PBGC takeover of pensions at the two auto makers also would affect their retirees, who could see their pension benefits slashed by as much as 60% because federal law limits how much the agency can pay in annuity benefits.

The PBGC could be on the hook for the pensions of as many as 925,000 retired auto workers, of which GM had about 670,000 people and Chrysler 255,000. Such a burden would be unprecedented and would likely increase the PBGC's deficit, which already stands at about $11 billion. The PBGC currently pays pension benefits to about 630,000 retirees.

Under current law, the maximum guaranteed pension amount the PBGC can pay to a 65-year-old is $54,000 a year, and the maximum for a 50-year-old is $18,900 annually.

Many investors use "stable-value" funds inside of their 401k. These funds are also called "guaranteed investment contracts" or "GIC's." Essentially they are a basket of bonds backed by an insurance company or bank. These funds are not available inside of your IRA.

The Wall Street Journal questioned the stability of these funds this week.

How Stable Are They?

Many retirement-plan investors are turning to stable-value funds:

• The funds are designed to preserve capital and generate smooth returns. Contracts from banks and insurers help protect against sharp market swings.
• Investors should expect lower returns from the funds this year. They also may not have easy access to their balances after an employer bankruptcy or layoffs.

Many banks and insurance companies are growing reluctant to provide the "wrap" contracts that help smooth the funds' returns, leaving some stable-value managers scrambling to find alternatives.

And in certain cases where bankruptcies or massive layoffs have caused investors to yank money from a stable-value fund, some of them have been forced to wait months for their money. That's what has happened to former employees of retailer Mervyn's LLC. The bankrupt company terminated its 401(k) plan in October, but participants still can't get all their savings out of the plan because of withdrawal restrictions on the plan's stable-value fund.

The 401k plan has not been an ideal retirement investment in this market and extended recession. 

Most investors have have seen their accounts drop dramatically. Experts on retirement planning will start to debate the merits of the 401k plan and Congress will address the retirement planning landscape too.

Here's a panel of experts on 401k plans and possible suggestions.

Courtesy of the NYTimes.com

So Much for the 401(k). Now What?

401(k) plans will probably be replaced by — 401(k) plans.

The sad fact is that any form of retirement plan causes risk to someone. Traditional pensions put the risk on the company; government-managed systems put it on the taxpayer, who already must pay for Social Security and Medicare excess costs. What is needed is a way to reduce risk on the individual 401(k) investor.

First, we need to make retirement saving easier. Automatic enrollment has made the 401(k) process simple, especially for those most prone to under-saving: younger workers, women, small business employees and minority workers. However, only about half the work force is employed by a company that offers 401(k) plans.

Teachers Insurance and Annuity Association, better known as TIAA-CREF, is the largest annuity company to receive TheStreet.com Ratings' top ranking of A-plus. It lost $3.3 billion in 2008 but held $17.8 billion in capital at year-end.

And John Hancock Life Insurance of New York, a subsidiary of Manulife Financial(MFC Quote - Cramer on MFC - Stock Picks), maintains an A rating despite the downgrade to B of two affiliates, John Hancock Variable Life Insurance Co. and John Hancock Life Insurance Co.

TheStreet.com lists the 20 Strongest Annuity Insurers.

Have you ever wondered how much your neighbor has in their 401k plan? If your neighbor works for an oil company it's probably a sizeable account.  Here's an interesting 401k study from Business Week:

Best Three Plans by Account Values

ExxonMobil: $490,000
Saudi Arabian Oil: $450,000
                     Chevron: $370,000

The three richest plans, by average participant balance, are all oil companies. Saudi Arabian Oil, however, has just 2,900 total participants. ExxonMobil has 44,000, and Chevron has 36,000.

Data: BrightScope

I've already lost so much in my 401(k). Wouldn't it be better to keep my savings in cash until the market bounces back? You're in good company. Nearly one-third of those who participate in a 401(k) plan lost 30% or more last year, reports Mercer, a consulting firm.

But if you sit on the sidelines and venture back into the market only after it turns around, you risk missing out on the market's top-performing days, which tend to come at the beginning of a recovery. For instance, if you were fully invested in the S&P 500 from December 31, 1997, through December 31, 2007, you would have received an annualized return of 4.2%. But if you missed out on the index's 30 best days during that time period, you would have suffered average annual losses of 7.2%, according to an analysis by T. Rowe Price. No one knows exactly when the market will recover in the future, so it is better to keep your long-term money invested in stocks for the long haul.

Courtesy of Kiplinger.com

Frequent readers of RetirementThink know that I get a tax folder together every year and then procrastinate until the very last minute. It's a tough habit to break.

Maybe this year will be different as Kay Bell, author of the blog Don't Mess With Taxes has provided us some tips. Kay has a lot of IRS insight and just wrote a new book, "The Truth About Paying Fewer Taxes."

10 ways older taxpayers can save

1. Deduct a larger standard amount

Most taxpayers choose the standard deduction rather than go to the trouble of itemizing. If you're age 65 or older, the standard deduction is even more appealing because older filers get to claim a larger amount. All you have to do is check a box, line 39a of Form 1040 or line 23a of Form 1040A. Do the same for your spouse if he or she is old enough. Then complete the worksheet in your form's instruction book (or your tax software will do it for you) to come up with the larger standard deduction amount you can claim.

Technically, you don't have to be 65 to get this bigger deduction. If your 65th birthday is Jan. 1, the IRS considers you to be age 65 for the previous tax year and you may claim the larger standard deduction.

2. Add your property taxes

Real estate taxes are a great tax break, but it's usually been limited to filers who itemize. Many older taxpayers don't itemize because their standard deduction amounts are greater than their Schedule A expenses, especially if they've paid off their home mortgage and no longer have those interest payments to deduct.

Now, however, taxpayers who claim the standard deduction can add up to $500 in property tax payments ($1,000 if married filing a joint return) to their standard deduction amount. This real estate tax add-on also is available for the 2009 tax year.

3. Claim your credits

Tax credits are a great benefit. They directly reduce the amount of tax you owe and some, known as refundable credits, could net you money from the IRS even if you paid little or no tax.

The Credit for the Elderly or Disabled, as its name suggests, is available to individuals who are either age 65 or older or who are younger and retired on permanent and total disability. Generally, you must be a United States citizen or resident to take the credit. You also must have adjusted gross income and nontaxable Social Security or other pension benefits that don't exceed certain thresholds. Details and worksheets are found in IRS Publication 524.

In some cases, older taxpayers may be eligible for the Earned Income Tax Credit (EITC). This credit is designed for workers who don't make much money and it is one of the refundable credits. The credit may be larger if you care for a qualifying child, including a grandchild. If you do not have a qualifying child, you must be under age 65 to qualify for the EITC. Details on the EITC are in IRS Publication 596.

4. Keep an eye on extra income

Generally, if Social Security is your only income, your benefits are not taxable and you probably do not need to file a federal income tax return. However, if you supplement your government retirement benefits, you could end up owing Uncle Sam. Just how much, if any, of your Social Security benefits are taxable depends on your total income and your marital status.

For 2008 filing purposes, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status: $32,000 for married couples filing jointly and $25,000 for single, head of household, qualifying widow or widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year. Details on taxation of Social Security can be found in IRS Publication 915.

5. Determine your retirement account distributions

If you have certain retirement accounts, you must begin taking money from the accounts annually, starting in the year you turn 70½ or, in some cases, the year you retire if is later. These withdrawals are known as Required Minimum Distributions, or RMDs. The RMD rules apply to retirement accounts which are tax-deferred. This includes all employer sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans. The RMD rules also apply Roth 401(k) accounts, as well as to traditional individual retirement accounts and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

RMD amounts generally are calculated by dividing each account's prior Dec. 31 balance by a life expectancy factor, found in tables in IRS Publication 590. However, the recent stock market downturn, a provision of the Worker, Retiree, and Employer Recovery Act of 2008, signed into law on Dec. 23, 2008, waives the 2009 RMD.

Some older taxpayers, however, still will face RMDs this year. An account holder's first RMD can be delayed until April 1 of the year following the year in which he or she turns 70½. For affected retirement plan owners who reached the septuagenarian trigger last year and postponed their first RMD, they must take that 2008 distribution by the first day of this coming April. But at least with the 2009 RMD waived, you only have to take out the 2008 amount this year.

6. Roll your retirement money to charity

If you are 70½ or older, you can have money from your IRA transferred directly to a charitable organization. As much as $100,000 can be donated this way and the option is available for both the 2008 and 2009 tax years. This is a particularly welcome option for traditional IRA account holders who must take required minimum distributions but who do not need the money to cover living expenses. By having the RMD go straight to their charity of choice, the IRA distribution is not counted as taxable income to the IRA owner.

Because of the waiver of the 2009 RMD, some taxpayers might think they cannot use this donation method. Not so. Any amount up to the $100,000 limit can be transferred directly to a charity, not just RMDs. The one downside of this type of direct giving is that the IRA-to-charity gift amount is not deductible by the donor.

The IRA donation rollover also could be utilized by account holders who face donation limits based on their income. You usually cannot donate an amount that exceeds 50 percent of your adjusted gross income. However, when the money goes directly to the charity from the IRA, it doesn't count against that limit because it's not included in your gross income.

7. Share your wealth sooner

You've worked hard and saved long to accumulate a sizeable estate. You definitely want it go to your heirs, not Uncle Sam. In most cases, that's not a problem. Only around two percent of estates are large enough to be subject to the federal estate tax. For 2008 the tax applied only to estates greater than $2 million; the exemption amount s in 2009 is $3.5 million.

Some individuals, however, opt to make sure that their friends and family members get what their shares early. You can give several thousand dollars a year to as many people you wish without any tax consequence. For 2008m you could give up to $12,000 to any many individuals. In 2009, the gift exclusion amount is bumped up to $13,000. Your spouse also can give away the same amounts. These gifts allow you to see how much your generosity is appreciated while simultaneously reducing the value of an estate that might be near or just more than the estate tax threshold. You can learn more about gift taxes that IRS' special FAQ page.

8. Hang onto your home longer

After the loss of a spouse, the surviving husband or wife has to make a difficult and potentially costly decision as to whether to sell the family home. A married couple usually can exclude up to $500,000 in profit when they sell their residence. Such a generous benefit wasn't available to widow or widower unless the surviving spouse sold the home in the year the spouse died.

Now, however, a tax law that took effect in 2008 allows a surviving spouse to claim the $500,000 exclusion as long as the widow or widower sells the home within two years after the spouse's death. The widow or widower must remain unmarried and all other tests, such as residency and ownership, also must be met.

9. Deduct long-term care premiums

More people are planning for their later-life care by buying long-term care insurance. The policies also can pay off on your tax returns before you need the covered services. If you itemized deductions, you can deduct at least some of the premiums you pay on your Schedule A as a medical expense.

Your policy premiums depend in large part on your age. Your age also is the determinant in how much you can deduct. For 2008 returns, the deduction amounts are:

• Age 40 or under = $310
• Age 41 to 50 = $580
• Age 51 to 60 = $1,150
• Age 61 to 70 = $3,080
• Age 71 or over = $3,850

In many cases the actual amount you pay for long-term care insurance will be greater than the above limits. Any amount in excess of these limits is not deductible. And if you pay less than the amount for your age range, then only your actual premium payments are deducible.

Although in the grand scheme of things, the amounts may be small, they may be just what you need to get you over the income threshold -- 7.5 percent of your adjusted gross income -- that you must meet to itemize medical costs.

10. Take advantage of zero capital gains

Capital gains tax rates on profits earned by selling assets held for more than a year already are lower than the taxes on ordinary, typically wage, income. On Jan. 1, 2008, those capital gains rates got even better for investors in the 10 percent and 15 percent tax brackets. Rather than owing 5 percent tax on capital gains and qualified dividends, these sellers owe no tax. The zero capital gains rate continues through 2010.

While no taxes generally are good taxes, the zero percent rate does have some potential drawbacks. Older investors who choose to cash in some tax-free holdings could find that such added income could produce taxes on their Social Security benefits.

And remember, although you definitely need to consider taxes in making investment decisions, your portfolio moves should not be driven by taxes, but rather guided primarily by how they fit into your overall financial strategy.

As the stock market sinks to 12-year lows, stock mutual fund shareholders are calling it quits.

The Dow Jones Industrial average plunged 299.64 points Monday, or 4.2%, to 6763.29, a level it first passed in January 1997. The Dow is down 22.9% this year.

Investors sold an estimated $7.1 billion in stock fund shares in the four weeks ended Feb. 18, the latest data available from the Investment Company Institute, the funds' trade organization. For the month through Feb. 26, TrimTabs.com, which tracks the funds, estimates investors pulled $33 billion from stock funds.

At the Vanguard Group, call volume was up considerably, says spokesman John Woerth. "Some modest exchange activity was reported out of equity funds and into money market funds."

Courtesy Of USAToday.com

Regulators on Friday closed Heritage Community Bank in Illinois, and Security Savings Bank in Nevada, marking 16 failures this year of federally insured institutions.

As part of the new stimulus bill, the federal government is temporarily picking up 65 percent of the cost of private health insurance (COBRA) for laid-off employees. The subsidy lasts nine months for those laid off between Sept. 1, 2008, and Dec. 31, 2009. It’s available in full to individuals whose annual adjusted gross income doesn’t exceed $125,000, or $250,000 for joint filers. The subsidy diminishes after that.