In December many of us use our credit cards to take care of holiday shopping.   I have a feeling many investors have to take distributions from their IRA accounts or loans from 401k's to pay off those cards after those holiday statements arrive.  Thats unfortunate, as Uncle Sam is really  the beneficiary of those early withdrawals.  You'll be paying taxes on those IRA withdrawals and a penalty.

Here's an alarming credit card number:

Balances are rising

Average credit-card balance per household: $9,159 in 2005 - 17 percent more than the average balance five years before.

We are using cards more

In the first six months of 2006, the volume of purchases on Visa, MasterCard, American Express and Discover rose 12.8 percent from the year before. In total, $840 billion was charged on cards from those issuers in the first half.

Ever wonder who picks up the fees on your 401k employer plan?  

Your company generally has a financial company which provides the record keeping, administration and investment options inside the plan and sometimes its difficult to understand the cost of these plans.  They are not very "transparent".  These fees can have a major impact on the performance of your account and lawsuits are common as employees try to understand all the costs.   Your company may be paying the fees or the plan participants may be picking up the tab.

Congress will address this problem next year.   Here's a look at 401k fees.

Current retirement savings law, passed in 1974, does not explicitly require 401(k) plan sponsors to disclose comprehensive information on fees, the Government Accountability Office said. "Yet even small fees can significantly affect retirement savings over the course of a career."

The GAO gave as an example a 45-year-old person who leaves $20,000 in a 401(k) account until retirement. If the average net return is 6.5 percent _ a 7 percent investment return minus a 0.5 percent charge for fees _ the account will grow to $70,500 at retirement. But if the fee is 1.5 percent, the person will have only $58,400 when he retires.

We've mentioned several websites that help you crunch your "retirement number".   Tools that help you determine just how much you'll need to save for retirement are being developed by several mutual fund companies and financial providers right now.  

Here's another approach-pretty simple, the "rule of 25," I read about this in a Kiplingers magazine years ago.   Just estimate how much you'll need to withdraw from your savings during the first year of retirement and multiply by 25.  It's a basic ballpark estimate-but a  good starting point.

CNNMoney runs us through the retirement calculation.

The "$25 in assets per $1 of income" rule I mentioned earlier assumes you're going to spend 30 or more years in retirement. If you retire very late in life, you might be able to get by with a smaller nest egg. Conversely, if you retire early, at 50, say, you probably need a larger one.

The Thrift Savings Plan is really pretty simple-some basic index funds and five new "lifecycle-funds".  The plan has very low fees and federal employees can put together a diversified portfolio with those choices.  In addition, this plan alows retirees the ability to purchase an immediate annuity.  Many 401k plans lack this annuity feature.

Walter Updegrave of CNNMoney thinks Uncle Sam has a pretty solid retirement plan.

The lesson here: Don't get distracted by all the funds your plan throws at you. Today the typical 401(k) plan has 19 investment options, and about one in 10 has more than 25. Employers may feel that they're doing you a favor by offering all that choice, but they're only making it harder for you to do the right thing since too much choice just leads to confusion.

The phone-tax refund?  Take advantage of this one-time refund.  It's line 71 on the 1040 this year.

SFgate.com provides some tax guidance.

You can figure your refund based on how much you actually paid, if you have old phone bills.   Or, you can opt for the standard refund. That amounts to $30 for an individual, $40 for two-person household, $50 for three and $60 for families of four or more.

I hope you have a wonderful day!  I appreciate your comments and suggestions this year...we started this website last year at Thanksgiving-so, it's a special day for me.  Thank you for all you encouragement!  

We'll be back this weekend with retirement tips and ideas.

If you work in the educational, health, or non-profit area-your employer may offer a 403b plan.   It's important to look at all the investment choices your 403b plan provides.  Many of these plans offer annuities. 

These "tax-sheltered annuities" (TSA) have higher fees and may not be ideal investment choices inside the 403b plan.  Often, you'll payer higher insurance fees for this investment and may have surrender charges if you try to make changes.  Make sure to look at other options in your plan-especially no-load mutual funds.

Lynn O'Shaughnessy's recent article provides some great suggestions and resources on 403b plans.

Currently, teachers, who are saddled with mediocre 403(b) choices can typically move their cash to a 403(b) provider that isn't in a school district's lineup. Suppose, for instance, that a district offers a dozen 403(b) providers, but these firms only market annuities. Today, many teachers can move the money in their 403(b) accounts, through something called a 90-24 transfer, to one of the low-cost mutual fund companies that I mentioned earlier. These transfers won't be allowed in the future.

I don't think anyone can predict interest rate movements, although every commentator on CNBC these days is  happy to give you their viewpoint on what they think the Federal Reserve will do.  Rising interest rates over the last two years has been great for investors that use money market accounts or prefer CD's in their portfolio. 

Yields on these investments are probably right about 5% right now.  Your bank, credit union or fund company will offer money markets-call and see what the current rate is.

However USAToday uses their crystal ball and says rates may heading a different direction and also explains how the Federal Reserve Board views inflation and interest rates.

Some seasoned Fed-watchers figure that the Fed's rate-raising work is done. Gross domestic product, which grew at a 5.6% annual rate in the first three months of 2006, slowed to a 1.6% annual rate in the third quarter. If the Fed were to raise rates much higher, it could trigger a recession.

If your employer provided a Simple IRA and you've left the employer-it is eligible to be moved into a IRA (Direct Rollover) or your employer plan (trustee-to-trustee transfer).  Some employer plans may not accept the money-it really depends on the plan. 

However, first look to see how long the Simple IRA has been established.   The IRS has a two-year rule which penalizes distributions if the account has been established less than two years.  Ouch, it's a 25% penalty.

If a rollover distribution (or transfer) from a SIMPLE IRA does not satisfy the 2-year rule, and is otherwise an early distribution, the additional tax imposed because of the early distribution is increased from 10% to 25% of the amount distributed.

Kiplinger's provides some additional help on Simple IRA Rollovers.

Thank you for the e-mail reminders this week.  Several readers pointed out this is National Retirement Planning Week.   And, this week is the birthday of the 401k plan which was introduced 25 years ago and has over 47 million participants today.

WISER Women's Institute For A Secure Retirement provides info on National Retirement Planning Week and some practical retirement guidelines. 

The leaves are falling off the trees, Thanksgiving is just around the corner and, once again Uncle Sam is waiting for your minimum required distribution (MRD).

If you are over age 70 1/2 it's time to add up your IRA balances, look at older 401k plans or employer plans and do the calculation.   Most IRA custodians will be able to help and even set up systematic withdrawals if  you would like to receive these distributions throughout the year.

You don't have to take distributions from your Roth IRA and new legislation allows you to contribute distributions to a charity in 2006 and 2007.   Make sure to contact your tax advisor regarding these "qualified charitable distributions".  Our calculators, links and tools page will provide additional help.

In the past, we've mentioned several of the retirement planning tools that use Monte Carlo simulation.  Fidelity just unveiled their new tool, myPlan (see previous post) and we've added the T Rowe Price tool to our calculator page. 

Terry Savage explains Monte Carlo and mentions other financial firms that use this technology.

For example, Wachovia  calls its service "Envision" -- certainly a more encouraging process, but one that uses the most sophisticated Monte Carlo modeling tools. Financial advisers on a Morgan Stanley  team call their process a "Retirement Design Blueprint," also a euphemism for Monte Carlo. Vanguard calls its modeling process "time pathing," while Fidelity avoids naming it anything but a "tool" to help you estimate and stay on track.

Only T. Rowe Price, one of the earliest providers, comes right out and says "the analysis we perform to provide you with a recommended retirement strategy relies on sophisticated computer modeling known as a 'Monte Carlo' analysis."