No doubt these accounts represent a good way for the risk-averse, like me, to preserve accumulated retirement nest eggs while realizing a modest return. FDIC insurance, up to $250,000, is available, separate from other personal accounts.

Opening certificates of deposit with existing tax-deferred retirement assets, however, can present complications, primarily because of the paperwork and processing required to transfer funds and to ensure IRS compliance.

When, early in 2009, I scrambled to move my individual retirement account assets from a single T. Rowe Price account to multiple bank IRA CDs, the process proved excruciatingly slow, taking two to three weeks to complete per CD.

I suffered angst over locking in a rate while all the t’s and i’s were duly crossed and dotted.

Some banks, like Bank of America, guarantee a rate for a specified period on IRA transfers; others, like Nationwide Bank, give “soft” assurances to do their best. But many banks make no promises at all.

Now my CDs are maturing, and I’m encountering new complications.

What if I don’t like the bank’s current rates? At certain banks like Wells Fargo, I can park my money in an IRA savings account and tough it out until rates go up.

But others, like Allstate Bank, only offer IRA CD accounts. (I neglected to check into this when I opened that high-yielding CD two years ago.)

I’m floundering again.

Can I stomach another cumbersome IRA transfer? Can I lock in a rate? What is the old bank’s transfer fee? Dare I venture a rollover, where I take a check from the old bank and deposit the funds with a new bank within 60 days?

Of course, those at or approaching 70 1/2 also have to worry about IRS mandatory minimum distribution requirements as well as ongoing financial needs.

Some banks, like MetLife Bank and Union Bank, explicitly offer fixed-rate IRA CDs with penalty-free withdrawals for seniors. But many provide only standard redemption penalties (though I’m told they often waive them for those over 59 1/2). Fortunately, I still have a few years to look into this.

One thing is certain: IRA CDs have offered me a great opportunity to exercise my atrophying gray matter.

It’s a good move for younger savers who are a long way from retirement and can expect to be making more in retirement than they are in their late ’20s or early 30s.

It’s not a good move for savers in their 40s and 50s who are closer to retirement, have reached their peak earning years, and will almost certainly see their income drop after they retire.

There. Problem solved.

Follow those simple guidelines and you’ll stand a good chance of minimizing your tax bill and maximizing your balance for these retirement accounts.

The decision seems like a tough one because it requires you to make many assumptions about how much you’ll be making 20 or 30 years from now and what tax bracket you’ll be in.

Who can predict tax rates a few years from now, much less a few decades from now.

It is enough to drive you a little crazy and everyone’s fretting over this because the government has removed all income restrictions on these conversions this year, making them open to more prosperous taxpayers.

(Prior to 2010 you had to have a modified adjusted gross income of $100,000 or less.)

Washington is also offering taxpayers a one-time deal: You can pay all of the tax on your conversion in 2010 or in equal installments on your 2011 and 2012 tax returns.

All deductible contributions made to traditional IRAs, and all of the earnings from the investments in those accounts, will be considered taxable income if you convert to a Roth IRA.

Voluntarily paying the tax on that money now doesn’t make sense unless you think you’ll be earning more, and in a higher tax bracket, after you retire.

That certainly doesn’t describe many 40- or 50-year-olds I know. They’ve got to save like crazy to insure that their income doesn’t fall 20%, 30% or more after they stop working.

But if you’re young, with 30 or 40 years of better jobs and higher salaries ahead of you, then there’s a good chance your retirement income (and tax bracket) will be higher than your current income (and tax bracket).

Think about it.

How many people retiring today stand to earn more from pensions, Social Security and their savings than they did from their first or second jobs, 40 years ago?

A lot, right?

This Roth IRA conversion calculator reflects this reality, and can help you make a decision based on your specific age and tax bracket.

If you haven’t been laid off by now, you probably won’t be. So you can risk tying-up more money in long-term savings.

And you’ll probably save more on your taxes than you can earn from the record low returns on CDs or money market accounts.

Putting even a little more into your 401(k) plan can also make a big difference in your net worth.

Let’s say you contribute an additional 1% of your income — a modest increase by almost any definition.

If you’re making $50,000 a year, and get paid twice a month, that’s $20 per paycheck.

Although the full $20 will go into your retirement plan, your take-home pay probably won’t decline by that much.

Contributions to traditional 401(k) plans are tax deductible, which means you don’t have to pay income taxes on that money until it’s withdrawn.

That is one of the things that makes these kinds of retirement plans one of the most valuable tax breaks available to most of us, right up there with the ability to deduct the interest on a mortgage.

It also means your take-home pay will only fall 65 to 90 cents for every dollar you save, depending on your tax bracket.

But that extra $20 per paycheck can add $49,000 to your retirement savings over a 30-year career if the investments in your 401(k) earn a good, but not spectacular, average return of 7% a year.

If your employer matches all or part of that contribution, you’ll be even further ahead.

You’d have an extra $74,500 if that 1% increase on your part leads to your company boosting its contribution to your 401(k) account by 0.5% of your income.

See just how much you could benefit from boosting your contribution with our 401(k) calculator.

In fact, 43% of the 401(k) assets owned by workers who left their jobs in the first quarter of 2008 were still with their former employers a year later, according to a recent Charles Schwab study.

But there are some very good reasons to move that money into an Individual Retirement Account (IRA) or the 401(k) at a new employer.

If you have the choice between an employer plan and an IRA, how do you know which is right for you? Ask yourself the following questions:

When do I want to retire? You can start making regular withdrawals from a 401(k) earlier than an IRA without incurring a penalty. You need to be 59½ to start drawing down your IRA; but you’re allowed to access your 401(k) savings if you leave your job at 55. .

Will I need emergency access to my savings? You can make penalty-free withdrawals from IRAs for several reasons, including medical bills that are more than 7.5% of your adjusted gross income; or to pay college expenses for you, your spouse, children or grandchildren.

How much do I plan to contribute? In 2009, the cap for what you can contribute to your 401(k) is $16,500, or $22,000 if you’re age 50 or older. IRAs allow you to contribute $5,000; if you’re over 50, you’re allowed to contribute $6,000. So if you’re in a position to stash a substantial sum away for your retirement this year that argues for a 401(k).

What kind of investments do I want to make? IRAs typically offer more investment options, including mutual funds, stocks, bonds and certificates of deposit. 401(k) plans usually have a more limited number of options. If you’re not comfortable with the choices your employer offers, that argues for an IRA.

This is one of the few, small advantages we can think of to the big decline in stock and mutual fund prices.

Since you contributed pre-tax dollars to a traditional IRA, you must pay ordinary income taxes on your contributions and any earnings when you convert to a Roth IRA (because Roth IRAs require contributions of after-tax dollars).

Converting when your IRA is worth less means you owe less tax.

Let’s say you’re in the 28% tax bracket and converted your traditional IRA back when it was worth $45,000. You’d owe $12,600 in taxes. But if your IRA is only worth $30,000 now, the tax bill would be only $8,400.

This year, you can convert a traditional IRA if your adjusted gross income (gross income minus income tax deductions) is less than $100,000 whether filing singly or married filing jointly.

The full amount you owe in taxes is due with your 2009 return.

If you wait until 2010 the rules get a little better.

The income limitation disappears and you can pay the taxes on the conversion in two equal installments in 2011 and 2012.

But if the stock market rebounds over the next year, you’ll pay more in taxes.

Are you feeling lucky?

The Center for Economic and Policy Research recently looked at how much wealth boomers lost from 2004 to 2009.

It found that many baby boomers have little, if any, equity in their homes, thanks to declining home prices (and, we suspect, some disastrous decisions to yank cash from their properties during the housing boom).

Nearly 30% of late boomers — that’s those 45- to 54-year-olds — and 15% of early boomers — the 55- to 64-year olds — now owe more on their homes than they are worth.

Boomer retirement accounts and other investments have been seriously depleted by the bear market that’s driven the major stock indexes down more than 40% from their peak in October 2007.

By the end of the year, the median household in the 45 to 54 age range will have seen its net worth fall by more than 45% since 2004 to just over $80,000. (That’s including home equity.)

Early baby boomers, those closest to retirement, will have lost 38% of their net worth and see their median wealth fall to $140,000.

1. This process is completely open to the public. Anyone who wishes to find out everything about your estate once you’re gone will have complete freedom to do so. Thanks to modern technology, a complete listing of your assets will probably be available online for the world to see.
2. As stated before, this process is totally beyond your control-and the control of your spouse or other prospective heirs. You may assume that all assets will simply go to your spouse, but this is usually not the case. Most states will automatically divide your assets equally between your spouse and your children, regardless of whether your children are ready to take ownership of their share.
3. Probate also offers anyone wishing to contest your will an opportunity to do so. This, of course, can lead to expensive legal proceedings that drag on for months. The costs involved in this will also be borne by your heirs.
4. There are many possible expenses that can be incurred in the probate process, including court costs, appraisal costs, executor’s fees, legal and accounting fees, and even surety bond fees in some cases. The typical cost of probate can often run between 3 to 7 percent of the value of the estate (and much more in some cases.)

Of course, your retirement assets are probably the last source of assets that you want to draw on in the event of a financial hardship, but at times you may have no choice. At all costs you would like to avoid the 10% early withdrawal penalty inherent in any kind of premature distribution. However, the IRS has allowed for several exceptions to this rule over time, although the rules for traditional and Roth IRAs versus qualified plans differ somewhat. These exceptions can be broken down as follows:

Traditional IRA:

• Death
• Total and permanent disability
• 72(t) distribution (a series of substantially equal and periodic payments)
• IRS levy of the plan
• Medical expenses
• Qualified higher education expenses
• First-time homebuyer expenses up to $10,000
• Health insurance premiums for the unemployed

Roth IRA:

• The same exceptions as for the Traditional IRA, except for the first-time homebuyer exception

Qualified Plans

• All of the exceptions that apply to Traditional IRAs
• Separation from service from your employer at age 55 or later
• Distributions made to your ex-spouse due to a qualified domestic relations order (QDRO)
• Dividend distributions from employee stock ownership plans (ESOPs)

The IRS has allowed these exceptions as both a means of relief and encouragement. The relief comes for the dead, divorced and disabled, while those who are trying to better themselves through education or trying to purchase a home can receive encouragement in the form of penalty-free distributions. Of course, these exceptions fall into a different category than other more common penalty-free transactions, such as rollovers or transfers between accounts or plans.

For example, assume that you invest $100,000 into a single premium immediate fixed annuity. A current contract from a major carrier would then pay out $658.59 per month, for a total of $7,903.08 for the year. The problem is, if the rate of inflation is 3%, then the purchasing power of these payments will decline from one year to the next. Obviously, $7,903 will not buy in a future year what it can now.

One way that annuity investors can deal with this problem is to purchase a cost-of-living rider on the contract. This rider is designed to ensure that the income from the annuity stays abreast of the rate of inflation over time. For example, the same SPIA contract with a 3% inflation protection rider will only pay $499.06 per month initially. But this amount will increase by 3% each year for the duration of the payout, thus providing some protection from inflation. Of course, it is plain to see that there is a cost to this rider, as the initial monthly payment is $159.53 less than the contract without the COLA rider. However, if the annuitant should live long enough to receive payments for the next 20 years, then the payment by year 20 would be $901.36 per month, or $242.77 per month more than the straight-life contract payout.

COLA riders can come in different forms, with some riders having a specific cost, while others (such as the one shown above) merely affecting the dollar amount of the monthly payout. Different rates of increase are also generally available, depending upon how much inflation protection the contractholder desires. For example, the contract shown above also has a 6% inflation protection rider option, which would result in the contractholder receiving a proportionately lower payment each month to begin with, and a higher payment at the end of the term.

An incentive trust resembles other types of trusts in many respects; it is established and funded by a grantor. In this case, the grantor is usually an older member of the family who wishes to pass on some or all of his or her wealth to younger family members-as long as certain goals are achieved. This type of trust can also make specific provisions regarding distribution of trust assets to beneficiaries.

As stated previously, the main advantage of an incentive trust is that it allows the grantor leverage to either financially reward or punish the behavior of the trust beneficiaries, within broad legal limits. Conditions such as age, education, lifestyle choices and employment are fair game in terms of criteria for this type of trust. For example, an incentive trust can restrict access to its assets to family members over age 25, or increase access for those who get a college degree. There could be a reward for carrying on a family business, or achieving some other personal or professional goal. Conversely, destructive behaviors, such as gambling or drug addiction can cut off trust assets as well.

However, if not written wisely, these trusts can also present your heirs with problems. Making unreasonable demands of your beneficiaries can lead to resentment and create other problems for them. For example, if the trust will only pay assets to an heir that is willing to continue the family business, then a beneficiary that happens to have other aspirations in life will be faced with what may be a rather substantial dilemma.

The key to successful incentive trust planning is flexibility. Remember that your heirs have their own goals and desires, which may never match up with yours. Choose the criteria for rewards and punishments wisely, and be sure to allow for contingencies such as disability or other misfortunes that could affect your beneficiaries’ ability to achieve the goals prescribed in the trust.