Good Time to Buy a Home

If you are looking to buy now is a good time to buy a home. Steve McLinden from Bankrate.com offers up: 7 buying tips for the down cycle

1. Negotiate with builders. 2. Negotiate with home sellers. 3. Educated timing. 4. Avoid hot spots. 5. Modesty is the best policy. 6. Flexibility. 7. Follow fundamentals.

1. Negotiate with builders. Don’t be afraid to ask builders for concessions such as steep price discounts, closing-cost waivers, luxury upgrades, free landscaping, free trips and free club memberships. Many builder-incentive packages are worth 10 grand and up! In some markets such as Boston, new condos are selling for 20 percent less than they were in mid-to-late 2005.

2. Negotiate with home sellers. Unlike the go-go market of recent years, offers of 5 percent to 10 percent or more under asking price will not be inappropriate. (See “selling tips” for some of the throw-ins that buyers are being offered.)

3. Educated timing. Read up on local — not national — market trends, religiously read for-sale ads, and get a sense of what’s moving and where, then be prepared to jump on bargains, especially as the last of the speculators are being flushed out of the market and for-sale inventories are at their zenith.

4. Avoid hot spots. Stay away from buying homes in neighborhoods that appreciated significantly above average home prices in recent years — especially if you’re moving for the short term. Once prices in these hot spots are corrected, these often see slower upward movement or remain flat after the overall market heads north again.

5. Modesty is the best policy. Consider more modest homes in well-maintained, established neighborhoods. By contrast, pricing and re-pricing on expensive homes, new homes and new condos make those products riskier during down cycles.

6. Flexibility. For maximum flexibility in pouncing on the right deal, get preapproved for your home loan.

7. Follow fundamentals. Just because a lender will advance you money to live or build beyond your means doesn’t mean you’re standing on sound fiscal footing. At year-end 2006, $330 billion of adjustable-rate mortgages, or ARMs, were creeping upward. Avoid risky interest-only loans and ARMs, opting for fixed-rate mortgages instead. And learn from the recent past: Don’t assume housing will appreciate enough in the near term to cover your home’s rising interest payments.

Check out my home Buying experience.

AllFinancialMatters has ideas on house affordability.

Written by Nagel on February 2nd, 2007 with no comments.
Read more articles on Household and How To and Real Estate.

How to keep retirement savings on track after leaving a job

More great information written by Robert Powell in IBD.
Call it a mistake waiting to happen. Every year millions of workers who retire or switch jobs must figure out what to do with money in their 401(k) plan. Should they leave the money with their former employer? Should they cash out? Should they transfer the money to their new employer’s plan? Should they roll over the money into an IRA?

Big money may be at stake in the answer to those questions. And lots of people still make costly mistakes even when they answer the questions correctly.

Consider: Some 7.5 million Americans took about $440 billion in distributions from their 401(k) plans in 2004, according to Brightworks Partners research. Of the 7.5 million, 6.25 million were job changers and 1.25 million retired. Of the 7.5 million, 55% had 401(k) balances greater than $5,000.

Where did the money go? About 45% — representing some $200 billion — rolled their 401(k) into an IRA, while 32% left their money in their former employer’s plan, 20% withdrew the money and paid the taxes due on that distribution, 9% transferred their money to a retirement plan at their new employer and 6% purchased an annuity or arranged to have the money paid in installments over a period of time.

To the untrained eye, all that 401(k) money sloshed to and fro problem free. Nothing could be further from the truth.

According to Mercer HR Services, many workers get off the retirement-savings track when faced with the what-to-do-with-my 401(k) question. For one, many workers — especially those who had 401(k) balances of less than $5,000 — took taxable cash distributions. In fact, more than 40% of distributions from a 401(k) plan were taken in cash, according to the Federal Reserve Board’s 2004 Survey of Consumer Finances.

Taxable cash distributions

A new law — the automatic IRA rollover law — was put in place in 2005 to address what the U.S. Department of Labor called leakage, small-balance 401(k) owners cashing in their nest eggs. With that law, workers who have between $1,000 and $5,000 in their 401(k) and leave their employer will have their money automatically rolled over to an IRA unless they choose otherwise. And to some degree, that new law has helped reduce the problem of cash-outs, David Wray, president of the Profit Sharing/401(k) Council (PSCA).

According to a Centier Bank study of small-balance plans published in a PSCA newsletter, only 2.7% of workers cashed out of their 401(k) plans over a 17-month period following the enactment of the automatic IRA rollover law. What’s more, 12% of workers had their 401(k) automatically transferred into what’s officially called a safe harbor IRA. That’s an IRA in which the worker’s money is invested in funds designed to preserve principal and provide a reasonable rate of return. (One problem with this model is that the safe harbor IRA may or may not sync up with the investor’s investment goals so it’s imperative that workers examine whether the investments in the safe harbor IRA make sense or not.)

The bigger problem with small balance transfers, however, is this. James Boyd of Centier Bank noted that there’s a large percentage of what the industry calls “no-contacts,” that is, missing or nonresponsive 401(k) participants. Some 80% of small-balance participants who left their employer were labeled as “no contacts” in the Centier Bank study. And in the extreme, funds in those plans could be escheated by a state as unclaimed property. And that’s just another form of leakage, according to Boyd.

Paperwork problems

Even workers who want to roll over their 401(k) plan to an IRA can fly off the savings track, according Mercer HR Services. Indeed, the process to transfer those assets is downright difficult and onerous.

For instance, about one-third of the forms required to complete the transfer are not completed correctly. In other cases, the forms are lost in transit. Workers often spend countless days if not weeks completing, correcting and tracking down paperwork and calling multiple plan sponsors. Mercer estimates that the traditional process of requesting and completing an IRA rollover could take up to two to three weeks.

So what can be done to head off those problems? First, make sure an IRA rollover is the best option. “Before deciding to roll over 401(k) assets to an IRA, people should make sure that they are not missing out on other benefits by rolling over the assets,” Denise Appleby of Appleby Retirement Consulting said in an e-mail.

Appleby said there are two cases when a worker might choose something other than a rollover. If a person has employer stock in a qualified plan account that has been highly appreciated since they were first added to the account, Appleby said it may be more beneficial to have those stocks credited to a regular savings account instead of an IRA, as that person would then be able to apply capital gains treatment to the earnings. “Rolling these stocks to an IRA means that the individual would pay ordinary income tax on any distribution of the earnings from the traditional IRA, instead of the capital gains rate,” she said.

In another case, Appleby said if the balance in the qualified plan includes after-tax amounts, the person should consider whether it would be more beneficial to have that amount credited to a regular account, instead of being rolled over to an IRA.

“Rolling over employer stocks and after-tax amounts are not necessarily poor choices, and may even be suitable for some individuals,” she said. “However, many individuals’ roll over these amounts unknowingly and attempt to reverse the rollover, but then it’s too late.’

Once the decision to do an IRA rollover as been made, Ed Slott, author of “Your Complete Retirement Planning Road Map,” suggests that the “best way to get this done right is to engage the people that have the most to gain from having you as their customer.”

Slott said workers leaving a company should contact either the IRA custodian or the financial adviser who will be investing the IRA funds early in the process. “They will make sure the rollover is done properly,” he said. “They will be gaining a new customer so they will be more than happy to handle all the paperwork.”

Slott said workers should never leave it to the plan sponsor or plan provider to help with the paperwork. “They generally do not have competent help and just really want to get rid of you,” he wrote in an e-mail. “The people at the plan don’t work for you. They work for the plan so they could really care less if the transfer goes as you would have liked.”

Appleby agrees. “Before completing the rollover request, the individual should have it, and the account statement, reviewed by a financial adviser who is proficient in the area of rollovers and IRA management, to ensure that the proper elections are made on the forms, and to help ensure that the options selected are the ones more suitable for the individual’s financial profile,” she said.

No matter who does the rollover, make sure it is done as a trustee-to-trustee transfer (a direct rollover) where the funds go directly from the plan to the IRA, Slott said. “If the funds are withdrawn and then rolled over to the IRA then a 20% withholding tax will be taken from the funds and it may be tough to find the money to make up the 20% to complete the rollover,” he said. “With a direct rollover, 100% of your company plan funds go to your IRA with no tax withholding.”

What’s more, with a direct rollover, the worker doesn’t have to worry about depositing the retirement money into an IRA within the 60-day grace period. If the taxpayer doesn’t roll the retirement money into an IRA within 60 days, the taxpayer will pay a penalty on the distribution and possibly more taxes.

After requesting the withdrawal/rollover

After requesting the withdrawal, Appleby said the person should take the following steps:

• Find out from the plan administrator when the transaction will be processed. Some plan administrators process distributions during certain periods, like the end of every quarter or only after a certain number of days have passed since the end of employment.

• Check back with the plan administrator about a week before the due date to make sure it is on track.

• Check with the receiving financial institution, not only to make sure the funds were received but that they were credited to the right account. There are countless instances where assets are erroneously credited to regular accounts instead of IRAs. Often, the error is not detected until months or even years later, creating an accounting nightmare for everyone involved.

• Also, check to make sure that amounts that are credited to IRAs are processed properly. For instance, check to make sure it was processed as a rollover contribution, which is reported on IRS Form 5498 and not as a nonreportable transfer.

Even workers who do IRA rollovers get off retirement-savings track

Appleby said most qualified plans liquidate the plan assets and complete the rollover in cash. This means that the money will likely sit in cash or a low-interest money-market fund in the IRA, she said.

Here is more great information from Investors Business Daily

In some cases, the money sits in cash because of inertia; investors have a proclivity to do nothing. In other cases, the money sits in cash because investors don’t know how to re-allocate their funds or find funds that were similar to the ones in their 401(k) plan.

“Individuals should make the money work for them by having it invested in assets that can produce higher returns,” said Appleby. And they should consider hiring an adviser to help with that process, say both Appleby and Slott.

For more on rolling over you 401k click here.

Written by Nagel on January 31st, 2007 with no comments.
Read more articles on Household and How To and Retirement and Stocks and Taxes.

Staging Your Home to Sell

Hopefully you do not need this information, but I am sure a lot out their need it. The housing market is down and will remain down for sellers this year. Staging your home to sell it is essential to getting it sold. Bankrate.com’s Steve McLinden offers up these tips on selling your home in a down market.

In short, the housing market, after a historic run-up in prices, is correcting. While that’s of little concession to current and would-be sellers, it’s not the end of the world either, especially if you don’t need to sell immediately. Economics elsewhere are encouraging. Recession doesn’t appear imminent. Wall Street appears healthy. Unemployment is low, and the general economy is good.

The market, as it always does, will reach equilibrium again, though probably not before mid-2008 or so, most economists estimate. So reset that panic button and sit back to raise a glass to 2007 as a transition year that will bring us one step closer to healthier home sales. In the meantime, take note of how home-buying and home-selling strategies change in a down market.

Here are seven selling tips and seven buying tips, for ‘07, that could help save you a little grief in the short term and a lot of money in the long term.

7 selling tips for the down cycle

1. Price to sell. 2. Consider all credible offers. 3. Offer to proffer. 4. Catch the wave at the source. 5. Preserve your equity. 6. Gain in a sell-buy scenario. 7. Stay if possible.

1. Price to sell. If you really must sell now, don’t mess around. List your house based on what the market dictates today, not the prices that friends, relatives and co-workers got last winter or last spring. And consider that some — certainly not all — real estate agents may suggest you hang on to a higher sale price in hopes they’ll earn higher commissions. At the same time, be wary of agents who will urge you to set an excessively low price — just so they can collect fees.

2. Consider all credible offers. Holding fast for a better offer might put you in a situation where you’re merely playing catch-up with a moving market. Don’t assume there will always be another offer coming down the pike. You may need to come off your price 5 percent in some areas and 10 percent or more in others.

3. Offer to proffer. Buyers are requesting all kinds of enticements to spice the pot. Club memberships, prepaid lawn maintenance, moving-expense reimbursements, all appliances included and liberal repair credits are just a few possible throw-ins. Don’t be shocked if you hear, “Throw in that plasma TV and we’ve got a deal.” Consider in advance how far you’ll be willing to go, but draw the line, however, at “first-born child.”

4. Catch the wave at the source. Prepare your home for sale at the very earliest point this “spring” (actually early March or even late February), the time when seasonal buying interest is just starting to build.

5. Preserve your equity. Until the market stabilizes, refrain from borrowing from home equity (or raiding your 401(k), for that matter) to pay your bills, or for vacations and other purchases.

6. Gain in a sell-buy scenario. If you’ll be buying another home at the same time you’re selling your current one, the price reduction on the new one can compensate for the “loss” you’re taking on the old one. If you plan a “move up” to a better neighborhood and are paying 10 percent below list after selling your old home for 10 percent below list, your net dollar savings will actually be more.

7. Stay if possible. If you’re happy in your home and are meeting your expenses but want to sell due to continuing “housing bubble” fears, sit a spell. A home is a shelter first, and investment second. Except for a handful of markets that are still hyperinflated, odds are that it will pay to ride out the storm. Generally, the early stages of a downturn are the scariest because that’s when amateur investors are dumping “spec” properties cheaply.

Written by Nagel on January 30th, 2007 with no comments.
Read more articles on Household and How To and Real Estate.

401k Tips When Switching Jobs

There are a few options of what to do with your 401k when leaving a job.

1. Roll-over your 401k into an IRA

• If you want to consolidate accounts and possibly save money on fees

• It must be rolled over into an IRA (not Roth–but later can be converted to Roth is your adjusted gross income is less than $100,000)

2. Remain with the 401k at your work

• If your old employer has a good 401k plan with good, low-cost investment choices
• If your new employer does not have a 401k plan or has a worse plan than the job you are leaving
• Confirm that you still have the same 401k previledges as when you were employed with your old employer

• If the value of your 401k is under $5,000 you can be taken out of the 401k–if so then follow option 1 or 3

3. Roll-over to my new employer’s 401k

• If your new employer has a great 401k plan with good services

• You will probably pay less in fees with this 401k than rolling it an IRA

Written by mike on May 4th, 2006 with 1 comment.
Read more articles on How To and Retirement and Stocks.