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A 401(k) is a retirement savings plan that is usually employer-sponsored. This means you, as an employee, elect to have part of your earnings placed into an individual 401(k) account, which is managed by your employer. Generally, you can select from among a variety of different investment options for your account, usually a mix of different types of mutual funds. Often, you can also use your account to invest in your employer’s stock. Some employers also “match” part or all of their employees’ contributions by putting additional funds into the 401(k) account.

Since 2006, there have been two types of 401(k)s available (although not all companies offer both types) – the traditional 401(k) and the Roth 401(k). With a traditional 401(k), your contributions are tax-deductible , meaning that the 401(k) is funded with pre-tax dollars and tax-deferred, meaning that you don’t pay income tax on the money in the account until you withdraw it. This type of 401(k) is especially attractive to higher income earners who get a significant benefit from the up-front tax break, and who prefer to postpone the income tax until their 401(k) withdrawals.

A Roth 401(k) works in the opposite way – you pay income tax on money contributed to your Roth 401(k) in the year that you put the money into the account. But, the money also grows tax-deferred, and qualified withdrawals from the account – including investment income – are tax-free. This plan is attractive to lower income earners who don’t make enough to miss the tax break during the year of initial contribution but who benefit a great deal from not having to pay taxes during retirement.

If your employer offers both traditional and Roth 401(k)plans, you may want to divide your retirement savings between the two types of plans so that you can take advantage of the benefits of both.

A new law that became effective January 1st, allows the owner of a traditional IRA or 401(k) to convert these accounts to a Roth IRA. Tax is paid on the amount converted, but future qualified withdrawals are tax-free. For this year only, you can choose to pay the tax this year, or defer the income equally to your 2011 and 2012 tax years. For more information, contact a qualified attorney, tax or financila advisor.

Securities offered through Avantax Investment Services^SM, Member FINRA, SIPC. Investment advisory services offered through Avantax Investment Services^SM.

Many people assume that the beneficiaries named in their estate planning documents are the same beneficiaries that will automatically receive the assets in their estate. But not all assets are treated equally when the estate is distributed.

Insurance policies for example, as well as annuities or retirement accounts such as a 401k or an IRA, are transferred to a named beneficiary no matter what your Will says. Because of this, the beneficiary named in the policy or retirement plan will be the one to receive the proceeds, regardless of who might be named in your Will or living trust.

How do you make sure that the intended person gets the money they deserve from your insurance policy?

You should coordinate your retirement plans and life insurance policies with your estate plan. If a change is made after your estate plan is drafted, the beneficiary must be changed on a change of beneficiary form too – simply updating your Will is not enough.

You should also note that most of these forms allow you to name Primary and Secondary beneficiaries. The Primary Beneficiary is the person(s) who should receive the proceeds – Secondary Beneficiaries are treated as “backups” in case the primary beneficiaries die before you do. Please be aware that there may be different income tax results depending on whom is named.

To ensure that your life insurance policies and retirement plans are coordinated with your estate plan, consult a qualified estate planning attorney.

Securities offered through Avantax Investment Services^SM, Member FINRA, SIPC. Investment advisory services offered through Avantax Investment Services^SM.

When you create a financial plan for your retirement, saving is essential, but investing your savings is equally significant. As your retirement plan takes form, watch out for these common investment errors.

Not Diversifying

Diversifying your investment means putting your capital into a variety of money making opportunities. If you prefer safe investments, focus on money market accounts, and government bonds. If you are also concerned with inflation, the stock market is a place to potentially grow your funds over a long time horizon. With any investment, remember to diversify. Investment diversification can help provide both safety and growth. Asset Allocation and/or Diversification of your overall investment portfolio does not assure a profit or protect against a loss in declining markets

Removing Funds Early

When you have a retirement account, you should leave the money in there until you retire. If you take any or all of it out early, you may be assessed a penalty, and you may also lose some of your investment earnings. For example, if you have invested part of an IRA in a Certificate of Deposit, and you pull it out before the five year required investment period, you will lose three months of earnings.

Not Investing

Another common retirement savings error is not investing your savings. When your funds sit for a long period of time in just one account, you run the risk of the interest earnings from that account being less than the rate of inflation. When this occurs, the value of your funds will decrease over time. Investment isn’t just about growing your reserves; it is also about keeping the value of your money above the rate of inflation.

Securities offered through Avantax Investment Services^SM, Member FINRA, SIPC. Investment advisory services offered through Avantax Investment Services^SM. Michele Tutoli insurance License # 0D57837. We currently have individuals licensed to offer securities in the states of Arizona, California, Colorado, Hawaii, Idaho, Illinois, Missouri, New Jersey, North Carolina, Nevada, New York, Oregon, and Utah. This is not an offer to sell securities in any other state or jurisdiction.