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When it comes to investing, no matter what your goals or time frames are, having a clear understanding of the basics is an important first step. With this understanding - and by working closely with your advisor - you can put yourself in a position to reach your goals.
A 1031 exchange is a tax-deferred transaction in which one like-kind business or investment property is exchanged for another using the services of a neutral third party.
Like-kind property, such as two pieces of land or a building and a piece of land, must share certain characteristics, but doesn’t have to be of equal quality.
If the swap is not simultaneous, the new property must be identified within 45 days of selling the old property, and the transaction must be completed in 180 days or by the seller's tax-filing date, whichever comes first. The deferred capital gains tax is due when the new property is sold.
A 1033 exchange is a tax-deferred transaction initiated by the involuntary conversion of real estate that has been condemned or threatened with condemnation through eminent domain or has been destroyed.
The property owner can accept payment for the property or an insurance settlement and postpone capital gains or depreciation recapture taxes, provided he or she acquires like-kind replacement property of the same or greater value within two or three years, depending on the circumstances of the conversion.
The owner is not required to have a neutral third party handle the money, as is required with some other tax-deferred exchanges.
A 1035 exchange is a tax-free exchange of an existing annuity contract for a new contract.
No income tax is due on the income or investment gains in the annuity that’s being surrendered, provided it is a direct exchange; but surrender fees may apply to the old annuity, and a new surrender period begins for the annuity being acquired. Sales charges and other fees also may apply.
The annuities being exchanged typically have different features and different fees.
The Securities and Exchange Commission (SEC) requires that all publicly traded companies file annually a Form 10-k. The filing date, ranging from 60–90 days after the end of a company's fiscal year, depends on the value of the publicly held shares.
The 10-k discloses detailed information about a company's finances, including total sales, sales by product line or division for the past five years, revenue, operating income, earnings per share, and equity, as well as other corporate information, such as bylaws, organizational structure, holdings, subsidiaries, lawsuits in which the company is involved, and the company's history.
A company's Form 10-k becomes public information once it is filed, and you can find the report in the SEC's database. As an investor, you can learn more about a company from its 10-k than from its less-detailed annual report.
A number of load and no-load mutual funds levy 12b-1 fees on the value of your mutual fund account to offset the fund's promotional and marketing expenses.
These asset-based fees, which get their name from the Securities and Exchange Commission ruling that describes them, typically amount to somewhere between 0.5–1% annually of the net assets in the fund.
A fund that charges 12b-1 fees must detail those expenses, along with other fees it imposes, in its prospectus.
You participate in a 401(k) retirement savings plan by deferring part of your salary into an account set up in your name. Any earnings in the account are federal income tax deferred.
If you change jobs, 401(k) plans are portable, which means that you can move your accumulated assets to a new employer's plan, if the plan allows transfers, or to a rollover IRA.
With a traditional 401(k), you defer pretax income, which reduces the income tax you owe in the year you make the contribution. You pay tax on all withdrawals at your regular rate, determined by your filing status and tax bracket.
With the newer Roth 401(k), which is offered by some, but not all, employers who offer traditional 401(k)s, you contribute aftertax income. Earnings accumulate tax-deferred, but your withdrawals are completely tax free if your account has been open at least five years and you're at least 59.
In either type of 401(k), you can defer up to the federal cap, plus an annual catch-up contribution if you're 50 or older. However, you may be llimited to less than the cap if you're a highly compensated employee or if your employer limits contributions to a percentage of your salary. Your employer may match some or all of your contributions, based on the terms of the plan you participate in, but matching isn't required.
With a 401(k), you are responsible for making your own investment decisions by choosing from among investment alternatives offered by the plan. These alternatives may include mutual funds, variable annuity separate accounts, fixed-income investments, and sometimes company stock. Your plan also may offer a brokerage window that allows you to select among a wide range or investments through a designated account.
You may owe an additional 10% federal tax penalty if you withdraw from a 401(k) before you reach 59. You must normally begin to take minimum required distributions by April 1 of the year following the year you turn 70, unless you're still working.
When you retire or leave your job for any reason, you may roll over your traditional 401(k) assets into a traditional IRA and your Roth 401(k) assets into a Roth IRA. You also may rollover your traditional 401(k) to a Roth IRA and pay the tax that is due on the combined value of your contributions and earnings.
A 403(b) plan, sometimes known as a tax-sheltered annuity or a tax-deferred annuity, is an employer-sponsored retirement savings plan for employees of not-for-profit organizations, such as colleges, hospitals, foundations, and cultural institutions. Some employers offer 403(b) plans as a supplement to—rather than a replacement for—defined benefit pensions. Others offer them as the organization's only retirement plan.
Your contributions to a traditional 403(b) are tax deductible, and any earnings are tax-deferred. Contributions to a Roth 403(b), which some but not all employers offer, are made with aftertax dollars, but the withdrawals are tax free if the account has been open at least five years and you're 59 or older.
There's an annual contribution limit, but you can add an additional catch-up contribution if you're 50 or older. Other catch-up provisions may apply as well.
With a 403(b), you may be responsible for making your own investment decisions by choosing among investment alternatives offered by the plan, though not all plans offer choice.
You can roll over your assets to another employer's plan if the plan allows transfers, or to an IRA when you leave your job, or to an IRA when you retire. You may roll your traditional 403(b) into a traditional IRA without tax consequences. You also may roll a traditional 403(b) to a Roth IRA and pay the tax that's due on your combined contributions and earnings.
You may withdraw without penalty once you reach 59, or sometimes earlier if you retire. You must begin required withdrawals by April 1 of the year following the year you turn 70, unless you are still working. In that case, you can postpone withdrawals until April 1 following the year you retire.
The 457 plans are tax-deferred retirement savings plans available to state and municipal employees.
Like traditional 401(k) and 403(b) plans, the money you contribute and any earnings that accumulate in your name are not taxed until you withdraw the money, usually after retirement. The contribution levels are set each year at the same level that applies to 401(k)s and 403(b)s, though 457s may allow larger catch-up contributions.
You also have the right to roll your plan assets over into another employer's plan, including a 401(k) or 403(b), or an individual retirement account when you leave your job.
Each 529 college savings plan is sponsored by a particular state or group of states, and while each plan is a little different, they share many basic elements.
When you invest in a 529 savings plan, any earnings in your account accumulate tax free, and you can make federally tax-free withdrawals to pay for qualified educational expenses, such as college tuition, room and board, and books at any accredited college, university, vocational, or technical program in the United States and a number of institutions overseas.
Some states also exempt earnings from state income tax, and may offer additional advantages to state residents, such as tax deductions for contributions.
You must name a beneficiary when you open a 529 savings plan account, but you may change beneficiaries if you wish, as long as the new beneficiary is a member of the same extended family as the original beneficiary.
In most cases, you may choose any state's plan, even if neither you nor your beneficiary lives in that state. There are no income limits restricting who can contribute to a plan, and the lifetime contribution limits are more than $300,000 in some states. Currently, you are also eligible to open more than one account for the same beneficiary by using plans from different states.
You can make a one-time contribution of $65,000 without incurring potential gift tax, provided you don't make another contribution for five years. Or, you may prefer to add smaller amounts each year, up to the annual gift exclusion.
With a prepaid tuition plan, you purchase tuition credits at current rates to be used at some point in the future when your beneficiary attends one of the colleges or universities participating in the plan.
Most prepayment plans are sponsored by individual states and apply to the public institutions in the state, some state plans cover both public and private institutions in the state, and the Private College 529 plan includes more than 270 participating private institutions nationwide.
In the case of state plans, either you or your beneficiary may have to live in the sponsoring state. This rule does not apply to the Private College plan.
You owe no income tax on any appreciation in the value of the tuition credits if they are used to offset tuition. With a state-sponsored plan, you may be able to transfer the face value of the credits, but not the potential gains to a nonparticipating school if your child doesn't attend a participating one.
Some states and the Private College plan guarantee that your credits will cover the cost you prepay. That is, if you play for a semester's tuition at a specific school at today's rate, your tuition certificate will cover a semester's tuition at that school when you redeem the certificate no matter how much it costs then. There may be a time limit, such as 30 years.
The Securities and Exchange Commission (SEC) requires that all publicly traded companies use Form 8-k to report anything that could have a significant effect on the financial position of the company or the value of its shares.
Events and changes that must be reported—in most cases, within four days—include bankruptcy, mergers, acquisitions, amendments to the corporate charter or bylaws, a change of directors, a change in the fiscal year, and even a change of name or address of the company.
A company's Form 8-k becomes public information once it is filed, and you can find the report in the SEC's database. These 8-k filings are designed to level the playing field between general investors and investors who have special access to information about a company.
Geared toward the individual investor, Lord Abbett Insights features topical discussions, investing strategies, and insights from our investment professionals in an easy-to-digest format.