Ask Papa Q&A

PAPA, WHY DO I NEED A 401(K) PLAN?

Despite the common belief, Social Security will not provide the needed support to live a comfortable retirement. Shortfalls in meeting retirement expenses will have to be supplemented with personal savings. Current levels of retirement saving, however, are not nearly large enough to compensate for the projected drops in benefits from Social Security and pension plans. Personal savings has fallen, from almost 12 percent of GDP in 1965 to less than one percent in 2005. According to a recent study by Merrill Lynch, the oldest Baby Boomers are saving just one-third of what they will need to maintain their current standard of living during retirement. Because Americans are going to need this supplemental support after they retire is why many people today are turning towards a 401(k) plan for increased savings.

PAPA, WHAT ARE THE BENEFITS TO ME OF A 401k PLAN?

There are several ways that a 401k plan will benefit you:

· The money that you put into the plan will lower your taxable wages. This will result in an immediate tax savings for you.

· The money that you put into the plan grows on a tax-deferred basis. That means that you do not have to pay taxes on the growth in your account until you take the money out.

· Another benefit of the 401(k) is that it is a convenient way to save for your retirement. The dollars that you defer are taken automatically out of your paycheck (with your written authorization). You choose the amount you want to save and that's all there is to it.

· Also as an added bonus, your employer may match a portion of the amount that you defer.

· With a 401(k) program it is also possible to contribute more to the plan than you could contribute to an IRA.

PAPA, WHAT IS A "MATCHING FUND?"

Many companies contribute a percentage of what the employee has already added to his or her retirement plan. For example, if you contribute $100.00 each paycheck to your 401(k) retirement plan, and you employer matches 50% of what you contribute, then your account would be receiving $150.00 each paycheck. "Matching funds" provide the employee with instant earnings on their investment.

* To find out if your company "matches funds," ask your 401(k) plan administrator or human resource representative.

PAPA, WHAT DO MEAN BY YOUR TERM ‘OLD MONEY?’

This describes all the money that is currently in your account. It is the accumulation of:

· All the money contributed from your paychecks thus far,

· All the money your employer has contributed with matching funds,

· And all the profits or losses your account has made to this point.

PAPA, WHAT DO YOU MEAN BY YOUR TERM ‘NEW MONEY?’

This describes the money you are going to have your employer take from your next paycheck and the money your employer is going to contribute with matching funds. Except for rare circumstances, your new money should never be invested in the same funds as your old money.

PAPA, WHERE DOES THE MONEY GO FROM MY PAYCHECK?

The funds that are taken out of your paycheck are deposited into the investment accounts you select. The money that you put in is always your money, it never belongs to the employer

PAPA, HOW DO I GET THE MONEY OUT OF MY PLAN?

The plan spells out several ways that you can take money out of the plan:

· You terminate employment and request a distribution.

· You reach normal retirement age.

· You become disabled.

· You have special hardship or education needs.

· You can make a loan for any reason.

· The plan is terminated.

· The plan also allows for in-service withdrawals. Your beneficiary will receive the funds you have in the plan if you were to die.

It is important to remember that any money you put into the plan may be subject to income taxes and possible penalty when the funds are removed prior to age 59 ½.

PAPA, WHAT ARE THE ADVANTAGES OF HAVING THE TAXES DEFERRED?

Since the contributions to your 401(k) plan are pre-tax, meaning the employer deducts the amount from the employee's salary before calculating Federal and state income taxes, this means the employer has more real money working for their investments. The taxes are paid when the money is withdrawn from the 401(k), usually at retirement. In fact, it is because the deductions are pre-tax that the IRS sets a limit on employee contributions. The limit is to ensure the highly paid employees in your company do not abuse the tax advantages of the 401(k) plan.

PAPA, WHAT ARE THE BENEFITS OF TAX-DEFERRED GROWTH?

A $2,400 annual contribution to a 401(k) plan with an employer match of 50% for 30 years will have a value of $284,609.. (Based on 6% interest compounded annually). The same amount placed in an after tax savings account (based on a 33% Federal & State combined tax bracket) will have a value of $190,688 after 30 years.

The tax-deferred growth allowed in the 401(k) account corresponds to a benefit that is $93,921 more at retirement.

PAPA, WHY DO I NEED PORTFOLIO PAPA?

Do you have the time and know-how to properly manage your investments?
Isn’t it time you had some affordable, independent professional help with your 401(k)?

Most people’s only experience with Mutual Fund investing is in their retirement plan. Investing concepts like charting, regression channels & recurring cycles are not taught as a part of our normal education. You deserve to get the most possible out of your retirement plan.

PAPA, WHY SHOULD I SELECT PORTFOLIO PAPA AS MY ADVISOR?

· Independence. Portfolio Papa has no financial interests in the administration of your portfolio – our advice is based solely on our clients’ best interests. We are not going to make any recommendations as to the inclusion or exclusion of the various funds in your portfolio.

· Depth of Research. Many hours of research go into analyzing the mutual funds in retirement plans. Our fund selection advice is based on the actual funds in your 401k plan. Each fund is charted for its historical performance, and then analyzed for suitability of inclusion in our recommendations.

· Experience. Portfolio Papa founder and principle advisor Jerry Cennamo has been assisting individuals in managing their investments for almost 40 years Throughout his thirty-some years in the financial planning industry, Mr. Cennamo has been the recipient of many professional licenses, certifications and awards. But his most treasured awards are the ones he has received from his peers. Financial planners from IAFP chapters in Orange County California, Las Vegas, Nevada and Phoenix, Arizona, have each declared a “Jerry Cennamo Day,” as he was the sole lecturer for the entire days’ events.

Mr. Cennamo has participated extensively in the educational process of both financial planners and the general public. He has been a former adjunct faculty member of the College for Financial Planning and member of both management and faculty of Southern States University and Royce University of Business & Finance. He is renowned for his lecturing to the general public about the importance of coordinated financial planning and the tax benefits of starting a small business from your own home. He has established a reputation as one of the most outstanding and controversial authorities in the fields of taxation and financial planning. Mr. Cennamo has been one of America’s most successful financial planners – and is certainly one of the most innovative.

· Talk to us when you need to. Our advice is provided to you over the internet, If you have a question, you can email us and you will get an answer promptly.

· Refund policy. If you aren’t satisfied with our service, we will give you a refund for any unused months. You can cancel anytime for any reason. We really do believe in our service and want to help keep our clients successful in their financial endeavors.

PAPA, WHAT IS A 401K ROLLOVER?

The term 401K rollover is a term given when someone who has a 401K plan wishes to change the administrator of that plan. It is perfectly fine to leave your plan where it is, however given that you can have input as to where your assets are allocated, and invested; many people choose to change the administrator of the plan.

The most common time people change administrators, or roll their 401K over, is when they have changed employers. Often, this pool of money is significant and great care should be taken when making changes. It is important to craft a plan that will meet your goals while being sensitive to your tolerance for risk.

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I have a 401K still in my former employers plan with about 50K in it. From 2000 - 2001 my plan lost over two-thirds of value. The advice I constantly received from the fund managers was to "invest for the long term and don't worry about short term fluctuations". By the time I realized the "short term fluctuation" was a crash, my holdings were greatly reduced. I moved my money into a capital preservation money market fund and the monies literally have been stagnant as far as growth is concerned. I want to roll the 401K out of the employers fund into another fund of my choosing. When I do, I'm not sure how to allocate the funds to get some growth.
I am basically shell shocked and am fearful I will loose much more of my money. Who can I turn to to get some advice to help me manage my account?

A. You don’t need to ‘roll the 401k out of the employers’ fund.’ You just need Portfolio Papa to help you manage your 401k throughout the year. As you have experienced, ‘Buy and Hold’ just doesn’t work in the twenty-first century.

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