A 401k is a retirement plan offered by many U.S. companies to employees. The name 401K comes from the section of the Internal Revenue Code governing the retirement plan.

The biggest benefit of a 401k plan is that the contributions are pre-taxed.  This means the money you deposit in the plan isn’t taxed until you withdraw the money, hopefully at retirement. Money in a 401K plan can earn interest and grow tax-deferred.  

When you enroll in a 401k plan money is automatically deducted from an employee’s paycheck and deposited into the plan.

Investment Options
Most 401K plans allow you to invest in stocks, mutual funds, bonds, money markets, annuities, guaranteed investment pools, company stock or hybrids (i.e., mutual fund that invests in stocks and bonds) of these instruments. Most 401K plans will offer a list of different investment instruments to pick from and may rank them based on risk.

Company Match
Some companies, mostly large companies, will entice employees to invest in 401k plans by offering a company match.  Employers will contribute additional money into an employee 401k account that matches a portion of their contribution.  Some companies will match dollar-for-dollar up to certain percentage, while others will match a specified percentage of an employee contribution. The current contribution limit for employers is 6% of the employee’s pre-tax compensation.

Vesting Period
Some companies have a vesting period for when an employee will get the money matched in their plan.  As an example, a company may require for an employee to be employed at the company for at least 5 years to be vested; meaning the employee will get all the company match dollars deposited into their account.  If the employee leaves before the 5 years, they may lose all matched dollars or get an amount that is pro-rated based on years of service.

Withdrawal
Money is generally withdrawn from a 401k plan for 5 reasons: retirement, reaching age 59 1/2, termination of employment, disability or death.  Some plans allow employees to borrow money from their account and pay themselves back with interest.

Maximum and Catch-Up Contributions
Currently, the maximum dollar amount by law an employee can contribute to their 401k plan from pre-tax pay is $16,500 per year and the catch-up contribution limit is $5,500 per year. Catch-up contribution allows plan participants that reach age 50 before the calendar year is over to make additional catch up contribution limits on a pre-tax basis.

Another Ponzi scheme has been uncovered by the Securities and Exchange Commission (SEC).  This time it’s the Caribbean-based Millennium Bank who misled customers in believing that they were depositing money in safe and secure CDs with returns of up to 321% higher than legitimate bank CDs.

Below is an excerpt from the press release.

“The Securities and Exchange Commission has obtained an emergency court order halting a $68 million Ponzi scheme involving the sale of fictitious high-yield certificates of deposit (CDs) by Caribbean-based Millennium Bank.

The SEC alleges that the scheme targeted U.S. investors and misled them into believing they were putting their money in supposedly safe and secure CDs that purportedly offered returns that were up to 321 percent higher than legitimate bank-issued CDs.

The SEC’s complaint alleges that William J. Wise of Raleigh, N.C., and Kristi M. Hoegel of Napa, Calif., orchestrated the scheme through Millennium Bank, its Geneva, Switzerland-based parent United Trust of Switzerland S.A., and U.S.-based affiliates UT of S, LLC and Millennium Financial Group. In addition to Wise and Kristi Hoegel and these entities, the SEC has charged Jacqueline S. Hoegel (who is the mother of Kristi Hoegel), Brijesh Chopra, and Philippe Angeloni for their roles in the scheme.”

For the complete press release visit www.sec.gov.

Below is a funny but true video clip from Saturday Night Live (SNL) titled “Don’t Buy Stuff You Can’t afford”.  Sticking to this simple advice can keep most people out of financial problems.  Unfortunately, most people ignore this rule!

SNL Video – Don’t Buy Stuff You Can’t Afford

Mortgage rates are falling and you may be wondering if it’s time to refinance.  On the other hand, you may be also asking yourself if it would be better to wait.  Unfortunately, there are no specific guidelines on how long you should wait, but you should only refinance whenever there is a financial advantage to do so.

A good rule-of-thumb is to refinance when mortgage interest rates fall at least one percentage point from when you first acquired your mortgage.  If you acquired a 30-year fixed rate mortgage for $150,000 at 5.5%, but rates are now 4.5%, refinancing at the lower rate will save you $91.65 on your monthly payments.

There are other reasons you may consider refinancing which include:

Switching to a fixed rate or an adjustable rate mortgage – ARMs (Adjustable-rate mortgages) initially offer lower interest rates but can fluctuate up or down.  Switching to a fixed rate may give you peace of mind and lower your risk of your mortgage payments going too high. On the other hand, switching from a fixed interest rate to an ARM will reduce your monthly payments and is especially beneficial if you plan to sell your home in a few short years.

Improving the features of your ARM – Refinancing to a different ARM could reduce your monthly payments.  ARMs have protective caps, which limits how much your payments can increase in a given year and over the full term of the loan.  You may not be happy with the caps on your current ARM and switching to a different ARM may be more favorable.

Building your home equity faster – Switching from a 30 year mortgage to a 15 year mortgage will allow you to build up equity in your home faster; however, your monthly payments will be higher.  Additionally, over the life of the loan, you will pay significantly less in interest fees.

Reducing your monthly payments – Switching from a 15 year mortgage to a 30 year mortgage will lower your mortgage; however, you will end up paying more in interest fees over the life of the loan.

Turning home equity into cash – You may want to take some of the equity out of your home, which is called cash-out refinancing.  The advantage is that taking a loan secured by your home has a much lower interest rate than taking out an unsecured loan or credit card.  However, if the interest rate offered to refinance is higher than your current mortgage, then a home equity loan or line of credit may be a better a choice.

You will have to crunch the numbers when making your decision to refinance.  Keep in mind that if you do refinance, you most likely will incur application, appraisal and legal fees.  You may also pay for points to obtain a lower interest rate.  Typically 1 point equals 1% of a loan amount and will lower the interest rate by .25%.  Additionally, some lenders may charge you a fee for paying off your loan early, which is not allowed in some states.  Crunching the numbers will have to prove that your savings will be greater than the expenses you incur to refinance your home.

Above is a calculator to help you crunch the numbers and below are links to 2 other calculators you can use:

• http://www.move.com
• http://zwicke.nber.org

Related Articles:

• ING Direct Orange Mortgage Offering 4.50% ARM
• What is a Subprime Mortgage?
• Citi Homeowner Unemployment Assist Program
  

Starting in 2010 anyone can convert from a traditional IRA to a Roth IRA regardless of income.  Currently, you must earn less than $116,000 for individuals or less than $169,000 for couples to be eligible for the Roth IRA partial contribution.  For full contribution, its $101,000 for individuals or less than $159,000 for couples.  

Additionally, if you make over $100,000 per year, you are not eligible to convert a traditional IRA to a Roth IRA.  But in 2010 the doors will be swung wide open to everyone because of the Tax Increase Prevention and Reconciliation Act of 2005 signed into law on May 17, 2006, by President George Bush, which included a provision dealing with conversions of traditional IRAs to Roth IRAs.  

But beware, because traditional IRAs are pretax dollars and Roth IRAs are after-tax dollars, you must pay taxes on the money to transfer to the Roth.  Many financial advisers recommend that younger investors roll over into the Roth and pay the income tax because in the long-run they benefit from tax-free growth.  Other financial advisers recommend converting now (regardless of age) because it’s inevitable that income and capital gain taxes will increase due to the growing national deficit and current corporate bailouts.

To help soften the blow of paying taxes if you decide to transfer to a Roth IRA you can spread the tax bill over 2011 and 2012.  For example, if you convert $50,000 from a traditional IRA to a Roth IRA, assuming a 30% tax bracket, you will have to pay $15,000 tax bill.  However, if you transfer in 2010, you can declare $25,000 in 2010 and $25,000 in 2011, which in essence gives you a one time, interest free loan from Uncle Sam for 1 year.

In today’s rough economic times, we are all looking to save money.  One way to save money is to use coupons when making purchases.  But who wants to go through the Sunday newspaper clipping coupons?  

With the Internet, finding coupons are easier.  Before making a purchase, you should always use the Internet to find discount codes or coupons.  Below are 8 sites that can help you save on your next purchase, regardless what it may be:

CoolSavings.com – includes printable and online coupons from retailers on a wide range of products.

Coupious.com – is a free mobile app that can be installed on your iPhone, iPod Touch, or Android-based phone, which uses location services to search for businesses in your location and finds coupons for you.

CouponAlbum.com – is a one-stop shop for everything on sale right now, from software, toys, sporting goods, to food.

CouponCabin.com – offers coupons from to major stores like Target, Wal-Mart, and GameStop.

CouponGood.org – provides coupons for online stores exclusively.

Coupons.com – offers coupons for local supermarkets or grocery stores with printable coupons on goods ranging from food to cleaning supplies.

CouponsDeluxe.com – good for finding tech deals with coupons for software and electronic hardware.

CouponTweet.com – searches Twitter to find deals and when it does, it notifies you via a tweet. The service is currently in private beta testing.

Of course there is always the Google Search to find coupons or coupon codes for items you are looking to purchase.

Malvern Federal Savings Bank – Rewards Plus Checking is paying 5.01% APY on balances up to $35,000, 1.01% APY on balances over $35,000 or 0.20% APY on non-qualifying balances (if you do not meet all the reward requirements). 

There are no monthly service fees and ATM fees worldwide are automatically refunded at the end of each statement cycle.

The requirements to qualify for the rewards each month are as follows:

• Make 10 Visa check card transactions per statement cycle (transactions must be posted (not pending) and excludes ATM transactions.
• Receive one Direct Deposit or authorize one ACH Auto Debit.
• Access online banking at least once per month.

If you don’t meet the requirements listed above, your checking is still free and you can try to earn the rewards next month.  Interest will be paid at the base rate of 0.20% APY on your balance.

The requirements to open an account are a minimum deposit of $200, enroll in online banking with Bill Pay and provide a valid email address.

The interest rates on the Rewards Plus Checking account can change at any time by Malvern Federal Savings Bank’s discretion.

For more information visit MalvernFederal.com.