His Hers Money

Yesterday I covered the first three ways in the “Six Simple Ways to Retire Rich”. Thanks to automatic 401(k) plans and one-stop investing options, saving for retirement is a cinch. Editor’s note: This article is adapted from Kiplinger’s Retirement Planning 2008 guide.

I promised to cover the last three ways today so here they are!

Simple Way #4 Consider a Roth

I mentioned this quickly in the last Simple way but they give it an entire section in this article. While your 401k gives you your tax benefits up front, the Roth IRA gives you your tax benefits on the other end at withdrawal side. The new Roth 401k also offers tax-free income at retirement. The Roth IRA has contribution limits of $5000 in 2008 and does have some income limitations so a little additional research is warranted but whomever you set your account up with should be able to help you determine your eligibility and limits.

I personally max mine out each year in twelve handy little payments. Most plans will allow you to make monthly contributions directly taken out of your checking account or whatever account is most convenient for you. Again, the younger you are when you start funding this type of account the more you will benefit from the advantage of time.

Simple Way #5 Don’t Cash Out

I personally was kind of shocked by this one. Not shocked by the advice but shocked by the related statistic that they mention that nearly have of all workers cash out their 401ks when the leave their job rather then rolling it over or even just maintaining it there. If you cash the account out you get hit with both taxes and penalties and forget the whole advantage of time, you just started that clock all over!

I have rolled a 401k or two (or even more) in my time. I can’t tell you how easy they make it for you to do it. I have to believe that it actually requires more work to cash it out these days that is does to roll it over. I recently heard a commercial on the radio about a guy who rolled his old 401k over in the same about of time that his friend ate a sandwich at lunch, it really is that easy.

One benefit that I enjoy as a result of rolling all of my 401ks over into one account is that the value of that account is obviously greater that the individual accounts were so I now qualify for a higher level of service from the company who holds my money. Some of the perks are free checks, a special phone service number, fee waived accounts, etc.

Simple Way #6 Sell Company Stock

Many people have a portion of their 401k tied up in their company’s stock. While it’s great to be confited and supportive of your company, it’s not always a great strategy to put all or even half of your eggs in one basket. After the whole Enron scandal and the Pension Protection Act of 2006, employers must now allow workers to cash out their company stock within three years to diversify their 401(k) investments, and many employers now allow their employees to transfer out at any time.

It’s always best to diversify your holdings. This also something you need to look at if you have your savings and investments spread among numerous accounts. If you choose not to roll your old 401ks into one account make sure you look at the overall balance of your accounts as a whole not individually. If you do have a personal advisor than they can do this for you, if not, make sure you bring up any additional investments you have when speaking to the folks at the individual companies.

As always, I’m not a financial advisor, just an ordinary person trying to make the right choices, just like you so please do seek professional advice. I hope my comments and observations help you know what the right questions to ask are and help you make the right choices for your particular situation.

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• April 22, 2008 -- New Financial Advisor
• April 3, 2008 -- Savings
• June 27, 2008 -- Ways to Retire Rich, part 1
• March 20, 2008 -- New Savings