Federal employees will get four new features in their Thrift Savings Plan, including a Roth 401(k) option that allows them to contribute after-tax dollars into their savings plan and then withdraw them at retirement tax-free.

Congress’ passage of the bill will bring numerous changes to the Thrift Savings Plan, namely:

• A Roth 401(k) option, which would let participants put some or all of their after-tax salary into an account that will grow without tax liability on future earnings. The Federal Retirement Thrift Investment Board governing TSP said it could have a Roth option ready in one or two years. A Roth option would benefit those whose income tax bracket would be in higher during retirement than during their federal or military careers. Uniformed service members and select groups of federal civilian employees, such as judges, are among those likely to benefit from a Roth option. About 634,000 service members now participate in TSP. Most federal civilian employees, however, would not benefit from a Roth investment option.

• Automatic enrollment of new federal civilian employees. The Federal Retirement Thrift Investment Board said this will encourage more young employees to start saving for their retirement as soon as they begin working for the government and take advantage of matching funds offered by their agencies. Employees would have 90 days to opt out of the program and receive a full refund. The bill leaves to the Defense Department the decision of whether to automatically enroll military service members into TSP. The Defense Department has already told the Federal Retirement Thrift Investment Board it intends to automatically enroll military service members after a Roth option is established. Unlike federal civilian employees, military members receive no matching funds.

• A survivor benefit that would allow spouses of deceased TSP participants to maintain TSP accounts.

• A mutual fund option that would allow participants to direct their TSP funds to private-sector mutual funds. The board would be authorized to select the mutual funds that would be available to plan participants.

Courtesy of FederalTimes.com

Todays Average

2.639

Courtesy of USAToday.com

Q: If the PBGC takes over my pension, will I still get all mybenefits?

A: Not necessarily. The PBGC insures pensions up to limits established by law. For plans terminated in 2009, the maximum guaranteed amount for workers who retire at age 65 is $54,000 annually. The limits are lower for workers who retire before they're 65. "The earlier the retirement, the lower the guaranteed amount from the PBGC," Elliott says.

Q: What about other retiree benefits for salaried employees?

A: In a statement, GM said it is working with the Treasury to reduce some retiree benefit obligations by roughly two-thirds. Those reductions will affect life insurance and health care coverage for salaried retirees, among other things, the company said.

Q: How can I find out more?

A: GM employees and retirees can call 800-489-4646

Hewitt recently released a study which analyzes the quality of participation, plan balances, investment behavior, account activity, and demographics of over 2.7 million employees. The report shows that despite the significant decline in the stock market during 2008, most participants did not change their saving and investment behavior throughout the year.

Key Findings:

■ The average 401(k) participant’s total
plan balance was $57,150 at the end of
2008, declining from $79,570 in 2007.

■ The median rate of return earned by
participants was -28.3 percent across
the universe in 2008. Forty-four percent
of participants had a return lower than
-30 percent.

As unemployment continues to rise and many struggle to keep their retirement savings on track, Charles Schwab today released new data showing a significant number of 401k assets held by workers who leave their jobs have been left behind in former employers' plans. According to the data taken from plans administered by Schwab, 43 percent of assets held by 401k participants who left their jobs in the first quarter of 2008 had not been moved a year later.

Leaving savings in a previous employer's 401k plan is an option unless the employer requires a distribution, but there are three other options when deciding what to do with 401k savings when leaving a job: roll the money into an IRA, move the money into a new employer's plan, or take the money as a cash distribution.

"We urge people to educate themselves on their options when they leave a job, especially if they expect to be out of work without access to a savings plan at a new job," said Rene Kim, Charles Schwab senior vice president.

According to the Schwab data, 57 percent of assets held by 401k participants who left their job in the first quarter of 2008 had been distributed from former employers' plans by the end of the first quarter 2009. Of those distributed assets,

• 75 percent of assets were rolled over into IRAs,
• 14 percent of assets were taken in cash distributions,
• 7 percent of assets were moved into new employer plans,
• 4 percent of assets were taken in other forms of distributions

You'd have to have been living under a rock to be surprised by last week's news from the Social Security and Medicare trustees that the programs are in trouble.

In a nutshell: The U.S. population is aging, health-care costs are spiraling upward and neither program has the money to cover promised benefits. In addition, politicians have known this for many years, and yet no progress has been made in fixing the programs.

The deteriorating economy has made things worse.

The date when the Social Security trust fund will start running deficits has moved closer by a year, to 2016, and the date of trust fund depletion has advanced by four years, to 2037. The Medicare hospital insurance trust fund is already running a deficit and will be exhausted by 2017.

Source: Washington Post

Here's a common question on our site; "How can I withdraw from my IRA or 401k and not pay a penalty?"

A recent WSJ article provides answers:

For IRAs, the taxpayer may be able to avoid a penalty (but not tax) if he or she uses the money for one of several reasons, including:

• To buy a home (if qualified as a first-time homebuyer under IRS rules).
• To pay for higher education for the immediate family.
• To pay for unreimbursed medical expenses over 7.5% of adjusted gross income.
• To pay for health insurance if the taxpayer has been unemployed for a certain period.

For 401(k)s, the taxpayer can make an early withdrawal without a penalty in several cases, including if he or she:

• Leaves the employer in the year he or she turns 55 or older.
• Uses the money to pay unreimbursed medical expenses over 7.5% of adjusted gross income

It's common for a married couple to hold a joint account (Joint Tenant With Rights Of Survivor) for their taxable accounts and also to hold individual IRA accounts. Your spouse is often the beneficiary of your IRA but; is not the joint owner. What happens if the IRA owner is incapacitated and can't make decisions on their IRA?

It's a good idea to contact your bank or financial instituiton and and establish trading authority or Power of Attorney on your spouse's IRA. Your bank or mutual fund company may have documents to establish this on the IRA or ask you to submit your legal documents.

ElderLawAnswers.com provides some insight into Power Of Attorney:

For most people, the durable power of attorney is the most important estate planning instrument available--even more useful than a will. A power of attorney allows a person you appoint -- your "attorney-in-fact" -- to act in your place for financial purposes when and if you ever become incapacitated.

In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.

Friday is bank closing day in America. It's the day that the FDIC moves in and shuts failing banks, folds their insured deposits into more solvent institutions, boots the failed bankers and tells the bank investors and bondholders, essentially, good luck.

For example, last Friday Great Basin Bank of Elko, Nev. and American Sterling Bank of Sugar Creek, Mo., were seized. The Nevada bank cost the strained FDIC fund $42 million. It was the 25th FDIC-insured institution to fail this year. It won't be the last.

Courtesy of  The Seattle Times

Steve Kroft explains his upcoming segment on how the current economic recession is impacting older Americans and their retirement plans.

Sunday April 17 at 7 PM Eastern Time

Well, no need to worry about 2017 anymore. Thanks to the worst economic downturn since the 1930s, the moment of reckoning is already almost here: according to both the budget proposed by the White House in February and projections issued by the Congressional Budget Office (CBO) in March, Social Security benefits ($659 billion, according to the CBO) will exceed payroll taxes ($653 billion) in fiscal 2009 for the first time since 1984.

Social Security's Surplus Disappearing Fast at www.TIME.com

Unfortunately, many people are not taking full advantage of these tax-advantaged accounts. Even though most U.S. households are eligible to contribute to an IRA, only 14% did so in 2007.

Part of the problem: Nearly a third of adults aren't sure whether they're eligible, and 40% don't know you can have an IRA and a 401(k) at the same time, says a recent AARP survey.

The fact is, between traditional, nondeductible, and the Roth IRA, almost anyone can contribute to at least one type of IRA.

Source CNNMoney.com