Nest Eggs

Have you started to save for your retirement? If so, you know that saving your money for a specific purpose, such as retirement, is harder than it looks. While savings accounts and certificates of deposits can be helpful, they are not always the best money management tools. Regarding specific savings goals, such as funding a college education or a retirement, a Nest Egg can be sure-fire way to keep your money saved until you need it.

A Nest Egg is usually a set sum of money that is saved and/or invested for one purpose. While this purpose can be anything you want, many people use Nest Eggs for retirement funding reasons. Often, a Nest Egg is a smaller part of a larger Individual Retirement Account, also known as IRAs. There are two types of IRAS, deductible and on-deductible, and, in each, the money is tax deferred. However, if you choose a deductible IRA, you can write off your contributions as tax deductible, but a non deductible IRA has no income restrictions. Ultimately, it’s your choice as to which IRA fits your financial needs. Typically, money that is saved in Nest Eggs, and overall IRAs, is invested carefully and conservatively so the holder will be able to maintain a future standard of living.

Because Nest Eggs are part of an IRA, there are different options you can choose.

1. 401 (k), Roth 401 (k), and 403 (b) accounts. These plans are very popular, and are often supported by employers. A total of $15,500 can be placed into these.

2. SIMPLE and SEP Plans: These types of plans are offered to employees who work for a business with less than 100 people. This includes self-employed individuals.

Before deciding if a Nest Egg is right for your retirement plan, consider the pros and cons. Remember to keep in mind that the guidelines for proper money management are usually beneficial if followed correctly.

With a retirement plan that includes Nest Eggs, there are two things you can do to maximize your chances of being able to live comfortably during your golden years.

1. Maximize your contributions often.

2. Properly manage your account(s), including your investments.

Currently, in the year 2008, contributions are set at $5,000. However, if you’re over 50, you’re allowed to add in an additional $1,000.

While there are only two areas of advice when increasing your funds, there are more ways to decrease your funds. However, if you take care to the steps mentioned above, you will not have to worry about decreasing your Nest Egg. Listed below are five things to avoid when saving your money.

1. Ineligible Rollovers on your IRA. These types of funds usually come from your retirement accounts and can be deferred from your income. However, be careful here because you can find yourself in some serious financial hot water. Any given amount cannot be rolled over. Instead, it must be rollover eligible. If it isn’t, any taxable part that was rolled over can be included in your income and must be reported to the IRA. The following assets are not eligible for rollovers.

- Required Minimum Distributions (RMD)
- Hardship withdrawals from plans such as 403b’s.
- Defaulted loans
- Regularly distributed payments, such as pension or those from life expectancy plans.
- Life Insurance coverage distribution
- Money allocated to you from plans like 403b’s.

2. Excess IRA Contributions

Although it may seem like a good idea to over contribute to your IRA, think twice. These payments cannot be above 100% of the net worth. If you do this, the excess amount of contribution must be removed by a given deadline. By ignoring this, you will owe the IRS 6% of the amount each year the contribution remains in your IRA.

3. Ineligible Roth Conversions

Even though Roth Conversions are usually viewed as a financially savvy plan, there can be problems in your ineligibly rollover a Roth Conversion. Because of the exclusive nature of Roth Conversions, only certain incomes can apply. If you calculate incorrectly when determining a Roth Conversion, you can fix this with a re-characterization. However, be careful again. If this is not done properly, you can owe the IRS another 6% in addition to losing your tax-deferred position.

4. Failing to Distribute a RMD

As mentioned before, RMD are assets that are not eligible for rollovers, meaning you must distribute the content amongst your SEP and Simple IRAs. After the age of 70.5, your 403b plan must be distributed to as well, unless you are still working and your employer lets you defer these distributions until your retirement.

What happens if you fail to meet these standards? The IRS will fine you 50%, or half, of the RMD. If this happens, you will more than likely have to use your other retirement funds to pay this costly fee. If you want to waiver, you can apply; however, this is usually done after you pay the fee. For the purposes of safe money management, it is advised the RMDs are always distributed.

5. Engaging your Prohibited Transactions

Your IRA is for saving money and, therefore, certain transactions are not allowed. These transactions are:

- Loaning money
- Debt security (collateral)
- Collectible investment

If these transactions are done, you can lose your tax-deferred status not only for your recorded transaction, but also for your entire IRA.

Although you may not like the idea, it happens. Depending on the economy, your employment, family obligations, bills, loan payments, etc, it can be difficult to save money, especially if you find yourself in need of money during the present. Here’s how to maneuver this if you need to:

1. File for a hardship withdrawal, but remember- you must prove severe financial distress and/or need. Such reasons include, but are not limited to, medical issues not covered under insurance, college tuition, eviction and/or foreclosure payments, etc.

2. Obtain a loan. However, this usually must be paid back within five years. If you’re already up to your eyeballs in payments, this is not feasible.

Also remember, that any money you withdraw is counted with your income and is taxed. If you’re younger than 59 1/2, there is a 10% fee. After six months, the account is frozen and no actions can occur.

Although it seems that you can do more harm than good when using a Nest Egg as part of an overall IRA, that is not the truth. If managed correctly, a Nest Egg can be used to ensure that the quality of your retirement is not compromised. Don’t be overwhelmed by all the negatives; instead, make sure you seek financial advising in the form of legal aid or a financial professional. These individuals are trained to help you move assets, avoid commonly made mistakes, and save your money for the day when you can finally kick back and relax.