www.youtube.com/watch?v=zmhRPRqZXyc

One of the questions I get is, can I use my 401k to buy a house? Now every Realtor that’s on my list hates my answer. Because my answer is, yes, you can use your 401k, but you probably shouldn’t.

And the reason is because of this whole thing called the time value of money. You see, you’ve managed to save a bunch of money inside of your 401k. If you start taking that money out to buy something else, it doesn’t get to grow inside of that 401k anymore.

Now, there are provisions that most companies have in their 401ks that allow you to do some first-time home-buyer purchases. In other situations your 401k may allows you take out a loan from your 401k, and I’ve actually done a whole blog post on the dangers of taking out a loan from your 401k —the things that, quite frankly, no one else will tell you—and that is the double taxation that goes on, the dangers of that type of thing.

One of the things that a lot of people don’t realize is, let’s say you just took $20,000 out of your 401k as a loan because you needed it for a hardship, and two months later you lose your job. Well, in most companies, that $20,000 that you borrowed is now all due on your last day. You’ve got to come up with $20,000. If you don’t, it’s considered an early distribution and of course now you’re going to get hit with a 10% penalty on top of ordinary income taxes for those monies that you’ve already taken out.

So the answer, can you take money out of your 401k is yes, you can take money out of your 401k. Should you take money out of your 401k? That depends on your exact situation and in most circumstances, you probably shouldn’t.

But before you start making these decisions, you need to sit down with a qualified financial planner who’s got your best interests in mind. That usually means they’re what’s called a registered investment advisor, not a commission-based planner, and sit down with them and explain to them your situation and get some unbiased advice on that.

I’m Pete Mitchell. I look forward to sharing more on the markets with you later.

A way to reinvest the lump sum you’ve saved for retirement.

www.youtube.com/watch?v=anWJAu84VeU

As retirement approaches … money decisions become increasingly major. One big decision concerns what to do with the money in your company retirement plan.

… Consider a direct rollover. For most people, the most attractive option is an IRA rollover. In other words, you transfer the money from your 401(k), 403(b) or 457 plan into an IRA. It is not hard to accomplish, provided you have the guidance of a qualified financial advisor.

Here are the basic steps. When you leave a company, you usually have three options with your retirement plan: you can leave the money in the plan, roll it over into a new plan (if you elect to keep working for a new employer), or do a direct rollover into an IRA.

A direct rollover is not the same thing as a direct payment to you. Yes, your employer can actually write you a check for the full amount of your 401(k) account, but 20% of that money will be withheld for taxes.  Keep in mind that they 20% that they withhold may not be enough to cover all the taxes you owe.

If you want to avoid that 20% withholding, a direct rollover is the solution. It is a “trustee to trustee” rollover, which works like this: your employer writes a lump sum check not to you, but in the name of the trustee or custodian of the IRA that you are creating to hold the funds. You then let your company’s retirement plan administrator know that you’ll be doing a direct rollover. (There is almost always a form to be filled out, on which you can state the specific instructions for the distribution check.)

Your company sends you the check payable to the IRA trustee, with no withholding, and you have 60 days to deposit it in the IRA; day 1 is the day after you get the check. (Sometimes a wire transfer of assets occurs instead, between one investment custodian and another.) If you don’t complete the direct rollover in 60 days, you will pay tax on the entire amount. (There’s no grace period for weekends or holidays.)

If you want to leave work before age 59½ or you own shares of company stock, you should consider the tax implications created by those circumstances before attempting any kind of rollover.

Let’s talk about what you can and can’t do. You can make unlimited direct rollovers of your retirement account assets, and you can add the money in your retirement plan to an IRA you already have, if you don’t intend to go back to work and put those assets into a new employer plan. Once your retirement plan assets are in an IRA, you can invest them in practically any way you choose – in mutual funds, CDs, stocks, money market funds, annuities, and even more possibilities. You can also set up your IRA to make systematic payments to you.

You can’t roll over the assets from your retirement plan directly into a Roth IRA. You have to put them in a Traditional IRA first, and then convert to a Roth IRA by paying tax on the assets you want to convert before you can realize that tax-free growth.

Is it time to roll over your retirement money? If that time is here or getting closer, you need to be very careful with what could possibly be the largest lump sum you ever receive. Be sure to ask a qualified financial advisor about your IRA rollover options today.

Investment advice is offered through Pete Mitchell, Inc. a registered investment advisor in California.

What it is, how it works, and how to get started.

www.youtube.com/watch?v=6H_zzmqy3DA

If you are confused or unsure, you’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:

The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock tends to rises. If the company does poorly, the value of your stock tends to fall. The value of the stock, or the share price is determined by supply and demand. When more people want that stock, perhaps because it is doing well, the price goes up. When less people want that stock because they see less value in the company, the price goes down. That is the stock market in the simplest terms.                         

When you hear “The market.” Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.

Heard the term exchanging or trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.

How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.

What is a brokerage? A brokerage is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.

So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.

What is Pete Mitchell, Inc.? My company is what is called a Registered Investment Advisor, or an RIA for short, not a stock broker. Now me personally, Pete Mitchell, I am an Investment Advisor Representative of my company. Even though there are many, the principle difference between an RIA only firm and a brokerage firm (also called a Broker/Dealer) is that we do not earn a commission or charge a fee to make trades for you. We charge a fee for our investment advice.

That may not make any sense to you so let me explain.

Stock brokers typically earn a commission when they sell you a product. After you are in the product, little if any, additional commissions are paid to the broker.  This means that the stock broker does not have the same financial interest that you may have when it comes to investing.

My type of firm charges a fee based on the assets we manage.  This is a percentage of the account (typically 1-1.5%). We get paid 25% of this fee every quarter. So if your account goes down because of either what is going on in the market or some other reason, our paycheck goes down as well. So here is my question for you. Who is more likely to be concerned with what is happening with your account? The guy who got paid up front or the guy who loses when you lose and wins when you win?

It is a rhetorical question.  I think you know the answer to that.

In summary. Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.

Investment advice is offered through Pete Mitchell, Inc. a registered investment advisor in the state of California.