Peggy Johnson, a certified financial planner and senior financial adviser for Ameriprise Financial Services in Lawrence, will take your personal-finance questions on a variety of topics: investing, saving for college, cutting your tax bill, planning for retirement or other matters that affect your financial present and future.
Johnson has 15 years of financial planning experience, and focuses her business on investments, income tax, retirement planning, small business, protection and insurance, estate planning, charitable giving, saving for education, employee stock options and general financial planning.

WereAllMonkeys

Could you elaborate on the long term investment? We are in the 25% tax scale, looking to invest for about 20 years, moerate to high risk.

Moderator

Hello. I’m Mark Fagan, business editor. Peggy Johnson has arrived here at The News Center and our chat will begin shortly.

Moderator

OK, our chat is about to begin. Welcome, Peggy.

Peggy Johnson

Mark:

It is great to be here today.

Moderator

Here comes our first question.

WereAllMonkeys

If someone has a few thousand extra dollars that is earmarked for investment, is there a best way to invest it? What will give the best interest rate? What is the best college plan we could start for a 10 year old?
Do you think the housing bubble is about ot burst?

Peggy Johnson

These are great questions. It is important for everyone to have good cash reserve equal to around 3 months of their average expenses before they start investing. That money could be invested in checking, savings, money market funds or short term CD’s to name a few. After you have secured an adequate cash reserve, you can look for long term investments such as mutual funds, stock, bonds, etc. What allocation and investment is appropriate for you depends upon the time frame, your risk tolerance and tax bracket. Money market rates have improved a great deal over the past several years with the increasing interest rates and are a good option for some of your cash reserves. There are many options to save for college and it is important to learn about them to see which ones fit best into your situation. The housing buble question is to be answered in a session all of its own.

hskrbkr

I’m 30+ years from retirement and I’ve got what I think is a pretty good retirement porfolio allocation going with the mutual funds in my Roth IRA and 457 plan. The international portion of my portfolio is 20% and fully allocated in an emerging markets fund. I’m comfortable with the risks of an emerging markets fund, but I’m wondering if I should include some percentage of developed international markets within my portfolio? I was thinking 5% now while increasing that percentage, and decreasing the emerging markets percentage as I get closer to retirement.

Peggy Johnson

International is a great option for many portfolios. As for how much you should have in energing markets versus developed markets depends again upon several issues such as tax bracket, time frame of when you will retire, where are your other invetments for retirement invested, etc. We are in a volatile market and emerging markets do increase your overall portfolio but also give you wonderful gorwth options long term

kscrivner

My husband has a 401K through his work. Would it be possible to move all the funds in that account to an IRA without penalty fees?

Peggy Johnson

Most people can rollover their 401K plan to an IRA and not incur any taxes as long as it is a direct rollover and you never take possession of the money. You normally can not rollover a 401k plan if you are still employed by that company. A rollover can be a good option as you have control of an IRA but do not control all elements of a 401K plan.

hipper_than_hip

I work for a large employee owned corporation. Our company does 401k matching, but matches our cash contribution with company stock. There is no market for the company stock, and the only way to sell it is to quit, retire, or die. I keep hearing that contributing to a 401k up to the limit of company matching is recommended, but in this case, would you recommend that I continue to put in money via my employers investment program, or would you recommend that I save for my retirement outside of my employers investment program?

Peggy Johnson

I like for people to take advantage of free money that their employer will provide in the way of a match. You do raise an interesting question of whether you are at greater risk as your match comes in company stock of a closely held business which does not trade on the open market. I would have you consider the strength of the company and if you feel good about this, I think adding to the 401K to the level you receive the full match makes a lot of sense. I always caution people to not get too much of their total portfolio in any one company. That you should always be conscious of.

chic

If I want to take out all my retirement in a lump sum when I retire and use it to pay off my mortgage and all my credit cards, do some needed improvements on my house to protect my equity, what can I do to minimize the taxes – including time of year to retire/taking two lumps instead of one over a two-year period, etc.

Peggy Johnson

I would strongly advise you to not take a large distribution from your 401K or IRA to do home remodeling if the money is needed to help you meet your retirement income goal. Once the money is put into the house it will most likely not generate what may be needed income in retirement. There may be other options to help fund the improvements such as a home equity loan, refinance your mortgage, etc.

gontek

I am considering purchasing Whole life insurance and eventually subscribing to the infinite banking concept. what warnings or caveats would you have?

Peggy Johnson

I believe life insurance is needed by many to cover a premature death need. I am not sure what type of insurance is appropriate for you such as term, whole life, universal life, variable universal Life, etc. There are advantages and disadvantages to each. You should choose the type of life insurance that fits your needs with regards to taxes, cash flow, total premature death risk, etc. I believe some cash value life insurance policies can be a beneficial and effective way to accumulate tax deferred money.

Moderator

Peggy, I have a question from someone who stopped me the other day, and doesn’t have Internet access. The woman was wondering about the Baby Boom generation, and its influence and needs. Are there any particular issues facing folks in the Baby Boom, and any stragegies that might help them in the coming years?

Peggy Johnson

One area I believe baby boomers need to plan for is life expectancy continues to expand and the need for their money to last longer has certainly come into the picture. I also believe boomers need to focus on building their own assets for retirement as Social Security as we now know it will most likely change and it is better to plan and prepare. There will be a large transfer of wealth to this generation and many people may face challenges they have not ever encountered such as hugh income taxes, potential federal estate taxes, etc. Planning can help to avoid or minimize many of these issues.

coldandhot

How come Ameriprise has had so many problems with the NASD and SEC?

Peggy Johnson

I appreciate the question and the opportunity to respond to this. We are in a heavily regulated industry and rightly so. I can not answer for Ameriprise or for all advisors, but I do feel that the company tries very hard to be diligent about compilance and doing what is in the best interests of our clients. I know that does not always happen, unfortunately. Ameriprise does take proactive steps to avoid any problems whith any regulatory body. We will be perfect in the future, I can only hope to take all steps we can to provide sound advice and service to all of our clients.

kcshankd

Good afternoon Peggy.

I am 33 yrs old with about 45K in a 457 plan. I am not a state employee but have access to the same funds as KPERS. I am comfortable investing 100% in equities. Currenty I have the funds split in equal fifths in The Growth Fund of America, ING VP Index Plus MidCap, Baron Growth Fund, Lord Abbett Mid-Cap Value, and ING Oppenheimer Global. Should I change my allocation?

Peggy Johnson

In your portfolio allocation you match your risk tolerance, your time frame of how long before you retire, and blend with your other retirement assets outside of the 457 plan. What I do see missing in your portfolio would be bonds. Even though you are 33, some portion invested in bonds may make sense. I also believe it is important for people to invest for future tax diversity. Are you setting aside money in investments that will give you tax free income in the futre such as a Roth IRA? Keep these facts in mind as you diversify your portfolio.

Moderator

We hear about retirement savings all the time. Plans at work — 401(k)s — are a major savings vehicle for many people these days. Is investing solely in the plan at work enough, or are there other avenues (CDs, individual sticks, etc.) that someone should use? Is it better to put more in the 401(k) or spread it around? How?

Peggy Johnson

What a great question. I like for people to invest at least to the level that they receive any company match in their retirement plan through work. This match is free money and should almost always be taken advantage of. I also like the thought of people building tax free income in the future as no one knows what the tax rates may be when you retire. Roth IRA, muni bonds, cash value of life insurance can provide wonderful tax benefits if it fits into your overall financial picture. Building a growth portfolio outside of your 401K makes a great deal of sense if you are retiring before the age of 59 1/2 as you can access this money without any 10% premature distribution penalty.

Moderator

What’s your take on 529 plans? Perhaps you could give us a rundown on the recent tax changes, and what they might mean for investors looking to save money for college. Are there better options out there for college savings?

Peggy Johnson

The 529 plans recently had a wonderful change. You can not invest in any state 529 plan and receive the state income tax decution up to a certain level of investment. The 529 plan does provide you with tax deferred growth and tax free withdrawals for any qualified secondary educational institution. I do, however, believe a diversified portfolio of savings for college funding makes sense such as potentially using Roth IRA, IRA, equity from homes, investment portfolios, etc. One thing to keep in mind with the 529 plans, if the money is not used for tuition, books, room or board, their is a 10% penalty and taxes at the owners rate. So diversity of investments potentially makes a lot of sense.

Moderator

Here’s a basic one: When is the best time to start planning financially — for retirement, for college, for vacations — for whatever? What keeps people from planning ahead?

Peggy Johnson

The time to start planning is now. Many people believe they need a great deal of money to start planning, but nothing could be further from the truth. You have a far greater chance of reaching your goals if you think about them, write them down and figure out the steps to reach that goal. A financial advisor can help you figure out those steps if you can not to this on your own. Everyone seems to think if they just pay off their car or some other debt they will be in a better position to start planning but you know what, there will be something else come up next year that will be grabbing at your money. Take the steps now to plan the future you want and you can reach your dreams.

Moderator

That’s all the time we have for today — and to think, we didn’t get one question about the donut shop.
Thanks to all the participants who asked questions, and thanks to you, Peggy, for taking time to provide thoughtful answers.

Peggy Johnson

Mark:

Thanks for the opportunity to visit about something I have a wonderful passion around. Remember folks, the time to start planning is NOW