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Our objective is to make life easy for all retirement plan stakeholders. We do our best to thoroughly explain the features and benefits of our smart retirement solutions. Sometimes, you may still have a question. Click on these Frequently Asked Questions (FAQs) to get the information you need to understand why smart retirement solutions are best in class. 

  • What is a 401(k) plan?
    A 401(k) plan is a salary deferral retirement plan. Employees agree to put part of their salary into a special savings and investment account. The 401(k) plan offers a variety of investments, often including mutual funds and exchange-traded funds. Importantly, the money you invest isn't counted as income when you complete your annual tax return. For example, if you earn $35,000 but put $5,000 into a 401(k) plan, your taxable income for the year would be only $30,000. Earnings accumulate tax free until retirement. A 10% early withdrawal penalty may apply to distributions taken prior to age 59 1/2. What happens to the money I put into the 401(k) plan? The money you put into a 401(k) plan is invested according to the choices you have made from a list of choices offered by your employer. These choices typically include stock and bond mutual funds, exchange-traded funds and money market funds.
  • What information about my 401(k) plan is my employer required to provide to me?
    You are entitled to a Summary Plan Description (SPD) that outlines how the plan works, a summary annual report and an annual statement.
  • How do I know how well my 401(k) investments are doing?
    If you have invested in a 401(k) plan, it's important to remain informed of how your investments are performing. You can monitor your 401(k) retirement portfolio on a regular basis by accessing your account online and checking your balances and contributions to date, as well as running historical performance reports regarding your investments. Aspire provides an annual statement that indicates the amounts you have contributed and how those investments have performed for the year.
  • Do employers or the government guarantee 401(k) accounts?
    Employers never guarantee 401(k) accounts. They are considered "fiduciaries" of 401(k) plans, which means they are legally responsible for supervising the plan and the money you invest. This supervisory relationship obligates the employer "to protect your financial interests by choosing and monitoring reputable and competent administrators and investment managers. Employers must give plan participants at least three distinctly different investment choices, each having a different level of risk. You must also be given the opportunity to move your money among these investments at least quarterly, and sufficient information to make sensible, informed investment decisions. But your employer does not offer you protection against any investment losses you may suffer. Although most traditional pension plans are insured by the federal government, there is no such guarantee for 401(k) accounts. The federal Pension Benefit Guaranty Corp. insures most traditional pension plans because the government wants to ensure that the payments a company promises its retirees will indeed be made. But 401(k)s do not involve a promise of future benefits. The value of your account will rise and fall over the course of the years, and you could lose money if your investments perform badly.
  • When am I eligible to participate in my employer's 401(k) plan?
    You may participate as soon as you meet the eligibility requirements your employer established at the time the 401(k) plan was adopted. Eligibility requirements are generally based upon a participant's age and years of service with your employer. You will receive an email with the necessary informational enrollment materials attached, which will notify you that you have met your plan's eligibility requirements. You may then enroll in the plan on the first allowable entry date, which is normally the first of the following month. Some company plans may allow for entry only two times per year, and you should check with your company's benefits administrator to verify the allowable entry dates for your plan.
  • What is the purpose for hours of service regarding 401(k) plans?
    Plan documents typically credit vesting, eligibility and benefit accruals based a 12-month periods during which the participant is credited with at least 1,000 hours of service (i.e. a credited year of service). Other plans use an elapsed time counting computation, which ignores actual hours worked and looks at periods of service from date-of-hire to date-of-separation. When a plan conditions eligibility, vesting and the right to receive contributions on the employee being credited with a year of service, the document will (1) identify the computation period over which the service hours are measured, and (2) specify a minimum number of hours within the computation period (generally no more than 1,000 hours may be required to be credited to have a year of service). In most plans, the computation period for crediting a year of service for vesting, eligibility, and benefits is different. Some use plan years, calendar years or date of hire years. An hour of service is determined under Dept. of Labor regulations and generally includes: 1. Any hour for which the individual is paid or entitled to payment for the performance of duties, 2. Each hour for which an employee is paid or entitled to payment on account of a period of time during which no duties are performed (but not more than 501 hours), and 3. Each hour for which the employee is available to receive or has received back pay. [DOL §2530.200b-2(a).] When back pay is awarded, the associated hours of service are credited for the period to which the hours pertain. [DOL §2530.200b-2(c)(4).] These hours of service rules apply for Tax Code purposes, too (e.g., vesting years of service).
  • What is vesting?
    The process by which a plan participant earns the right to keep his or her employer-funded accounts upon termination of employment. Note that the employee contributions are always 100% vested; vesting schedules only apply to employer derived funds. Each plan has a vesting schedule that defines the percentage of the account that the participant is entitled to should they terminate employment prior to being fully vested. The non-vested remainder is forfeited by the participant and reverts back to the plan (not the employer). This "forfeiture" is then "reallocated" to the remaining participants, used to finance future matching contributions for the employer or used to pay plan expenses. For example, if the vesting schedule on the employer match is "20% per year of service," an employee who quits after three years of service will keep 100% of his or her own contributions (plus investment gains or losses) but only 60% of the employer matching account.
  • How are my years of service determined in regard to vesting in a 401(k) plan?
    Many employers who make matching contributions to their employees' 401(k) plans require employees to work a specified number of years before they're entitled to collect the money that the employer has contributed. This process is called vesting and companies base their vesting on the employee's years of service to the company. By law, you must be fully vested, in other words, be entitled to all the funds your company has contributed to your 401(k) plan-after you fulfill the required years of service applicable to your plan. Your employer can use one of two following methods to determine your years of service. • Your years of service may be determined by the number of hours you actually worked in a 12-month period. You must be credited with a year of service for the 12-month period in which you worked at least 1,000 hours. This allows you to earn a year of service in less than 12 months if you reach the required 1,000 hours prior to 12 calendar months elapsing. • Alternatively, years of service may be calculated using the elapsed-time method. Your employer credits service from your date of hire to your anniversary date or date of severance. It is important to note that many companies use both methods: the first is often used to determine your eligibility to participate in the plan, and the second is used to decide when you're fully vested in the company's contributions to the plan.
  • How do I contribute to my 401(k) plan?
    If you are participating in your 401(k) plan, your contribution is based upon the percentage you elect to have deducted out of each of your regular paychecks and deposited in the 401(k) plan. Money taken out of your salary to fund the account is deducted on a pre-tax basis. The company won't report the money as income on your W-2, which will lower the income taxes you must pay. In addition, money in the 401(k) plan will grow tax-deferred until you begin making withdrawals, usually after you attain age 59 1/2. Alternately, your plan may allow you to make Roth, or after-tax, contributions, which can be withdrawn tax-free with a qualified distribution.
  • Do I pay taxes on 401(k) plan contributions?
    Traditional 401(k) plan contributions, and any earnings on your contributions, aren't subject to income taxes until you withdraw the funds. However, contributions are subject to Social Security and Medicare (Federal Insurance Contribution Act, or FICA) and unemployment insurance (Federal Unemployment Tax Act, or FUTA) taxes. Participation in a 401(k) plan does not reduce your Social Security benefits. Saving on a pre-tax basis is beneficial as it allows you to exclude the contributed amounts from the aforementioned income taxes. In addition, the tax deferral offers the added benefit of compounding, which over time may help you accumulate additional dollars towards your retirement. Many plans offer the option of making Roth contributions, which are made on an after-tax basis. These contributions can be withdrawn tax-free with a qualified distribution.
  • How much may I contribute to my 401(k) plan each year?
    Here are the factors to consider when determining your maximum contribution limits: For 2015 you may make pre-tax contributions up to $18,000, not to exceed the lesser of 100% of your net earned income pay or $51,000. Plan participants who are or will turn 50 years of age during the calendar year are eligible to make catch-up contributions of $6,000. However, the participant's regular plan contributions must be reached before catch-up contributions are allowed.
  • May I make changes to my contribution amount during the plan year?
    You may stop your salary deferral for 401(k) plan contributions anytime with advance notice. If your plan allows for monthly deferral changes, then you may request an increase/decrease with a 30-day advance notice, which will be effective the first of the following month. However, it is important to note that your employer has the right to establish a policy as to whether employees may change the amount during the year, or whether an employee who has ceased contributing may resume making salary deferral contributions again in the same year. You may refer to your plan's Summary Plan Description (SPD) to verify your employer's plan design.
  • Can I roll a previous 401(k) account or other retirement savings into the plan I have now?
    Yes, as long as your employer has not indicated otherwise in your company's plan. Effective January 1, 2002, retirement plan participants and IRA investors were able to move their retirement plan assets between retirement plans in the public, private, education and nonprofit sectors as they move between employment in those sectors. Monies may be moved between (to and from) 401(k), 403(b) and governmental 457 plans, as well as Traditional IRAs. Previous regulations did not permit the commingling of assets unless it was from a similar plan.
  • What is a matching contribution to a 401(k)?
    Employers who make discretionary contributions to their employees’ 401(k) accounts commonly do so on a "matching" basis. Matching contributions are allocated only to those participants who defer into the plan. For example, for every $1 you contribute to your plan, the company might agree to add $0.25 or $0.50. Most companies will stop matching once you have contributed 3% to 6% of your own salary to the plan. As an example, if you earn $40,000 and your employer offers a $0.50 match for the first 6% of your salary you contribute to the plan. If you make a full 6% annual 401(k) contribution in the amount of $2,400.00, your employer will contribute and additional $1,200 as the employer match contribution. You may contribute a higher percentage of your salary (within the allowed limits), but in this example your employer's match would only apply to the first 6% you elect to defer. To determine if your 401(k) plan offers a match, you may refer to your Summary Plan Description, or ask your Human Resources department if matching contributions are provided by your employer.
  • What is a profit sharing contribution to a 401(k)?
    Some 401(k) plans have provisions that allow for non-elective or "profit sharing" contributions from the employer, as well as the more common matching contributions that are based on the amounts contributed to the plan by employees. Profit sharing contributions are allocated to the accounts of all the eligible employees, whether or not they defer any of their compensation to contribute to the plan. Matching contributions are allocated only to those participants who defer into the plan. The profit sharing contribution is based upon your employer's corporate profits for the year, and is normally made at the end of the calendar year or after your company's fiscal year end. Although this may be a required non-elective contribution, because it is based on your company's profits, your employer may use its discretion to determine the percentage that will be contributed based on its profits. This amount may be determined to be 0% if your company has not experienced a profitable year.
  • Do my employer's contributions go into the 401(k) plan at the same time as mine?
    Your salary deferral contributions are deducted directly from each paycheck and deposited in your 401(k) account, regardless of whether you are paid on a weekly, biweekly or monthly basis. Employer matching contributions do not have to follow the same schedule. Your employer may put matching contributions into the plan along with employee salary deferral contributions or add the matching contribution monthly, quarterly or annually. Your employer may also offer an additional profit sharing contribution. Profit sharing contributions are typically made to the plan annually.
  • Why is it important to directly roll money distributed from a 401(k) account to an IRA?
    By directly rolling over money from your 401(k) plan into an IRA, you preserve the tax-deferred status of your retirement funds. If you were to take your retirement savings directly from the 401(k) plan as a lump sum distribution, you would be subject to a mandatory 20% withholding for income taxes and the money distributed from your 401(k) savings would be considered fully taxable income and penalties may apply if you are under 59 ½ .
  • Can I have a check made payable to me for the amount of my 401(k), and then deposit it in a rollover IRA within 60 days?
    Yes, you can have the 401(k) plan send a check made payable to you directly, and still have up to 60 days to deposit the money in a rollover IRA. However, if you do so, your 401(k) distribution will still be subject to a mandatory 20% income tax withholding. If you then wanted the 20% tax withholding refunded, you would be responsible for claiming the amount withheld when you file your annual tax return, and the IRS would determine if a refund amount is due. Instead, if you leave your job and decide that you don't want to leave your 401(k) plan with your former employer, you may prefer to have the proceeds of your 401(k) account directly rolled over into an Individual Retirement Account (IRA). This avoids the 20% mandatory tax withholding.
  • If I withdraw funds from my 401(k) plan early, will I be required to pay a tax penalty?
    The Internal Revenue Service levies a penalty on participants who withdraw money from their 401(k) plan before they reach age 59 ½. As a general rule, a 10% penalty is levied on any withdrawals you make from a 401(k) plan before you have reached age 59 1/2. You will also have to pay ordinary income taxes on the money you withdraw, just as you would if you waited until after you turned 59 1/2. In certain circumstances the IRS will waive the 10% penalty on early withdrawals. For example, you can avoid the penalty if you are disabled, or if you need money for medical expenses that are greater than 7.5% of your adjusted gross income. You can also avoid the penalty if you are at least 55 years old when you separate from service.
  • If I change jobs, can I leave my money invested in my current employer's 401(k) plan until I retire?
    If you have a 401(k) account with your current employer but eventually change jobs, you may be able to leave your 401(k) with your old employer until you retire. Your ability to do so will be based on the size of your vested account balance. If you have more than $5,000 in the plan and you're under the age of the plan's designated retirement age, you have the legal right to leave it where it is. If your vested balance is more than $1,000, but less than $5,000, your employer has the right to roll it over for you into an IRA unless otherwise specified in the 401(k) plan document. If your balance is less than $1,000, the employer has the right to distribute it to you or roll it over into an IRA or another employer’s plan.
  • How do I qualify for a hardship withdrawal from my 401(k)?
    Your eligibility for a hardship withdrawal from your 401(k) plan depends on the plan's rules. The distribution must be made subject to an immediate and heavy financial need where you lack other available resources. You may elect to receive a hardship distribution of all or part of your vested balance under certain circumstances to cover the costs incurred with the following: - Purchase or repair a primary home - Pay education tuition, room and board, and fees for the next 12 months for you, your spouse, children, and other dependents - Prevent eviction or foreclosure on your primary residence - Address severe financial hardship - Pay for unreimbursed medical expenses for you, your spouse, children and other dependents - Pay for funeral expenses for immediate family members—parents, spouse, children, and other dependents There is a 10% IRS penalty unless your hardship withdrawal results from: - Your total and permanent disability - Medical bills that exceed 7.5% of your adjusted gross income - A court order to pay funds to a spouse, child or dependent - Permanent lay off, termination, quitting or early retirement in the same year you turn 55 - Permanent lay off, termination, quitting or retirement accompanied by payments for the rest of your (or your designated beneficiaries') life or life expectancy that continue for at least 5 years or until you reach age 59 1/2, whichever is longer Your elective deferrals are suspended for 6 months after the receipt of the hardship distribution. If you are under age 59 1/2, the 10% early withdrawal penalty will apply to the distribution.
  • What is meant by a premature distribution from a retirement plan?
    When you withdraw money from a retirement plan earlier than the age required by the Internal Revenue Service (59 1/2), the money you receive is known as a premature distribution and is subject to a 10% penalty unless you qualify for an exception to the penalty.
  • What tax form will I receive if I receive distributions?
    If you receive a distribution from a 401(k) plan the company that makes the payment will send you a Form 1099-R.
  • How much of my total 401(k) account can I borrow?
    If your employer allows you to borrow from your 401(k) plan, the maximum loan is half of the value of the account. Federal law will limit the amount to the lesser of $50,000 or 50% of the vested balance. For example, if you have $80,000 in your 401(k) plan, you could borrow up to 50% of the value of the account, which means you could borrow up to $40,000. However, if your 401(k) plan is worth $100,000 or more, federal law would prohibit you from borrowing more than $50,000—even if your account is worth millions. However, some plans impose even lower limits; the plan document may limit the maximum amount for loans and restrict the availability of loans.
  • What will a loan from my 401(k) plan cost me?
    When you borrow money from a 401(k) plan, the Internal Revenue Service requires that you charge yourself a market rate for the loan. The market rate is considered the rate you'd pay if you received the loan from a bank instead. Usually, the market rate is one or two percentage points above the prime rate. So, if the prime rate is 7%, the rate on your 401(k) loan should be 8% or 9%. There may be additional loan-processing and administrative fees charged by Aspire or your TPA. But borrowing from your 401(k) is still much better than borrowing from a bank, because you're paying the interest to yourself. Essentially, the loan becomes a fixed-rate investment in your own 401(k) account.
  • How soon do I have to repay a loan from my 401(k) plan?
    If your 401(k) plan permits loans, you will have to repay the loan through a series of regular payments. More than likely, your employer will automatically deduct the payments from your regular paycheck—much as it automatically deducts your 401(k) contributions. The entire amount you borrowed must be repaid within 5 years with the exception of a principal residence loan, which allows for a reasonable repayment period. Most plans allow up to 25 years of repayment, but the term of a loan can't extend beyond your normal retirement date, as defined by the plan. If you leave your employer, whether voluntarily or involuntarily, payment of the entire outstanding balance may be required prior to the last scheduled payment date.
  • Is the interest I pay on a 401(k) plan loan tax-deductible if I use the money to buy a house?
    If you are planning to borrow from your 401(k) plan and use the proceeds to buy a home, it's important to remember that the interest you pay on the loan from the account will not be tax deductible, unless the house itself is used as collateral for the loan.
  • What are some of the mutual fund rating services and what do they do?
    There are several independent rating firms that analyze and rank mutual funds based on their performance, risk and other factors. One of the most respected independent rating firms is Morningstar. Morningstar's rating analysis takes into account both a mutual fund's performance and risk, and assigns a rating from one to five stars. To determine a fund's star rating for a given period (3, 5, or 10 years), the fund's Morningstar Risk score is subtracted from its Morningstar Return score. If the fund scores in the top 10% of its broad investment category (equity, hybrid, taxable bond or municipal bond), it receives 5 stars (highest); if it scores in the next 22.5%, it receives 4 stars (above average); if it scores in the middle 35%, it receives 3 stars (neutral or average); if it scores in the next 22.5% it receives 2 stars (below average); and if it scores in the bottom 10%, it receives 1 star (lowest). Star ratings are recalculated monthly.
  • What is a company's prospectus?
    A prospectus is a printed summary of information that a company must file with the Securities and Exchange Commission (SEC) in conjunction with a public offering of securities, including mutual funds. It contains information about the company and its business that helps investors to decide whether to invest. SEC regulations determine what must be included in the prospectus. It typically contains information about the company's products, services, management and financial history. It must also discuss the risks involved. If the security is a new mutual fund, the company will discuss the types of investments that the fund will make. The SEC does not endorse the security or the information presented in the prospectus. Like a blueprint, the prospectus tells you everything about the fund, such as the investment objective(s), risk considerations, the investment manager, the portfolio manager, securities that the fund can purchase, investment restrictions, sales charges, management fees, expenses, procedures for buying and selling shares, shareholder services, dividend and distribution policies and past financial information.
  • How should I track the rate of return on my investments?
    The best measure of performance is called total return. This combines all interest, dividends, and capital gains distributions with changes in the market price of your investments. It is a far better tool to use than just the change in price over a period of time. To see how well your investments are doing, start a quarterly performance record. List all your investments and their current value. Then list their value at the end of the quarter. Each quarter's ending values should include all reinvested interest and dividends. Add any interest and dividends received during the quarter to the ending value and subtract any contributions made during the quarter. From this total ending value, subtract the total value at the beginning of the quarter and divide the result by the beginning balance. This gives you the total percentage return for the quarter, which may be positive or negative. Use the same approach for determining an annual return. Your online 401(k) account keeps a running tally of your mutual fund returns, which allows users to track dividend payments as well as daily price fluctuations.
  • What should I watch for when monitoring my mutual fund's performance?
    Even the best-performing mutual funds can fall on hard times. But usually, sharp investors can spot potential problems and take action before their mutual fund sinks in value. Here are some red flags that signal a mutual fund could be in for some rough sailing, from the National Network of Estate Planners in Denver: 1. The fund's management changes. 2. Its performance slips compared to similar funds. 3. The fund's expense ratio climbs. 4. Its beta, a technical measure of risk, increases. 5. Independent rating services reduce their ratings of the fund. 6. It merges into another fund. 7. There's a change in management style or a change in the objective of the fund. No single one of these red flags automatically means a fund is slipping. But a combination of these factors should at least cause you to take a closer look and consider a switch.
  • What is Market Risk?
    Because investments can rise or fall unexpectedly, the primary risk associated with an investment (the market risk) is characterized by the variability of returns produced by that investment. For example, an investment with a low variability of return is a savings account with a bank (low market risk). The bank pays a highly predictable interest rate. That interest rate also happens to be quite low. An Internet stock is an investment with a high variability of return; it might quintuple, and it might fall 50% (high market risk). The standard way to calculate the market risk of investing in a particular security is to calculate the standard deviation of its past prices.
  • What is risk tolerance and why is it so important?
    Risk tolerance basically is the amount of psychological pain you're willing to suffer from your investments. For example, if your risk tolerance is high, you might feel fairly comfortable investing in futures contracts or other types of securities that can go up and down like a roller-coaster. But if your tolerance for risk is low, you should stick to more conservative investments that aren't subject to wild swings in value. No investment is worth losing sleep over.
  • How can diversification reduce my risk?
    Portfolio risk can be reduced by diversification. The components of total risk are company risk (also called unsystematic risk), which can be reduced through diversification, and market risk (also called systematic risk). For example, assume all of your money was invested in the stock of XYZ Corp., the largest widget maker in the world. XYZ is a fine firm, but this is still a risky proposition. First, XYZ's stock could be adversely affected by weakness in the overall stock market. This is market risk. Second, the stock could suffer if the widget industry falls on hard times. This is industry risk (unique to the industry, not the market as a whole). And third, XYZ stock could tumble for reasons unique to the company—an unexpected shutdown of its plants, the loss of a key customer, or even the death of one of its key executives. This is company risk. About 70% of the risk you face as an investor is company risk. If you instead invested a small portion of your money in XYZ Corp.'s stock, a little money in a diversified mutual fund that owns several stocks, a little money in bonds and a little in real estate, the chances of your portfolio plunging suddenly would be greatly reduced.
  • What types of investments tend to have the highest risks?
    It's difficult to lump different types of investments into broad risk categories, in part because the way you invest in them could increase or decrease your risk. For example, buying futures contracts on commodities is generally considered one of the riskiest investments you can make. But that risk is greatly reduced if you instead purchase options on those futures or you use derivatives to completely hedge spot (cash) positions. Because risk is based on volatility and uncertainty, buying futures contracts themselves would certainly be included in anyone's definition of high-risk investing. Other investments that should be left generally to risk-oriented traders include financial derivatives, junk bonds, speculative stocks and the mutual funds that buy them. Precious metals have traditionally been considered high-risk investments, although the value of gold and silver has traded in a fairly narrow range over the past couple of years.
  • What are some very low-risk investments?
    Traditionally, low-risk investments include U.S. Treasury bonds, bills and notes, which are backed by the full faith and credit of the U.S. government, and deposits at banks where accounts are insured for up to $100,000 by the Federal Deposit Insurance Corp. (FDIC). But these investments protect only against the risk you won't receive your money back. There's also inflation risk to consider. For example, if you buy a five-year, 5% certificate of deposit covered by FDIC insurance, and inflation soars to 10%, your principal will be losing 5% of its purchasing power each year. Also, Treasury bonds are risk free only from a default basis. Treasury bond prices still move inversely to changes in interest rates. As such, there's really no such thing as a risk-free investment.
  • What are the risks of a mutual fund?
    There are several risks. The main one is that the companies in which the fund has invested will perform poorly, suffer mismanagement or otherwise meet with misfortune. Another big risk is that some economic, political or other development will cause the overall market to fall, dragging down with it the holdings of your particular fund. These are risks you would face investing in individual stocks as well; at least mutual funds can offer relative diversification. But some risks are unique to mutual funds. The fund management, for instance, may be doing things you don't know about or wouldn't like if you did. What you think is a plain vanilla domestic equity-income fund might, in order to boost returns, invest in derivatives, invest overseas, or invest in growth companies that pay little or no dividend. In a downturn, you could be in for an unpleasant surprise. There is also the risk that the fund will underperform a benchmark index, which means that management fees aren't buying any added value.
  • What are the four most common investment objectives?
    All investors want to make money, but often they have differing financial goals. Whatever your investment objectives, it's imperative that you formulate a plan and stick to it in good times and bad. The four most common objectives are financial security, retirement planning, income to meet living expenses and a child's education. You may be seeking one, a combination or perhaps entirely different ones. Whatever your objectives are, they should establish a destination, as well as a chart for measuring your progress. At times, securities markets will turn, and you will be tempted to change direction abruptly. Your objectives should serve as a road map for managing your investment program.
  • What is dollar-cost averaging?
    Dollar-cost averaging involves regularly investing a fixed sum—say, $100, $300 or $500 a month. Your 401(k) salary deferral contributions automatically transfer into the fund every month. To understand how dollar-cost averaging works, consider this example from the Dun & Bradstreet Guide to Your Investments: You put $100 into a mutual fund every month. The shares fluctuate in price between $5 and $10. The first month you buy 10 shares at $10 each for a total of $100. The second month, because the market dropped, the shares are selling at $5 each, so you buy 20 shares at $5 and so on. At the end of four months you have acquired 60 shares for your $400 at an average cost of $6.67 per share—even though the average price of a share for the period was $7.50. In short, dollar-cost averaging commits you to a regular investment program (which is good) and guarantees that over the long haul, you'll buy more shares at lower prices than at higher prices (which is even better). It's an especially easy strategy, if most of your money is invested in mutual funds.
  • What is asset allocation?
    Asset allocation is the process of deciding how much of your investment portfolio should go into stocks, bonds or other asset classes (as opposed to picking individual stocks or bonds). Your decision in this respect is perhaps the single biggest factor that will determine your long-term investment outcome, so make it carefully. The basis of your decision is how much risk you are willing to take and your investor life-cycle phase. More risk should mean, over the long term, a higher return. A key factor that determines how well your investment portfolio performs is the way in which you allocate your assets. For example, if every penny you own is invested in high risk, you have the potential to earn huge profits—or lose everything that you have invested. Conversely, if you have your money allocated among several different types of investments—stocks, bonds, money market funds and the like—your return is likely to be lower but your chances of losing everything are slim. Younger investors can generally afford to take more risks than older investors, in part because younger investors simply have more working years ahead of them to earn money and bounce back from an investment that turns sour. Older investors have to be more conservative, because their highest-earning days are behind them and recouping from a bad investment would be more difficult. An asset allocation strategy can help you to accomplish two important goals: first, it can help you to ride out the ups and downs of the market by diversifying your investments, and second, it allows you to adjust your exposure to risk, based on your desired levels of safety and return on investment.
  • What is an asset allocation, or lifestyle, fund?
    An asset allocation fund, sometimes called a lifestyle fund, is designed to provide you with the diversification needed to weather virtually any market or economic environment. Most of these funds have been created over the past five or six years. They typically invest in a variety of assets—domestic stocks, foreign stocks, bonds, money market instruments— that you'd normally buy in separate funds. Many 401(k) plans now offer several asset allocation funds, each with a different investment mix and risks ranging from the very conservative to the very risky. In essence, when you invest in a lifestyle fund, you're hiring a manager to make your asset allocation decisions for you.
  • What does it mean to rebalance a portfolio?
    You may strategically allocate your portfolio to certain percentages of asset classes. For example, you may allocate 40% of your portfolio to bonds and 60% to stocks. That allocation makes you comfortable and is designed to achieve your investment goals within your risk tolerance and investment horizon. Stocks experienced exceptional growth over the last three years compared to bonds. As a result, you may discover that the value of your portfolio is now 25% attributable to bonds and 75% to stocks. The greater growth in the return on stocks than the return from bonds resulted in this imbalance from the original 40/60 mix. Now, you are underexposed to bonds and overexposed to stocks. A stock market correction would have a greater effect on your portfolio, one you would be less comfortable with than under the original allocation. Therefore, it is time to rebalance your portfolio to reflect your strategic allocation of 40% bonds and 60% stocks. To do this you would sell stock and use the proceeds to buy bonds until the original mix is restored and you are back on track with your investment plan. A rule of thumb is to rebalance your portfolio when the weights deviate from the original by 10% or more.
  • What types of mutual funds are there?
    There is a wide variety of mutual funds on the market. These are just some of the categories listed by the fund-trackers at Morningstar. - Aggressive Growth Funds: These funds seek to maximize growth in capital with little priority given to current income, such as dividends. Both the portfolio itself, such as smaller, new companies, and the investment techniques, may entail extra risk. They are typically considered one of the highest-risk categories of funds. - Growth Funds: Invest in the common stock of well-established companies. These funds seek capital growth with just a small emphasis on current income. - Growth and Income Funds: Invest in companies that can increase in value but also have an established record of paying dividends. Equal emphasis on current income and future growth. Considered moderate-risk funds. - Global Funds: Invest mostly in the stocks of companies that are traded globally, including the United States. Both global and international funds seek capital growth in the value of their investments. - International Funds: Invest in the stocks of companies that are strictly located overseas. Both global and international funds seek capital growth in the value of their investments. - Income-Equity Funds: Invest in companies with high dividend-paying stocks. The primary purpose of these funds is to generate a high level of income. - Balanced Funds: A mixture of stocks and bonds, these funds look to preserve the value of principal, but also earn some current income and achieve some long-term growth. - Global Bond Funds: Invest in debt securities in companies and countries worldwide, including the United States. - Corporate Bond Funds: Invest primarily in the debt of American corporations and seeks a high level of income. - Municipal Bond Funds: Invest in bonds issued by state and municipal governments. This income, unlike regular bond interest income, is exempt from federal taxation. - U.S. Government Income Funds: Invest in a number of government securities including U.S. Treasury bonds and seeks current income through interest payments. - Taxable Money Market Funds: Invest in short-term, high-quality securities such as Certificates of Deposit (CDs) and Treasury bills. It seeks to maintain a stable net asset value, usually $1 a share. - Tax-Exempt Money Market Funds: Invest in securities that are exempt from federal taxes and, in certain cases, state taxes for residents of that state.
  • When I put my money in a mutual fund, where is it invested?
    That depends on the type of mutual fund you have chosen. Some funds invest only in stocks, others only in bonds. Many funds buy both. Some buy securities issued by companies involved in a certain industry, or search out values in stocks and bonds offered overseas.
  • What is Net Asset Value?
    The net asset value, or NAV, is the price at which you buy or sell shares of a mutual fund. To determine the NAV, a mutual fund computes the value of its assets daily by adding up the market value of all the securities it owns, subtracting all liabilities, and then dividing the balance by the number of shares the fund has outstanding. Mutual funds are required to use forward pricing, which means that the price you pay is the next NAV set for the fund after your order is received. The NAV you see in the newspaper is the NAV from the previous day.
  • Are mutual funds insured by the FDIC?
    No, the FDIC does not insure mutual funds. The FDIC insures deposits of $100,000 or less in banks, credit unions and savings and loan institutions. This sometimes surprises people who purchase mutual funds through their banks.
  • What types of fees are associated with mutual funds?
    Here is the overview of fees according to the Wall Street Journal Guide to Understanding Money & Investing: - Management fees are annual charges to administer the fund. All funds charge this fee, though the amount varies from a fraction of 1% to more than 2%. - A sales charge (load) is an upfront fee that is generally used to compensate the financial advisor for his or her services. - Distribution fees (known as 12b-1 fees) cover marketing costs, advertising expenses and other distribution costs. About half of all funds charge them. - Redemption fees are sometimes assessed when shares are sold to discourage frequent in-and-out trading. In contrast, a contingent deferred sales load applies only during a specific period -- for example, the first five years -- and then disappears.
  • How can I research a mutual fund?
    It is important to have complete and accurate information when deciding on which mutual funds to invest in. A good place to start is the Investment Research section of this site. Here you will be able to access information regarding funds and get an evaluation of their performance. In addition, all mutual funds must publish a prospectus and produce annual reports that discuss how the fund has been performing and provide details about fund holdings.
  • If I have an existing account with a mutual fund company do I need to establish an account with Aspire?
    Yes, Aspire acts as an approved investment provider within the plan and Aspire enrollment forms are required to establish an account. In addition, Aspire accounts offer access to mutual fund investments that may no longer be available directly with the fund companies.
  • What happens to my existing 403(b) account?
    You may transfer your existing 403(b) account into your new Aspire account. You may also choose to leave it as an orphaned account with the existing provider, who is required to maintain your account and send statements.
  • What are the criteria for a “qualified Roth distribution”?
    First, it must be at least 5 years since the account was set up and the first contribution made. After that, Account Holders must meet one of the following criteria: - At least 59½ years old, - Distribution is being used to buy or rebuild a first home, or - Disabled A distribution made to a beneficiary after the Account Holder’s death is also a qualified distribution.
  • Why should I name a beneficiary?
    This allows you to control who receives the value of your retirement account should you die.

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