10 things to know about Roth accounts

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Business Week | By Kiplinger

Creating a tax-free stream of income is a powerful retirement tool. Here's the scoop on Roth IRAs and 401k's.

Tax-free income is a dream of every taxpayer. And if you save in a Roth account, it's a reality. Roths are the youngsters of the retirement savings world. The Roth IRA, named after the late Delaware Sen. William Roth, became a savings option in 1998, followed by the Roth 401k in 2006. These accounts offer big benefits, but the rules for Roths can be complex. Here are ten things you must know about adding a Roth to your nest egg.

Roths turn traditional IRA and 401k rules on their head. Rather than getting a tax break for money when it goes into the account and paying tax on all distributions, with a Roth, you save after-tax dollars and get tax-free withdrawals in retirement.

By accepting the tax breaks for traditional accounts, you accept the government as your partner. If you're in the 25% tax bracket, for example, 25% of all earnings will effectively belong to the IRS to be collected when you withdraw the money. With a Roth, 100% of all future earnings are yours.

The Roth strategy of paying taxes sooner rather than later will pay off particularly well if you're in a higher tax bracket when you withdraw the money than when you passed up the tax break offered by the traditional account. If you're in a lower tax bracket, though, the Roth advantage will be undermined.

To be able to contribute to a Roth, you must have earned income. And unlike traditional IRAs, if you're still working after age 70 1/2, you can keep contributing.

In 2014, you can stash up to $5,500 in a Roth IRA and an extra $1,000 if you're 50 or older.

But higher-income taxpayers are barred from contributing to a Roth IRA. For 2014, the ability to contribute to a Roth phases out if your adjusted gross income is between $181,000 to $191,000 for joint filers and between $114,000 to $129,000 for single filers.

You can make a 2013 Roth IRA contribution as late as April 15, 2014. You can contribute to both Roth and traditional IRAs, but the total cannot exceed the annual limit.

Many companies have added a Roth option to their 401k plans. After-tax money goes into the Roth, so you won't see the immediate tax savings you get from contributing pretax money to a traditional plan. But your money will grow tax-free. (Any employer match will go into a traditional 401k account.)

For 2013 and 2014, you can stash up to $17,500 a year, plus an extra $5,500 a year if you're 50 or older, into a 401k. Contributions must be made by December 31 to count for the current tax year, and the limit applies to the total of your traditional and Roth 401k contributions. A Roth 401k is a good option if your earnings are too high to contribute to a Roth IRA.

Another route to tax-free earnings inside a Roth is to convert traditional IRA money to a Roth. In the year you convert, you must pay tax on the full amount shifted into the Roth. That's the price you pay to buy tax freedom for future earnings. (If you have made nondeductible contributions to your traditional IRA, a portion of your conversion will be tax-free.)

If you expect your tax rate to be the same or higher in the future, converting could make sense; if you expect your future tax rate to be lower, it might not.

You'll want to pay the tax owed on a conversion with money outside of the IRA. Drawing money from the IRA to pay the tax will result in an additional tax bill, and a penalty if you're under age 59 1/2.

Look at the big picture if you plan a conversion. The added taxable income could boost you into a higher tax bracket. A big jump in income could trigger other taxes, too, such as the new 3.8% surtax on net investment income. For Medicare beneficiaries, a rise in adjusted gross income could result in premium surcharges for Part B and Part D.

A series of small conversions over several years could keep the tax bill in check. For instance, you may want to convert just enough to take you to the top of your current tax bracket.

Because there's no tax deduction for Roth contributions, you can retrieve that money at any time free of taxes and penalties, regardless of age.

But for earnings to be tax- and penalty-free, you have to pass a couple of tests. First, you must be 59 1/2 or older. You will get hit with a 10% early-withdrawal penalty and taxes if you take out earnings before you hit age 59 1/2. And you must have had one Roth open for at least five years. If you are 58 and opening your first Roth IRA in 2013, you can tap earnings penalty-free at age 59 1/2, but you won't be able to tap earnings tax-free until 2018.

There's a different rule for conversions. Read on.

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6 things to know when choosing a bank

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| By Constance Gustke, Bankrate.com

Your bank is there to serve, but don't forget that it's also serving itself. Here are some things to consider when you're looking for a place to put your money.

Should you trust your banker to watch out for you?

Not always. They have incentives and goals to meet, such as referring a specified number of clients each month to a department that handles mortgages or car loans, says Robert Laura, president of Synergos Financial Group in Howell, Mich.

The dilemma: A banker's bottom line may not be the same as yours. "For banks, it's about gaining wallet share," Laura says.

The remedy is to know exactly what banking products you need. Here are six things to keep in mind when shopping for a bank.

Many bank programs have tiered interest rates for higher deposits, Laura says. For example, jumbo certificates of deposit, which usually have $100,000 minimum deposits, typically offer higher yields than CDs in smaller amounts, he says. "Bankers want to capture more dollars," Laura says.

Multimillion-dollar clients may even get additional insurance over the $250,000 deposit limit per bank set by Federal Deposit Insurance Corp. How? A bank may offer a Certificate of Deposit Account Registry Service, or CDARS, says Greg McBride, CFA, senior financial analyst at Bankrate. Banks belonging to the CDARS network let wealthy investors spread large CD deposits among different banks while still being insured.

Currently, more than 3,000 financial institutions -- largely medium and small banks -- offer this extra insurance protection.

If you plan to travel often, beware of extra ATM costs. Bank of America belongs to the Global ATM Alliance, which offers free ATM withdrawals internationally at member banks. This can reduce fees overseas if you have an account at one of those banks. But banks that don't belong to the alliance may charge processing fees that quickly add up.

In certain countries, you might be charged differently when using a debit card versus the credit card side of a debit card. Ask your bank what these additional fees might be before you travel overseas.

Beware, you may not see these fees until you get your monthly statement, says Paul Schaus, president of bank consulting firm CCG Catalyst in Phoenix. "Read your account disclosure statement before you go," he says.

Longtime customers with multiple accounts can secure better account deals, such as getting fees waived or nabbing higher yields, McBride says. "And branch managers have the power to negotiate them," he adds.

Some banks even have overdraft fee-waiver policies, granting a set number of two or three each year. Still, repeat offenders are less likely to get waivers.

Also, online banking customers may get better terms than in-branch bank customers. The reason is the bank's lower cost of service online, which can be passed along to customers, McBride says.

"Everything is negotiable," Laura says. "You may get a 5- or 10-basis-point increase on a CD yield, if you ask."

Schaus says smaller banks and credit unions are the most likely to give higher rates and waivers. "When dealing with big banks, you're just a number," he says.

Banks may charge an annual percentage rate on a credit card as high as 30 percent, Laura says. And reasons for the high rate run the gamut, from missing a payment window by just one day or skipping a payment. To find out what penalties can be levied, check the credit card pamphlet that states terms and conditions, he says.

"When reading it, you may wonder why anyone uses a credit card," he says.

Relationship pricing, where banks reward consumers with multiple accounts, may be more beneficial for consumers than just stand-alone bank accounts, McBride says. "But you still need to shop around," he says. "Compare each account against the competition."

Some banks put clauses in their contracts that mandate the use of arbitration rather than jury trials when disputes arise.

"Banks would rather go through arbitration than trials, because jury members see deep pockets when judging a company," Schaus says. Arbitrators tend to compromise more, he says.

Bankrate's McBride offers this final tip: Become an educated consumer, so you can discern a good offer from a less competitive one.

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5 Things to know before the reinvestment of dividends

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| By Richard Satran, US News & world report

Dividend payments put right back to work, that can help you grow your portfolio it also costs and complications, but can.

For many people reinvest dividends may be among the most obvious and automatic rules for wealth creation, and with good reason-it is an easy way to more of the funds or shares, to get you already often cheaper than buying new ones with your trading account,.

Whether you it or not notice, often automatically reinvested dividends, which you will be paid for you especially if you own mutual funds. These dividend payments are an increasingly important part of the average person portfolio with yields on bonds close to historic lows.

Companies paying record dividends. The standard & poor's 500 index ($INX) company shareholders have $300 billion worth in the last 12 months, S & P data according to sent. The average dividend yield is little more than 2.5 per cent, and people flocked to dividend-paying stock fund, as they give up the bonds. Many brokers manage the reinvestment transactions for the shares, which help to keep their customers, less paperwork for the programs, which can be daunting. Fund companies offer them almost always for the funds, which sell them to investors.

But be careful. Reinvest dividend sometimes done through dividend reinvestment plans or drips, can be a burden for your savings, if you properly treat any payouts. Many people are not even aware what their dividends if they end up as money on their account. A look at how your account is set up, that fees to manage and optimize payouts serious money in the long term add up.

Here are things you can do to help ensure that you make the most of valuable dividends.

Make sure that you know how your dividends are paid

It sounds simple, but a lot of dividend payments are wasted or abused. You can set up your account, so that the payments directly into a money-market-go where returns are close to zero but have access to cash when you need it. Or they may automatically be reinvested in the Fund or stock.

"The reinvestment election can select or de selected at any time", says Steve Balaban, a financial consultant for Williams Financial Group. It applies to mutual funds, equity and debt, and individual stock positions, he adds. Bond are dividends payouts, which are normally a drip not part, unless you are a large investor.

The choice can be done automatically, but the decision was not to be.

If you reinvest dividends your should depending on overall investment needs. The reinvestment should reflect whether you build your savings or just before the time you need the income.

"If you long term invest reinvestment of dividends generally a good idea," says Arden Rodgers, financial consultant and principle of Arbus Capital Management LLC. "a large part of the total return of equity investments dividends."

Watch out for hidden fees

Sometimes you will be charged for the reinvestment dividends in shares of the company when you are in a drop. Even if you get a discount on the purchase of shares by 2 to 4 percent, a Commission for the reinvestment purchases of shares are added to the cost and was able to eat with the tee.

While there is often no direct fee for participating in a drip and it is usually cheaper than buying shares on the open market, possibly also a transaction fee for the purchase of shares for your account. Some reinvestment plans are some deduct the dividend payment fees. Each estate agents have their own kind of such shipping charges, so you need to check.

Also don't forget to check, you could make "Opportunity cost" of reinvestment in the same Fund or company again and again against what elsewhere. Note, that investment funds and companies often have a vested interest in their shares to keep, but it mind, may not be the best idea for your own retirement savings plans.

Make sure that your investment will raise not your assignments from the series

Don't like 1% or 2% on common shares as a big deal, especially when thinking about a dividend to pay themselves. But if you reinvested automatically into a speculative high-yield bond fund, which manages a 10-percent return, and become, it could throw your portfolio in a hurry out of balance.

Reinvestment of the still relatively small payouts can your assignments where you want them that gradually move. "In the course of time reinvestment of dividends your portfolio out of balance with your desired portfolio structuring push can," says Rodgers.

You make the best of compound interest by investing to stay

Re investment "stopping you with a cash drag for your return, if you immediately reinvest not the cash dividend," says Rodgers. The advantage with automatically add to your investment is that you no matter what. Behavioral finance studies show that savings automatic, rather you save if you must actively choose. In a study published by the National Bureau of economic research found Harvard University researcher Brigitte Madrian, that the number of participants at the workplace savings plans almost doubled when people were "Auto enrolled,", compared with the number who did it when they had to subscribe to a plan. The same principle applies reinvestment of dividends.

While people invest in stock dividends have often ignored, they are worth, attention and can really add too much money in the course of time. Rodgers writes that the S - and P-500-index is about 53 percent in the past five years. If you followed a plan of reinvestment of dividends on shares of S & P, your return would be 71 percent. So is the advantage is if you own shares required and their associated risk can handle and you do not require dividends for other purposes such as income.

"If the client in the distribution phase of their life is, I most recommend that they are not reinvested," says Balaban. "I don't think that the introduction of market risk into the equation in the interest of the customer is, if I know that the income will be deducted."

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