than $5,500 this year or next ($6,500 for people over 50). The IRS does allow people to convert traditional IRAs to Roth IRAs but you must pay income tax on your gains.

Now, with this new IRS ruling, you can put a lot more into a Roth by diverting your 401(k) assets into one. The annual limit on pre-tax contributions to 401(k) plans is $17,500 and $23,000 for people over 50; those limits rise to $18,000 and $24,000 next year. Including your pre-tax and post-tax contributions, as well as pre-tax employer matches, the total amount a worker can save in 401(k) and 403(b) plans is $52,000 and $57,500 for those 50 and older. (That amount will rise to $53,000 and $59,000 respectively in 2015.) When you leave your employer, you can separate the after-tax money and send it directly to a Roth, which can boost your tax-free savings by tens of thousands of dollars.

To take advantage of the new rule, your employer plan must allow after-tax contributions to your 401(k). About 53% of 401(k) plans allow both pre-tax and after- tax contributions, according to Rick Meigs, president of the 401(k) Help Center. You must also first max out your pre-tax contributions. The transfer to a Roth must be done at the same time you roll your existing 401(k)’s pre-tax savings into a traditional IRA.

The ability to put away more in a Roth is also good for people who want to leave money to heirs. Inherited Roth IRAs are free of tax, and because they don’t have taxable minimum required distributions, they can give your heirs decades of tax-free growth. “It’s absolutely the best asset to die with if you want to leave money behind,” says Holmes.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

Read next: 4 Disastrous Retirement Mistakes and How to Avoid Them

MONEY financial advisers

What Is a Fiduciary, and Why Should You Care?

Your investments are at stake, explains Ritholtz Wealth Management CEO Josh Brown (a.k.a. The Reformed Broker).

MONEY Taxes

IRS Bumps Up Retirement Fund Contribution Limits

You can now save more in your tax-deferred retirement accounts.

Good news: The IRS has bumped up retirement account contribution limits for 2015 to reflect cost-of-living increases. So if you’ve been wanting to sock away more in your tax-advantaged accounts, next year is your opportunity.

Today’s announcement raises the annual contribution limit for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan by $500 to $18,000. The catch-up contribution limit for employees over age 50 also increased from $5,500 to $6,000.

IRA contribution limits and IRA catch-up contributions, however, will remain the same, at $5,500 and $1,000, respectively, meaning older workers can still set aside $6,500 a year in these accounts.

This follows Wednesday’s announcement that retirees will see a 1.7% cost-of-living bump in their Social Security benefits next year.

Contribution limits are reviewed and adjusted annually to reflect inflation and cost-of-living increases. Last year, 401(k) and IRA limits remained unchanged from 2013 levels because the Consumer Price Index had not risen enough to warrant an increase.

For more details about the changes and more information about the new gross adjusted income limits for certain tax deductions, see the table below or the IRS website.

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Read more from the Ultimate Retirement Guide:

 

MONEY mortgages

The Surprising Threat to Your Financial Security in Retirement

House made out of dollar bills with ominous shadow
iStock

More Americans could face a housing-related financial hardship in retirement, according to a new Harvard study.

America’s population is going to experience a dramatic shift during the next 15 years. More than 130 million Americans will be aged 50 or over, and the entire baby boomer generation will be in retirement age — making 20% of the country’s population older than 65. If recent trends continue, there will be a larger number of retirees renting and paying mortgages than ever before.

A recent study published by Harvard’s Joint Center for Housing Studies describes how this could lead an unprecedented number of America’s aging population to face a lower quality of life or even financial hardship. However, the same study also points out that there is time for many of those who could be affected to do something about it.

Housing debt and rent costs pose a big threat

According to the data Harvard researchers put together, homeowners tend to be in a much better financial position than renters. The majority of homeowners over 50 have retirement savings with a median value of $93,000, plus $10,000 in savings. More than three-quarters of renters, on the other hand, have no retirement and only $1,000 in savings on average.

While renters — who don’t have the benefit of home equity wealth — face the biggest challenges, a growing percentage of those 50 and older are carrying mortgage debt. Income levels tend to peak for most in their late 40s before declining in the 50s, and then comes retirement. The result? Housing costs consume a growing percentage of income as those over 50 get older and enter retirement.

How bad is it? Check out this table from the Harvard study:

Source: “Housing America’s Older Adults,” Harvard University.

More than 40% of those over 65 with a mortgage or rent payment are considered moderately or severely burdened, meaning that at least 30% of their income goes toward housing costs. The percentage drops below 15% when they own their home. If you pay rent or carry a mortgage into retirement, there’s a big chance it will take up a significant amount of your income. In 1992, it was estimated that just more than 60% of those between 50 and 64 had a mortgage, but by 2010, the number had jumped past 70%.

Even more concerning? The rate of those over 65 still paying a mortgage has almost doubled since 1992 to nearly 40%.

The impact of housing costs on retirees

The impact is felt most by those with the lowest incomes, and there is a clear relationship between high housing costs and hardship. Those who are 65 and older and are both in the lowest income quartile and moderately or severely burdened by housing costs spend up to 30% less on food than people in the same income bracket who do not have a housing-cost burden. Those who face a housing-cost burden also spend markedly less on healthcare, including preventative care.

In many cases, these burdens can become too much to bear, often leading retirees to live with a family member — if the option is available. While this is more common in some cultures, this isn’t an appealing option to most Americans, who generally view retirement as an opportunity to be independent. More than 70% of respondents in a recent AARP survey said they want to remain in their current residence as long as they can. Unfortunately, those who carry mortgage debt into retirement are more likely to have financial difficulties and limited choices, and they’re also more likely to have less money in retirement savings.

What to do?

Considering the data and the trends the Harvard study uncovered, more and more Americans could face a housing-related financial hardship in retirement. If you want to avoid that predicament, there are things you can do at any age.

  • Refinance or no? Refinancing typically only makes sense if it will reduce the total amount you pay for your home. Saving $200 per month doesn’t do you any good if you end up paying $3,000 more over the term of the loan. However, if a lower interest rate means you’ll spend less money than you do on your current loan, refinance.
  • Reverse mortgages. If you’re in retirement and have equity in your home, a reverse mortgage might make sense. There are a few different types based on whether you need financial support via monthly income, cash to pay for repairs or taxes on your home, or other needs. However, understand how a reverse mortgage works and what you are giving up before you choose this route. There are housing counseling agencies that can help you figure out the best options for your situation, and for some reverse mortgage programs you are required to meet with a counselor first. Check out the Federal Trade Commission’s website for more information.

All that said, avoiding financial hardship in retirement takes more than managing your mortgage. A big hedge is entering retirement with as much wealth as possible. Here are some ways to do that:

  • Max out your employee match. If your employer offers a match to retirement account contributions, make sure you’re getting all of it. Even if you’re only a few years from retiring, this is free money; don’t leave it on the table. Furthermore, your 401(k) contributions reduce your taxable income, meaning it will actually hit your paycheck by a smaller amount than your contribution.
  • Catching up. The IRS allows those over age 50 to contribute an extra $1,000 per year to personal IRAs, putting their total contribution limit at $6,500. And contributions to traditional IRAs can reduce your taxable income, just like 401(k) contributions. There are some limitations, so check with your tax pro to see how it affects your situation. Also, while contributions to a Roth IRA aren’t tax-deductible, distributions in retirement are tax-free.
  • Financial assistance and property tax breaks. Whether you’re a homeowner or a renter, there are assistance programs that can help bridge the housing-cost gap. Both state and federal government programs exist, but nobody is going to knock on your door and tell you about them. A good place to start is to contact your local housing authority. The available assistance can also include property tax credits, exemptions, and deferrals. Check with your local tax commissioner to find out what is available in your area.

Stop putting it off

If you’re already in this situation, or know someone who is, then you know the emotional and financial strain it causes. If you’re afraid you might be on the path to be in those straits, then it’s up to you to take steps to change course.

It doesn’t matter whether you’re a few months from 65 or a few months into your first job: Doing nothing gets you nowhere and wastes invaluable time that you can’t get back.

MONEY 401(k)s

Here’s the Least Understood Cost of a 401(k) Loan

401(k) loans aren't always a terrible choice. But make sure you keep saving at the same rate during the loan payback period.

A loan from your 401(k) plan has well-known drawbacks, among them the taxes and penalties that may be due if you lose your job and can’t pay off the loan in a timely way. But there is a subtler issue too: millions of borrowers cut their contribution rate during the loan repayment period and end up losing hundreds of dollars each month in retirement income, new research shows.

Academics and policymakers have long fixated on the costs of money leaking out of tax-deferred accounts through hardship withdrawals, cash-outs when workers switch jobs, and loans that do not get repaid. The problem is big. Some want more curbs on early distributions and believe that funds borrowed from a 401(k) should be insured and that the payback period after a job loss should be much longer.

Yet most people who borrow from their 401(k) plan manage to pay back the loan in full, says Jeanne Thompson, vice president of thought leadership at Fidelity Investments. A more widespread problem is the lost savings—and decades of lost growth on those savings—that result when plan borrowers cut their contribution rate. About 40% of those with a 401(k) loan reduce contributions, and of those a third quit contributing altogether, Fidelity found.

To gauge the impact, Fidelity looked at two 401(k) investors making $50,000 a year and starting at age 25 to save 6% of pay with a 4% company match. Fidelity assumed that at age 35 one investor stopped saving and resumed 10 years later. At the same age, the other investor cut saving in half and resumed five years later. Both employees earned inflation-like raises and the same rate of return (3.2 percentage points above inflation). At age 67 they began drawing down the balance to zero by age 93.

The investor who stopped saving for 10 years wound up with $1,960 of monthly income; the investor who cut saving in half for five years wound up with $2,470 of monthly income. Had they maintained their savings uninterrupted each would have wound up with $2,650 of monthly income. So the annual toll on retirement income came to $2,160 to $8,280.

Nearly one million workers in a Fidelity administered 401(k) plan initiated a loan in the year ending June 30, the company said. That’s about 11% of all its participants and part of rising trend, the company says. The typical loan amount is $9,100 unless the loan is to help with the purchase of home—in that case the typical amount borrowed is $23,500.

These figures are generally in line with data from the Employee Benefit Research Institute, which found that the typical unpaid loan balance in 2012 was $7,153 and that 21% of participants eligible for a loan had one outstanding. The loans were relatively modest, representing just 13% of the remaining 401(k) balance.

Workers change their contribution rate for many reasons, including financial setbacks and a big new commitment like payments on a car or mortgage. But cutting contributions to make loan payback easier may be the most common reason—and the least understood cost of a 401(k) loan.

MONEY

4 Reasons Why Bill Gross Leaving Pimco Is Such Big News

Bill Gross, co-founder and chief investment officer of Pacific Investment Management Company (PIMCO).
Jim Young—Reuters Bill Gross, co-founder and former co-chief investment officer of Pacific Investment Management Company (Pimco).

'Bond King' Bill Gross has resigned from the firm he founded. Here's why his move matters.

It many not be LeBron leaving Miami, but on Wall Street, at least, it was arguably an even bigger deal. Bill Gross, long one of the biggest stars in money management, has resigned from the Newport Beach, Calif., asset management giant Pimco and will be heading to Janus Capital in Denver.

Why Gross is such big news

Gross’s $221 billion Pimco Total Return fund (PTTCX) is one of the largest mutual funds on the market—in fact, it has more assets than any bond fund in the world. And it’s a mainstay in many 401(k) plans. So there is a good chance at least some of your retirement savings are at stake. Because it invests largely in a diversified mix of government and corporate bonds, for many people Pimco Total Return is the primary holding for money they don’t put in the stock market.

And since Gross’s fund and Pimco, the firm he founded in 1971, are major players in the market for U.S. Treasuries, he also has been an important public figure, with financial journalists closely following his comments on interest rates, Federal Reserve policy, the U.S. debt and other economic issues. Similar to famous stock investors like Warren Buffett, news that Gross was buying something could move markets.

But Gross has been in the spotlight for less flattering reasons lately. We don’t know all the details; the first news of his departure came from a press releases issued by Janus this morning. Both the Wall Street Journal and CNBC are reporting that Pimco was ready to push him, if he hadn’t jumped.

Maybe it shouldn’t have been a surprise

Gross has a famously quirky personality that helped to build Pimco’s brand. He writes colorful shareholder letters and started practicing yoga before it was cool among money managers. According to one report, Gross didn’t like people to look him in the eye on the trading floor. None of this mattered when Pimco was delivering outsize investment returns. But lately performance has lagged — in the past year Pimco Total Return finished in the bottom tenth of its Morningstar category — in part because of missed calls on the direction the Treasury market. And that may have made his quirks harder for some to take.

After the high profile departure of Gross’ protege and presumed successor Mohamed El-Erian earlier this year, Bloomberg Businessweek put Gross on the cover with the headline “Am I Really Such a Jerk?” Gross didn’t tone it down. In June, he gave what many regarded as an odd speech at a large investment conference, wearing sunglasses and comparing himself to Justin Beiber.

To top it all off, the Wall Street Journal broke news earlier this week that Pimco was being investigated by the SEC. It’s too early to tell where, if anywhere, that could lead. (More here.)

For Pimco, and its investors, it’s a time to wait and see.

While Bill Gross has always been the public face of Pimco, the Newport Beach, Calif., money manager which oversees a total of $2 trillion, is a lot more than Gross.

Businessweek ran a story in May 2013 called “Pimco Prepares for Life After Bill Gross,” noting Gross was 69 at the time. Pimco is known for its deep bench. According to it’s Web site it has more than 700 investment professionals. Another Pimco star, Chief Economist Paul McCulley, who had retired from Pimco in 2010, returned in May.

The big question is whether the investment magic will remain with Pimco or go with Gross. There is one recent precedent worth looking at. In 2009, another high-profile, equally flamboyant bond manager, Jeffrey Gundlach, left his long-time employer, TCW, in acrimonious circumstances and founded a new firm known as DoubleLine. The DoubleLine Total Return (DBLTX) fund has proved a success, beating the market over the past three years and attracting more than $30 billion. But controversy has followed Gundlach too. He made headlines earlier this year after getting embroiled with fund researcher Morningstar.

This may give Janus new life.

If you’re old enough to remember the first Internet bubble — the one that popped in the early 2000s — there’s a good chance you know Janus. For a time, the Denver fund company, which bet and won big on the era’s tech names, seemed like middle America’ gateway to Internet riches. At the peak of the bubble, according the New York Times, half the money flowing into mutual funds went to Janus. That all changed later in the decade when investors departed in droves. Janus has been trying to recapture its former glory ever since.

Since 2002 the company has had five different chief executives. The latest one — a Pimco alum named Dick Weil who arrived in 2010 — has been trying to broaden the company’s focus beyond stock funds. That’s where Gross appears to fit in. According to the Janus release, he’ll be running an “unconstrained bond fund.” Those investments, called unconstrained because they can invest in a wider array of securities than traditional bond funds, have proved popular at a time when ultra-low interest rates have hurt traditional fixed income returns. But as you might guess, there are risks too. Janus is probably betting that Gross’s popularity will reassure investors otherwise reluctant to take another chance with it.

MONEY Ask the Expert

How Smart Savers Choose Between a 401(k) or Roth IRA

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Robert A. Di Ieso, Jr.

Q: My husband and I are in our middle 30s and both have good jobs in a professional field. We each make $60,000 a year. Should we be saving in our 401(k) plans, or contributing to a Roth IRA?

A: The answer, of course, is that you should be doing both—but not necessarily in equal amounts, and much depends on your expenses and how much you are able to sock away. Let’s look at some of the variables.

The first consideration is making certain both of you get the full amount of your employer’s matching 401(k) plan contributions. “Fill up the 401(k) bucket first,” says IRA expert Ed Slott, founder of IRAhelp.com. “That is free money and you shouldn’t leave any of it on the table.” In many 401(k) plans, companies kick in 50 cents for every $1 you save up to 6% of pay. If both of you are in such plans, you should each contribute $7,200 per year to your 401(k) plans to collect the $3,600 your employers will match. But don’t contribute more than that, and if you get no match, skip it entirely—for now. It’s time to move on to a Roth IRA.

A Roth IRA is a far different savings vehicle than a 401(k) plan. Having one will give you more flexibility in retirement. Your 401(k) plan is funded with pre-tax dollars that grow tax-deferred. You pay tax when you start taking distributions no later than your 71st year. A Roth IRA is funded with after-tax dollars that grow tax-free for the rest of your life and that of your spouse, and they have tax advantages for your heirs as well. You can also take early distributions of the principal that you contribute, without penalty or tax, should you run into a cash crunch. So after you have each maxed out your 401(k) match, shift to a Roth IRA. Each of you can save up to the $5,500 annual limit.

The downside of a Roth IRA is that you lose the immediate tax deduction that you get with a 401(k) contribution. Still, “you eliminate the uncertainty of what future tax rates may do to your retirement income plan,” says Slott. If tax rates go up, as many believe they must in the years ahead, your 401(k) savings will become a little less valuable. But your Roth IRA savings will be unaffected.

Once you have each saved $7,200 to get the company match of $3,600, and have also fully funded a Roth IRA to the tune of $5,500—congratulate one another. That comes to $16,300 each of annual savings, or a Herculean savings rate of 27%. Most experts advise saving at a 15% rate, and even higher when possible. If you still have more free cash to sock away, you can begin to put more in your 401(k) to get the additional tax deferral. But you should first consider opening a taxable brokerage account where you invest in stocks and stock mutual funds. After a one-year holding period these get taxed as a capital gain, currently a lower rate (15% to 20%) than the ordinary income rate that applies to your 401(k) distributions.

Do you have a personal finance question for our experts? Write toAskTheExpert@moneymail.com.

TIME Investing

The Triumph of Index Funds

CalPERS’ move is a vote for passive investing

It would be reasonable to assume that the professionals running CalPERS, the California pension fund with $300 billion in assets, would be good at picking stocks. Or at least reasonably good at picking other smart people to pick stocks for them. But in the past year, CalPERS has made two decisions that are telling for all investors when it comes to trying to outperform the market.

Late last year, the pension fund signaled its intention to move more assets from active management into passively managed index funds. These are funds in which you buy a market, such as the S&P 500 or the Russell 2000, unlike mutual funds that try to select winners within a given class of equities. More recently, CalPERS said it would also pull out the $4 billion it has invested in hedge funds. Although hedge-fund honchos make headlines with their personal wealth, the industry has significantly lagged the market in the past three years. “Call it capitulation or sobriety: it’s saying that we can’t beat the market and we can’t find managers who can beat the market, and even if they can, their fee structures are overwhelming,” says Mitch Tuchman, CEO of Rebalance IRA, an investment adviser focused on index-fund-only portfolios.

The CalPERS move is a nod to University of Chicago economist Eugene Fama, who won a Nobel for his lifelong work on “efficient markets.” That theory says that because stock prices reflect all available information at any moment–they are informationally “efficient”–future prices are unpredictable, so trying to beat the market is useless. According to the SPIVA (S&P Indices Versus Active) Scorecard, the return on the S&P 500 beat 87% of active managers in domestic large-cap equity funds over the past five years.

Why can’t expert money managers succeed? Researchers from the University of Chicago say there are so many smart managers that they offset one another, gaining or losing at others’ expense and winding up near the market average, before expenses. “Unless you have some really special information about a manager, there’s really no good reason to put your money in actively managed mutual funds,” says Juhani Linnainmaa, associate professor of finance at Chicago’s Booth School of Business. He says the median managed fund produces an average –1% alpha–that is, below the expected return. Some funds do beat their index–what’s not clear is why. “What is the luck factor?” he asks. “Given the noise in the market, it’s kind of hopeless to try to figure anything out of this.” Linnainmaa’s colleague, finance professor Lubos Pastor, also found that mutual funds have decreasing returns to scale. Size hurts a manager’s ability to trade.

Yet even if managers match the market, they’ve got expense ratios that then eat into returns. Index-fund proponents like John Bogle at Vanguard have long preached that fees dilute performance. A 1% difference can be huge. “It’s not 1% of all your money,” says Tuchman, “it’s 1% of expected returns: that’s 16% to 20%.” The average balance in Fidelity 401(k) plans was $89,300 in 2013. While 1% of that is $893, if you earned 8% compounded over 10 years, your balance would be $192,792; at 7% it’s $175,667, a difference of $17,125. Real money, in other words.

Investors are getting the message, pouring some $345 billion into passive mutual and exchange-traded funds over the past 12 months vs. $126 billion in active funds, says Morningstar. “At the end of the day,” says Tuchman, “an index fund is run by a computer, a robot. We don’t want to believe that a robot can beat Ivy League M.B.A.s–and I’m one of them.” What CalPERS seems to be saying is that the game is over. The robot wins.

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