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Consumer Reports Money Adviser Says Aging Baby Boomers Should Consider Roth IRA Accounts Over 401k Plans

9/27/2005 5:00:00 PM


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To: National Desk

Contact: Alberto G. Rojas, 914-378-2434 or [e-mail]

YONKERS, N.Y., Sept. 27 /U.S. Newswire/ -- Consumers have all been told to "max out" their 401k plans to amass money for retirement. But, research done by Consumer Reports Money Adviser, the personal finance newsletter published by the editors of Consumer Reports and Boston University economist Lawrence Kotlikoff, Roth IRA accounts could be a better choice over 401k plans for most Americans planning to retire soon. Aging consumers sticking religiously to their 401k could actually be decreasing their spending power upon retirement.

Typically, Roth IRA accounts provide no up-front deduction but impose no tax on withdrawals. Another choice, saving on your own- accumulating regular assets without a tax-deferred envelope like a 401k-is a much better tax deal than it was in the past, particularly if you invest your savings in stocks. The reason: Capital gains and dividends on stocks are now taxed at a maximum rate of 15 percent. If a consumer retiring today has the exact same stocks within her 401k she would pay ordinary income taxes at a higher 25 percent income-tax rate when she withdraws the money, if her income is between $29,700 and $71,950.

With the help of Boston University economist Lawrence Kotlikoff, CRMA guides consumers through the decision process by providing answers to questions such as:

-- Does the Roth IRA always beat out the 401k?

-- How does the Roth IRA compare with the 401k?

-- How will future tax hikes affect the withdrawals from a 401k? The Roth IRA? Personal investments?

-- How might contributing to a 401k affect future Social Security income? How is this different for a Roth IRA or personal investments?

-- How to choose the best plan

While most Americans who adhered to the 401k mantra are happy they did so, it turns out that having a decent amount of spending power in retirement depends mostly on willingness to save early and often. Ultimately, the editors of CRMA recommend a two- pronged strategy: Invest the maximum in a Roth IRA. Then plow at least enough into your 401k to get the full employer match. That is, save and save again. A summary of the report will be available free of charge at http://www.ConsumerReportsMoneyAdvisor.org?source=CR30 .

Insurance Companies Get Stingy

Consumers who think that insurance companies will graciously hand over a check after suffering personal injury or material loss should think twice. According to a report in the October 2005 issue of Consumer Reports Money Adviser, insurance companies are getting more aggressive in scrutinizing claims. Insurance industry representatives and experts agree, saying that carriers are getting tougher for several reasons, including fraud, immense losses in Florida, and massive settlements in favor of policyholders. However, because there's no national agency that tracks data on property claim payments, it is hard to tell if insurers are getting better or worse at paying claims.

The CRMA report shows consumers how to shop for the right insurance carrier and how to increase the odds of them paying up, with the following steps:

-- Find out who is complaining against a prospective carrier. The National Association of Insurance Commissioners' Web site at http://www.naic.org/cis/index.do will do a company-by-company search. The site will also allow you to check on the type of complaints filed against insurers and complaint trends.

-- Check up on the company's financial health. Go to insurance rating companies such as A.M. Best, which breaks down financial- strength into two general categories: secure and vulnerable. Avoid companies rated B or below; they are consider vulnerable.

-- Use the Internet to find a company's legal or customer problems. To find the Ratings for homeowners insurance companies, go to http://www.ConsumerReports.org?source=CR31 and click on the Personal Finance page.

-- Understand what's covered in the policy. Most folks understand the deductible is the amount of loss you pay for, for instance, and the premium is what they pay for the coverage. But other terms are trickier and need to be explored and understood.

Cut the Phone Bill

Millions of Americans who use their cell phones for long distance but still have long-distance service at home may be overspending. The Consumer Reports Money Adviser suggests that consumers can drastically cut their phone bill by dropping their carriers and instead use their cell phones or a calling card when making long distance calls from home. The cards, which have become ubiquitous in the marketplace, have competitive rates that rival those offered by traditional long-distance plans.

But with so many cards on the market, trying to find the right one can be another costly game. The editors at CRMA compared 15 prepaid domestic phone cards purchased from major retailers and found that the best cards were the ones with 24-hour toll-free customer-service numbers, had either no expiration date or one far in the future, and offered recharging via an 800 number for convenient continuation of service. Among the top performing were cards from Costco/MCI, Sam's Club/AT&T, and BJ's Wholesale Club/MCI.

In addition to providing information about the best calling cards, CRMA also helps shoppers recognize, avoiding, and reporting abusive card issuers.

http://www.usnewswire.com/

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/© 2005 U.S. Newswire 202-347-2770