Saturday, November 7, 2015

403B Plan to Plan Transfers

From PDF, there is a lot of great information on the ins and outs of 403B plans.

An employer may have one plan for each broker/dealer that handles their empoyees 403B accounts.  You have 3 types of options available.

If you stay within the existing plan but change asset allocation (ie stay with the same employer and the same broker/dealer), this is called a contract to contract exchange.

If you transfer between plans (ie stay with the same employer but change broker/dealers), whether you keep the current asset allocation or change asset allocations, this is called a plan to plan transfer.

Finally, if you leave the plan, which typically can only occur after leaving the company, this is called a rollover.

For rollovers, you have direct and indirect rollovers.  Typically, indirect rollovers are easier because you become the middle man which simplifies communication between you and each individual broker/dealer.  However, it can take longer to process.

Saturday, June 20, 2015

Guiding Mary through the Financial Mumbo Jumbo

Interest rates were calculated using the algorithm posted at:

When it comes to investing, I often challenge investors to understand and be aware of what rate their money is growing.  Unfortunately, many investors simply don't ask this question.  In addition, financial institutions are not required to reveal to consumers the actual rate of returns on their money.

Several factors complicate matters.

  • The dates of deposits are not taken into consideration
  • Clients may have monthly or bi-weekly deposits
  • Class A sales charges
  • 12b-1 fees and other hidden money management fees
  • account maintenance fees and other hidden account fees
  • Selling or rebalancing
  • Misunderstanding of interest rate calculation
Meet Mary.  On May 31st, 2013, Mary spent $14,995.87 to purchase stock within a diversified portfolio.  On May 31st, 2015, Mary checked that here account balance was $14,950.94.

Mary decided to go to her financial organization and ask them what her interest rate was.  Her financial adviser pulled up Morning Star, looked at her particular holdings and gathered two year history.  Based on a $10,000 investment, Morning Star showed the performance of the last two years would grow to $10704.35.  This is a rate of return of about 0.0346 or 3.46%.

Mary's financial adviser told her this portfolio grew 7.04% over the past few years, which was what Morning Star showed.  However, Mary knew that in order to compare her rate of return with other investments, she really needed the annual rate of return, as opposed to the total rate of return.  The statement, "My money grew 350%" does not mean much, since context is everything.  "My money grew 350% over the past year!" is much different than "My money grew 350% over 75 years."

This did not make sense to Mary since her account balance was less than the amount she initially used to purchase stock.  She discovered that one of the major fees she paid was a Class A Sales charge.  This was a one time fee she remembered paying two years ago.  She remembered the fee was 5.5%.  This meant her actual initial holding should have been $14,128.64.  Mary decided to check her account history.  When she pulled up her records, she found that her initial holding from May 31st, 2013 was only $14,079.80!  This meant that even though she was told the fee was only 5.5%, after hidden fees, she ended up paying closer to 5.8%!

Mary decided to just check the growth of the account after the initial fees.  Her money grew from $14,079.80 on May 31st, 2013 to $14,995.87 on May 31st 2015.  This is a rate of return of about 0.0320 or 3.20%.

Unfortunately, Mary discovered her financial adviser was quoting growth at 3.46%, when it was actually closer to 3.2%.  Her financial adviser was also quoting the sales charge at 5.5%, when it was actually closer to 5.8%.

Knowing this, Mary decided to keep the investment because the stock portfolio was at least keeping up with inflation and retaining purchasing power, one of the reason's Mary decided to invest in the stock in the first place.

However, after speaking to me, I encouraged Mary to calculate her rate of return based on money in and money out.  That is, I advised her to ignore the reporting and findings of the financial institutions.  I encouraged her to track how much money she deposited before any fees and how much money she could withdraw after any fees.  This was her real rate of return and she should track this year in and year out.  Gathering a track record of five years might help her to make better investment decisions in the future and understand the performance of stock better.

She did this.  It turns out her rate of return was about -0.000061 which is in the negative but basically 0%.  I told her that the growth of her stock portfolio over two years had basically covered the initial sales charge.

This is why investors should take a long term approach, avoid moving and transferring money too often and not invest with money that is needed to cover basic expenses.

Sunday, April 12, 2015

A General Outline for Lifetime Planning: 300-35-100K

Some look at my writings and critique the simplicity of the financial numbers I use.  In case, you need some substance for my technical expertise, check out my dissertation hosted at This way, you know I can discuss the gobbly gook of mathematics with the best of them (perhaps).  My straight forward approach may seem offensive to some but in reality, getting my PhD was in a sense one of the worst things that happened to me.  I made me think I knew something.

It was several years later that my passion for exploration opened up again and this journey showed me how little I knew and opened my eyes to an endless world to explore.

If you have gotten to this point, I must apologize for the rant above and you may be asking yourself why am I reading this?  Is there some financial tip here?

Woodie Guthrie once said, "Any fool can make something complicated.  It takes a genius to make it simple."

So that's exactly what I want to do.  Make it simple.  Here it is... A general guideline for your overall financial life.

According to, saving $300 per month for a 35 year period (need to enter 36 in how much investment will be in ...), will yield 1.95 million dollars.  Roughly 2 million dollars.

And if you decided to annuitize 2 million dollars through a life insurance company after these 35 years of saving you could probably get lifetime payments of 5%.  This would pay you $100,000 per year for the rest of your life.

So, in summary, putting away $300 per month for over 30-40 years would help you to accumulate roughly 2 million dollars which translate to roughly $10,000 per month to retire on.

Sunday, April 5, 2015

Jim Rohn's Take on the Law of Sowing and Reaping

It is amazing that the law of sowing and reaping applies to so much today. Check out this video by Jim Rohn.

There are three areas I'd like to discuss where this law applies. The first is in your personal life. The bible teaches, "God is not mocked. A man reaps what he sows." I know for myself that I actually hated this law when I realized the truth of its reality. When I realized that some of my bad decisions lead to poisonous fruit and I had no one to blame but myself for making these decisions, it was hard to accept. So having a field with both good and bad fruit can be hard at times. But in the end, every day, all you can do is all you can do. And what you can do, is to plant new seeds, by making good decisions, even in the midst of eating the rotten fruit that life has handed you.

The second area is investing. One of the most shocking thing I see is when people start to get into investing and they go our and purchase Apple stock. It is amazing to watch! In small business, in large business, 90% of companies fail. Over a 40 year period, out of the S&P 500 only General Electric stayed afloat. So, to pick a single stock like Apple and put all your eggs into that basket baffles me. You are not going to win that game, so don't play. It's like going to a roulette table where you have a 1 out of 10 chance of winning. So what should you do? Well, the venture capitalists in Silicon Valley know that 90% of businesses fail. So what do they do? Well, they pick 10 solid companies, take a calculated risk. They know that 90% fail. They know that they cannot predict which company will make it. But time and time again, they watch 9 out of 10 fail. But the one, the one seed that lands on fertile ground, it takes hold, and bears fruit for decades and decades. So, if you wish to invest, sow your seeds into companies. Over and over. And in time, your money will grow.

The last area is in business. This could include your life's purpose or your personal mission. You already know that your message will rarely land on fertile ground. Out of 10 people, you deliver a message to, only 1 will act of it. Only 1 will be affected. But sow those seeds. Over time, you will see the seeds grow. But remember, you can only plant the seed. You cannot bring the rain. You cannot bring the sun. You cannot determine the time or season that the first leaf will spring from the ground. All you can do is sow. But one day, if you hold steadfast, you will see and abundance of fruit from the efforts you build.

Saturday, February 14, 2015

Government Incentives for Low Income Retirement Contributions

Did you know that low income earners have an incentive to contribute to a retirement account?  That is right, the government will give qualified people a credit up to $50 for every $100 deposited in their personal IRA.

See Form 8880.

Other tax links include:

1040 Insructions - Form 1040

1040A Instructions - Form 1040 A

1040 EZ Instructions - Form 1040 EZ

540 Booklet - Form 540 Instructions - Form 540

Also, for those interested in Small Business expenses, see for Topic 509, Business Use of Home.

Tuesday, February 3, 2015

How the Online Poker Industry was a Threat to National Security

In 1971, the US came off the gold standard. What that meant was that banks no longer had to back paper money with gold. At that time, our money became fiat money.

In the 90's, Clinton helped to pass several laws allowing banks to perform investment and mortgage transactions inside the actual bank. What that meant was that banks no longer had to keep 60% of money on hand as collateral.  Not only that, banks went from helping people save to helping people borrow.

Although the FDIC now insures cash up to $250,000 per individual, the banks only have roughly 44 cents per hundred dollars. This means, the bank has roughly $1,100 on hand for the $250,000, in the event of a national crisis.

So what does this have to do with the online poker phenomena? Well, imagine 1 million online players depositing between $5 and $1,000. Imagine this money getting transferred to off shore accounts, then pulled out as cash.  On paper, inside the US, is not a threat.  However, someone pulling $4,400 out of the US, translates to $1 million of backed money.


Wednesday, January 28, 2015

Are State Refunds Taxable?

Each year, when you file your federal tax return, you have the option to deduct your state taxes to reduce your adjusted gross income.

This option is available if you decide to itemize your deductions on Schedule A.  On this form, you have the option to either deduct state sales taxes or state income taxes, but not both.

Here are three cases to consider:

Exact Payment
$500 was withheld for state income taxes
You owed $500 in state income taxes

In this case, when you do your federal income taxes, assuming you take the "state income taxes itemized deduction", you will deduct $500.  If you are in the 25% tax bracket, this will save you $125.

Over Payment
$700 was withheld for state income taxes
You owed $500 in state income taxes

In this case, when you do your federal income taxes, assuming you take the "state income taxes itemized deduction", you will deduct $700.  If you are in the 25% tax bracket, this will save you $175.

Next year, you will report your $200 state refund as income.  If you are in the 25% tax bracket, this will cost you $50.

In the end, this will save you $125 total.

Under Payment
$400 was withheld for state income taxes
You owed $500 in state income taxes

In this case, when you do your federal income taxes, assuming you take the "state income taxes itemized deduction", you will deduct $400.  If you are in the 25% tax bracket, this will save you $100.

Next year, if you add the $100 paid in state income taxes to the "state income taxes itemized deduction", you will save an additional $25.

In the end, this will save you $125 total.

See and for more details.