Newsletter for June 2001

Article Briefings
Fewer Americans Save for Their Retirement
Online 401(k) Plans Altering Market
Employer Stock Levels Heighten 401(K) Risks
How to Salvage Retirement Plans
Move Launched to Globalize Certified Financial Planner (CFP) Designation

Featured Question
IRA 101

Resource Links
BenefitsCheckUp from the National Council on the Aging
The New Tax Relief Reconciliation Act

Fewer Americans Save for Their Retirement
By Glenn Ruffenach, Wall Street Journal: Vol. 35, No. 19, Pg. A2, 05/10/01.

The Employee Benefit Research Institute (EBRI) is releasing a survey that indicates a decline in the amount of money Americans are saving for retirement. The survey finds that fewer Americans are confident that they will have the necessary funds for a comfortable retirement, and even fewer have determined how much money they will need. Dallas Salisbury, president and CEO of EBRI, notes that, "With the downturn in the economy, the markets, and consumer confidence, and the fact that people are better educated about the cost of prescription drugs and long-term care, you're going to see this kind of drop-off." When those surveyed were asked how ready they were for retirement in 2000, 72 percent said they were very or somewhat confident about being able to live comfortably in retirement. When asked the same question in 2001, only 63 percent said they were confident in their retirement plans. When asked if they were happy with their retirement planning, 54 percent of year-2000 respondents said that they were behind schedule; 60 percent of year-2001 respondents said they were behind schedule.

Online 401(k) Plans Altering Market By Beth Healy, Boston Globe Online: Vol. 105, No. 20, Pg.B7, 01/116/01.

Workers at an increasing number of the nation's smaller businesses stand to benefit from a new web-based retirement plan, dubbed the e-401(k). The unprecedented change the internet has brought to the retirement industry in recent years will continue, as online plans appear to be a central factor in shaking up the $2.5 trillion 401(k) business-making plans cheaper, easier to understand, and, in some cases, free. For example, the start-up firm GoldK, based in Waltham, Massachusetts, is now offering e-401(k) plans via brokers and advisors. While most small-plan providers charge employers an annual fee of $750 to $1,500, GoldK offers its plans to employers free of charge. By eliminating sales and marketing costs, GoldK relies on both brokers and other intermediaries to sell plans. GoldK is not offering a charity service, however. It expects to earn money on fees from the fund companies that manage the assets of plan participants. Customer service matters are handled by GoldK's internet representatives or phone staff.

Employer Stock Levels Heighten 401(K) Risks By Judy Greenwald, Business Insurance: Vol. 35, No. 19, Pg. 1, 05/05/01.

Employees' 401(k) plans usually are invested heavily in their employer's stock options, which may not bode well for employees that will retire soon or will be laid off. In fact, employers could be held liable for reduced retirement benefits due to failing stocks. Many 401(k) critics claim that employers should have better educated their employees about diversifying their portfolios before the current economic downturn. This is especially true since 401(k)s have become the main source of retirement for many people. While many employers claim that 401(k)s invested in company stock can boost morale and productivity, investors claim that this can potentially harm both employees and the company.

How to Salvage Retirement Plans By Kathy M. Kristof, Los Angeles Times: Vol. 105, No. 14, Pg. U5, 04/09/01.

Many Americans who planned to retire in a few years have had their hopes dashed, as the stock market continues to wreak havoc on investors' portfolios. There is no guarantee the stock market is near bottom, and, according to many experts, a repeat of the 20 to 30 percent annual returns of the late 1990s is highly unlikely. If you are looking to get your retirement back on track, there are three main strategies: delay your retirement date, save more now, and plan to spend less later. Delaying your retirement date not only provides higher savings, but also increases your social security benefits and payment from workplace defined-benefit pension plans. Saving more now is a strategy that can help in two ways: it increases the money you retire with, and it conditions you to live more modestly-a useful skill in retirement. As far as spending less later, this does not necessarily mean that you must abandon future plans during your retirement altogether. However, now that the market is in a swoon, careful planning on the big things-remodeling projects, vacations, and second homes-should be given careful consideration.

Move Launched to Globalize Certified Financial Planner (CFP) Designation
By Claudia B. Gauches, Electronic Accountant Newswire: Vol. 105, No. 20 Pg. B7, 05/25/01.

The Certified Financial Planning board has decided to create a global certification program for its Certified Financial Planner (CFP) credential. CFP board chair, Patricia P. Houlihan, said consumers increasingly see CFP credentials as the worldwide standard for qualified financial planners. John Carpenter, chair of Canada's Financial Planners Standards Council, added that the group wants its CFP certification to become the highest international standard for financial planning. The CFP's effort comes at a time when the accounting industry has not agreed on whether to pursue a global designation for business services.

Q. IRAs are apparently a key part of retirement planning. What exactly is an IRA, and what are the benefits of having one? Where do I go to get started?

A. IRA stands for Individual Retirement Account. An IRA is a personal savings plan that allows you, or sometimes your employer, to save and invest money that will be used during your retirement. In most cases, an IRA provides tax advantages unavailable through a traditional savings account or other investment vehicle. In general, you can contribute up to $2,000 per year into your IRA and often deduct a portion of your contribution from your taxable income. You then direct those funds into a number of investment vehicles, usually after consulting with a financial planner. The money you contribute, as well as the earnings and gains from these contributions, accumulates tax-free until you withdraw the money from the account. You therefore enjoy the ability to generate additional earnings, unreduced by taxes, each year the funds remain in the IRA.

There are four kinds of IRAs that can be established for retirement purposes (there is also one that assists with savings for higher education, for which the term “IRA” is a bit of a misnomer). They include the traditional IRA, the Roth IRA, the Simplified Employee Pension (SEP) IRA, and the Simple IRA (SIMPLE). The traditional IRA and the Roth IRA are those opened directly by individuals. The SEP IRA and SIMPLE are employer-sponsored accounts, but may be of interest if you are self-employed. You can also hold multiple IRAs through different organizations. Here we will introduce the traditional IRA and the Roth IRA, but be sure to work with your financial planner in choosing the IRA that is right for you.

The traditional IRA: Any individual can open and make contributions to a traditional IRA, as long as you or your spouse (if you file a joint return), received taxable earned income during the year and were not 70 ˝ years old by the year’s end. You can contribute up to $2,000 per year. The amount of your contribution that is tax deductible depends on your filing status (Single, Joint, etc.) and your Adjusted Gross Income (AGI). Your contributions may range from fully deductible to totally non-deductible.

The government expects you to begin withdrawing funds from the traditional IRA between age 59˝ and 70˝. The withdrawals, or “distributions,” will be taxed, generally for the year in which you receive them. You may withdraw funds before age 59˝, but they will be subject to taxation and a 10 % penalty, unless certain exceptions apply. In many cases, the penalty can be avoided with proper planning, but professional advice is essential. A stiff penalty also applies if you fail to make minimum withdrawals after age 70˝. Government rules regarding these minimum distributions are among the most complex of the Internal Revenue Code. The penalty is 50% of the shortfall between what you should have withdrawn and the amounts you actually withdrew by the proper date.

The Roth IRA: Contributions to Roth IRAs are subject to income limitations. As of December 2000, the maximum yearly contribution that can be made to a Roth IRA is phased out for a single taxpayer with an AGI between $95,000 and $110,000, for joint filers with an AGI between $150,000 and $160,000, and for people who are married, filing separately with an AGI between $0 and $10,000. Contributions are not tax deductible when the funds are contributed, but the Roth IRA earnings accumulate tax-free and remain tax-free upon distribution. There are also no minimum distribution requirements for the Roth IRA, which means you can leave funds in your account for as long as you live. You also can contribute to your Roth IRA after age 70 ˝, which you cannot do with a traditional IRA. You cannot withdraw your funds during the first five years of your account without a penalty, but this five-year period may be addressed by proper tax planning. Every qualified taxpayer should discuss the establishment of a Roth IRA with his or her financial planner.

You can open an IRA at any organization approved by the IRS. This includes many financial institutions such as mutual fund or stock brokerage firms, insurance companies, banks, savings and loan associations, and federally insured credit unions. The specific investment vehicles available for your IRA funds depend on the organization you choose. It takes a written document to open your IRA, and it must be done in the United States. There may or may not be a fee. Some plans charge nothing, while others charge $10 per fund or $35-60 per account, or more. Each has different services and benefits; find out specifically what they offer and then determine which plan is best for you.
BenefitsCheckUp is a free, easy-to-use service that identifies federal and state assistance programs for older Americans. The National Council on the Aging created this site to help older adults (and their families) identify programs that may improve the quality of their lives. You may be surprised to learn what benefits are available to you, regardless of your income.
This link takes you directly to a briefing on the Tax Relief Reconciliation Act 2001, recently passed into legislation. The CCH web site is mostly geared for the tax professional, but this briefing does provide a good basic overview of the latest major tax news.


(c) 2001 Copyright Claimed, Internet Retirement Alliance.

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The material and information herein is obtained by from a wide variety of sources. The Internet Retirement Alliance ( believes this information is accurate, current, and authoritative, but it may not be. The Internet Retirement Alliance ( provides the information "as is" without any express or implied warranties.

The Internet Retirement Alliance ( does not provide legal, accounting, investment, or other professional services. If the reader requires legal, accounting, investment, or other expert assistance, the services of a competent professional person should be sought.

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