401K Investing Ideas for Good Money Management in 2015-2016

Here we cover some 401k investing ideas for 2015, 2016 and beyond, because good money management in this time period could make or break your plans for retirement. Why have most investors done just fine in these plans in recent years when few actually pay much attention to asset allocation or money management? Let’s take a look at a few 401k investing ideas you might want to consider now.

Asset allocation is the name of the game in 401k investing, and most plans offer three or four BASIC choices. In order of risk from highest to lowest they are: stock funds, balanced funds (like target retirement funds), bond funds and money market funds. Some also offer a safe stable account that pays interest. Target retirement funds are quite popular because they do the money management and asset allocation for you based on what year (like 2040) you plan or hope to retire. With these funds you don’t need investing ideas; you just keep buying and holding, right? Think again.

For the past few years stock funds have been king due to a strong stock market, but bond funds (with less risk) have produced good steady returns for many years. Target funds with higher retirement dates (our example being a 2040 fund) have performed almost as well as stock funds for the past few years for one reason. Their professional money management consists of owning mostly stock funds in their portfolio, with the rest invested in bond funds. What would happen to your 401k investing results if the stock market fell with interest rates rising in 2015 and/or 2016 as predicted? You would likely suffer losses in everything except money market funds and stable interest-paying accounts.

The key to good 401k money management is to avoid heavy losses, especially as retirement nears. Falling interest rates has been the trend for over 30 years. When rates fall bond funds make money. When rates go up they lose money. Many investors who are presently into 401k investing have experienced significant losses in stock funds over the years, but few have actually lost money in bond funds. Sometimes the best 401k investing ideas focus on getting higher returns. For 2015 and beyond defensive investing ideas geared to protecting the value of your portfolio may be more appropriate.

First, look at your last statement and see where your money is. In other words, look at your portfolio asset allocation percentages. The allocation percentages might wake you up to the fact that you are more heavily invested in stock funds or target funds than you thought. Stock funds went up in value over 100% in this last bull (up) market. We’ve had two bear (down) markets in the past dozen or so years that clipped stock fund values in half, after big run ups in stock prices. One of the best investment ideas for good 401k money management in 2015 and beyond: if you are not comfortable with your relatively high asset allocation to stocks reduce your holdings.

Bond funds and near-term target funds (like target 2020 or less, which invest quite heavily in bond funds) aren’t quite as safe as most investors think they are. If you have relied heavily on them in the past, don’t let complacency cloud your money management judgment. If interest rates rise significantly in 2015 and/or 2016 bond funds will hand investors the first big losses they’ve had since the early 1980′s. If your asset allocation to these funds it high you might want to cut your holdings, just in case.

The truth of the matter is that good investing ideas and opportunities that will make you more money are few and far between these days. The stock market could continue its upward trend and interest could remain near record lows for years to come. But we’re talking 401k investing here, and your future retirement could be at stake. So, what good investing ideas are there for the money you take from your 401k stock, bond, and target funds?

Your 401k plan should have a money market fund and possibly a safe stable account that pays interest. Both are safe havens and good investment ideas for cutting portfolio losses if times get tough. At today’s low interest rates money market funds pay next to nothing, but their payout automatically increases as rates go up. Do not overlook your plan’s stable account if one is available to you. You might be able to get 4% or so in interest. You can’t find a better safe rate anywhere else.

Let’s say your 401k account is worth $100,000. Would you rather risk losing half of that or half of a lesser amount like $50,000? Good money management and asset allocation require planning. Don’t ignore your 401k. In the future when the stock market is lower and interest rates are higher investing ideas and opportunities will again be plentiful. For 2015 and perhaps 2016 the best investment ideas will be geared to increasing the safety and cutting the risk in your 401k asset allocation.

The Difference Between IRA and Roth IRA

Before embarking on any investment, it calls for a due diligence to separate the wheat from the chaff. Your retirement is very important and thus the need is to get only the best. Retirement accounts and investments make the core of many working persons. Both IRA and Roth IRA offer retirement services by assisting people to secure their future. The two have many aspects in common but they also have many different aspects. You should know the difference between the two if you are to choose wisely.

How do the Two Differ?

The two accounts differ on income tax payment for the money directed to the plans. If you have a traditional IRA, you will pay taxes on the back-end. This is when you withdraw the money at retirement. Before this you will not be required to pay taxes. Taxes can be escaped in the front-end when adding money to the account. With a Roth IRA, you experience the exact opposite; taxes are paid on the front-end and not on the back-end. While this is a great difference, it does not give much insight into which account one should choose. This is because your money does not incur any tax while in the account for both; the money grows free of tax.

The traditional IRA allows everyone with an income to contribute and have an account running. This makes it easy for people to secure their future as they save the little they have. On the other hand, Roth IRA has income limits and is not open to anyone. To contribute to a Roth IRA, your income must be between a given range.

Roth IRA gives more convenience to the investors as they can withdraw their money early. You can also leave your money in the Roth IRA account and let it grow as you continue aging. Your money does not have a time limit and you can withdraw part of it as earlier mentioned. With a traditional IRA, you have to start withdrawing your money as soon as you hit 70.5 years of age. After 70.5 years, you cannot contribute to your traditional IRA further.

People may decide to choose the traditional IRA because of the deductions and evade the Roth IRA. However, consulting your tax professionals come handy if you want to succeed in your retirement account. Other may decide to have both accounts and enjoy the benefits in both like saving for unlimited time in a Roth IRA.

Charitable Donations From Your IRA

On July 2014, House of Representatives approved The America Gives More Act (HR 4719). The act aims to up the rate at which people contribute to charitable donations. The act is important to IRA holders who wish to make an IRA Charitable Rollover gift now and in the future. The act has a permanent and a retroactive extension for IRA Charitable Rollover option of the December 31, 2013 expired tax code. To revive the laws for 2014 and years to come, congressional action is required. The IRA taxable rollover has benefits to the IRA holders but still other individuals see the negative side of it.

Why make a Charitable Donation from your IRA?

Making a decision on whether to give part of your IRA savings to donation may be a challenge to many. However, it is a sound judgment to go ahead and offer a charitable gift from your IRA. There are many reasons why this move is prudent. Below are some of the reasons for you to make a donation:

Once the provision has been extended and you are found to comply with the set requirements as stated above, your gift IRA will be made tax-free. There will be no distribution income tax at all. However, a charitable deduction would also not be incurred as the distribution is given void of the donor’s gross income being in the equation.

If the law does not go beyond 2014, IRA distribution will have to incur the IRA owner an income tax charitable deduction. This is so because the distribution will not be excluded from the gross income of the donor. Thus, retirement savers should take the opportunity and arrange for a charitable donation as per the requirements above. This will be beneficial to them if the tax code provision goes beyond 2014.

If you decide to make a donation, note that Charitable IRA rollover is a lifetime transfer which must follow protocols. To make a transfer, you are not supposed to touch a cent. Rather, you are supposed to ask the custodian to transfer a given amount of money to the charity directly. After donating funds this way, they can go to any organization and you qualify for a tax return charitable deduction. You need a receipt from the charity for tax records. The receipt shows that the funds were received and that no goods or services were received by the donor. Once your tax return is audited, the receipt will come handy.