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Home › Posts tagged Individual Retirement Account

Individual Retirement Account

Rolling Over Uncle Henry’s 401(k)

Posted on August 13, 2012 by Tony — No Comments ↓
Seek professional advice prior to making any decsion regarding an inherited IRA. Some elections are irreversible.

NEW YORK - JULY 11: A pedestrian walks by a Du...
NEW YORK - JULY 11: A pedestrian walks by a Dunkin' Donuts Inc. store in Midtown Manhattan on July 11, 2011 in the New York City. The parent company of Dunkin' Donuts, Dunkin' Brands Group Inc., plans to raise as much as $401 million before expenses through its initial public offering of 22.3 million shares, which are expected to price between $16 and $18. (Image credit: Getty Images via @daylife)
The Bottom Line

The IRA rollover privilege is a good deal for non-spousal qualified retirement plan beneficiaries who want to defer taxes. Remember, however, that you must set up a receiving IRA to accept the check from the retirement plan in a direct transfer. Then you must comply with the required minimum withdrawal rules to avoid the dreaded 50% penalty. If you inherit a significant amount of retirement plan money, consider hiring a good tax pro to help keep everything straight.

via smartmoney.com

When you inherit a non-spousal IRA there are strict rules that must be adhered to. Do not make any hasty decisions that cannot be reversed.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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Posted in Retirement Savings, Tax Deductions
Tagged with 401(k), Individual Retirement Account, Pension

How To Take Advantage of Your 401(k)

Posted on June 4, 2012 by Tony — No Comments ↓

So, you’ve been saving for retirement for years, spending your entire career penny pinching and saving every morsel you can, hoping to live out your years in a stress-free, fully-funded lifestyle.  You started young and have been saving ever since.  Most importantly, you have invested in the magical program people call a 401(k) at your company and have gritted your teeth as you watched a bit of every paycheck funnel into it.  Good for you!  You have taken an initiative that many people avoid.  As a reward for your planning and diligence, you will be granted, no, not three wishes, but three tips to using your 401(k) in the most productive way.

Many people go through the effort of investing in their 401(k) plans, but make critical errors in how they invest into it.  There are few ways to make sure that the money you pay in now, will give you the best payout in the future.

Tip 1:  Make significant contributions.  Many people think that their 401(k)’s future is mainly dependent upon the performance of the investments, but these people are mistaken.  If you invest a small percentage of your income in well performing funds, you won’t find the success that investing a higher percentage in lower performing funds will afford you.  Of course, this means a bigger chunk of your valuable paycheck, but if you can cut back and live frugally now, you will have more wiggle room later.  Also, it’s critical that you invest enough to take full advantage of any match programs from your employer.  That match offers you tax-free money on a shiny silver platter.  Investing only a small percentage of your income into your 401(k) leaves this platter sitting on the table, out of your reach.

Tip 2:  Invest for growth.  You are cutting back, buying the generic cereals and stepping away from the gator skin shoes so that you can put all you can into your 401(k).  If you are making those sacrifices, you owe it to yourself to get the most from that money.  This can be done by making smart decisions inside of your funds.  Like with any investment, this means taking on a bit of risk.  This doesn’t mean playing Russian roulette with your funds, but being too conservative can almost negate the extra effort you are making.  One way to do this is to invest more of your 401(k) money in stocks.  If your investments face average market performance, putting a higher percentage of your investment in stocks, over bonds or cash, you will find yourself in a better position in the long run.  Of course, this involves balancing your risk with the reward you are looking for, but if you consider getting a little riskier with your investments, you could find yourself with a lot more money later.

Tip 3: Avoid undoing all your hard work.  Borrowing from your 401(k) can be one of the most costly loans you can find.  By taking your money out of the fund, you will be costing yourself the growth that money would have given you.  Life brings about surprises and emergencies that may force you to borrow from your 401(k), if this happens, make sure you plan for the company to take the loan payments from your check.  If you find yourself wanting money for expenses, such as a new car, look into a personal loan or home equity line of credit for financing.  Competitive rates on these options will leave you in a better long term position.  The second part of this tip is to avoid cashing out your 401(k) when you leave a company.  Much of your hard earned money will be whisked away by penalties, fees, and growth loss.  There are a few different ways to avoid simply cashing out when you switch jobs.  Many companies allow you to roll over your balance into their plans, which means your investments and growth will hardly skip a beat with the changeover.   You can also roll your plan into an IRA, which offers a broad range of investments not offered with many other retirement plans.  The easiest option may be for you to simply leave your money in the current employer’s plan if you have a significant amount already saved.  The bottom line is that borrowing from your 401(k) or cashing out early can wipe away a lot of the money that you have been so painstakingly saving.

If you have been planning for your retirement and investing with your 401(k) you have put yourself on a path to success.   By doing these few simple things you can make your path smoother and that success brighter.  You are already going through the effort to save for your future, keep these tips in mind and your effort will be much more worthwhile.

Photo courtesy of: http://s3.images.com

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Posted in 401k Solutions, Managing Risk, Retirement Savings, Weekly Blog Series
Tagged with 401(k), Funds, Individual Retirement Account, Investment, Money, Mutual fund, Pension, Saving

5 Steps You Can Take Now to Improve Your Retirement Income

Posted on May 7, 2012 by Tony — No Comments ↓

If you’re a working American born anytime between 1946 and 1991, the research, analysis and more importantly, the five straightforward actions you can take now to ensure your retirement income doesn’t take a dive revealed in the Fidelity Investments‘ “Retirement Savings Assessment” might be of particular interest to you.

The first-of-its-kind analysis by Fidelity Investments, a financial services provider with a focus on helping Americans save and plan for retirement, found that many working American households could face a 28-percent loss of income during retirement. Perhaps even more frightening is the 38 percent of retiree households already reporting that their monthly income isn’t enough to cover their monthly expenses. In addition to these sobering statistics, however, Fidelity also provided a number of actionable steps individuals could take in order to narrow or entirely close a potentially uncomfortable gap between their retirement income and their monthly living expenses.

Whether you’re a working member of the Baby Boomer generation, Generation X or even Gen Y, these are five steps you can begin exploring with your advisor today, and perhaps even incorporate into your retirement plan. They’re well worth checking out, as many of these strategies can apply regardless of whether you’re just getting started in your career, are at the top of your of your working years, or are already retired.

Bolstering Savings
While respondents indicated that they did save an average of $3,500 last year, most Americans are not taking full advantage of tax-favorable workplace-sponsored retirement savings plans or individual retirement accounts (IRAs). This is perhaps the easiest place to begin plugging the holes in your savings plan, so consider contributing as much as you can to your  employer’s 401(k) plan. If your employer matches your contribution, try to put away as much as your company will match to; doing anything less is akin to turning down free money. Matching contributions are not the only reason why 401(k)s or IRAs are wise investments, however; for example, if your company doesn’t offer to match your 401(k) contribution, you still profit from tax-deferred savings. The same is true of IRAs, so if your employer doesn’t offer a retirement contribution plan, funding an IRA is an effective alternative. If both courses of action are available to you, talk to an advisor about which plan — or combination thereof — is most appropriate to meet your needs and goals. While maintaining a savings strategy is imperative for investors of all ages, it’s particularly crucial for younger workers, as their money will have more time and opportunity to grow.

Reevaluating Retirement Age
It seems as though despite one’s age, the average age at which most Americans plan to retire is the ever-popular 65. However, as the Boomers are discovering (indeed, the Fidelity research found that many Boomers are facing a worrisome drop in income), putting off full retirement by a few years can help shore up assets to ensure you don’t suffer a decline in their income and standard of living. What’s more, Fidelity also cited that even working part time after age 65 can be a powerful way to stretch your retirement assets.

Adjusting Asset Allocation
While it’s certainly understandable that investors of all ages may be a little skittish when it comes to the stock market these days, the Fidelity Assessment found that 21 percent of survey respondents are invested too conservatively in the equities market with what the report describes as “limited exposure to stocks, based on their current age and planned retirement date.” This underscores the importance of working with an advisor to ensure your plan is properly allocated with the right amount of exposure to the long-term earnings opportunities only stocks present.

Annuitizing Retirement Assets
Investors of all ages could benefit from having a guaranteed stream of income for life, yet the study found that only 17 percent of those surveyed have an annuity. Working with an advisor to explore adding an annuity to your retirement plan can ensure you have enough money to cover your expenses throughout your retirement, especially as more and more Americans can expect to live well into their 80s and even beyond.

Tapping into Home Equity
At 72 percent, the tremendous majority of respondents are homeowners, and a full 32 percent own their homes outright and pay no mortgage. The home equity you may have accrued can be used in a number of ways to help stabilize your retirement income, including downsizing your home and pocketing the profits, drawing on that equity to pay off debt or expenses, or using those funds to invest in income generating products.

“Most Americans have the potential to get significantly closer to achieving their retirement goals, but they have to take action and consider implementing a mix of these five steps,” says Kathleen A. Murphy, president of Personal Investing at Fidelity Investments. “Whether you’re a younger investor deciding to save a little more in a 401(k) or an older investor adjusting investment plans, it’s never too early or too late to impact your personal economy and take steps to improve your retirement readiness.”

Indeed, anything you can do to improve your financial position in retirement is worth exploring, so discuss these five strategies with your advisor. Together, you should be able to determine the most appropriate steps you can take in order to ensure a positive retirement lifestyle.

Photo courtesy of: http://www.retirementplanning.net

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Posted in Retirement Savings, Weekly Blog Series
Tagged with Baby boomer, Fidelity, Fidelity Investments, Individual Retirement Account, Kathleen Murphy, Retirement, Saving, United States

5 Reasons Why You Should Take Advantage of that 401(k)

Posted on April 2, 2012 by Tony — No Comments ↓

When it comes to planning and saving for retirement, it’s not uncommon to feel overwhelmed by the mere thought of the notion. While we all want to bask in the glory of an eternally comfortable golden era, getting there does require an investment of time and, of course, money. But the road to retirement is long and paved with detours.
Fortunately, most working Americans already have access to an easy-to-understand and even easier to buy retirement product, the staple of almost every employer’s defined contribution plan — the 401(k). Appropriate at nearly every age and every point in your career, investing in a 401(k) is a smart way either to begin or supplement your retirement savings plan. Below are five simple reasons why you should absolutely take advantage of that company-offered 401(k).

 
It’s one of the easiest and fastest investments to purchase

 
Setting up your 401(k) is one of the easiest investment experiences you’re likely to have. This is because in most cases, you simply ask your company’s human resources guru to enroll you in the company’s defined contribution plan. Some companies require you to have worked for the organization for a certain period of time before you’re eligible to participate in the company 401(k), but once you’re ready to contribute, all you need to do is tell HR how much you’d like to contribute and how you’d like them to invest your funds — they handle all the details and take the contribution from your paycheck.

 
Your savings accrues tax deferred

 
One extraordinarily appealing aspect to 401(k)s is that all the money you invest grows at a compounded, tax-deferred rate. You continue to earn tax-advantaged benefits until you start withdrawing your funds, at which point you must pay taxes on that money. Furthermore, anything you contribute to your 401(k) in a given tax year can be taken as a deduction, lowering your taxable income. And because of its tax-deferred status, increasing your contributions even by a little bit can lead to dramatic 401(k) growth over time.

 
You can choose how much you want to invest, and how you’d like it invested

 
With a 401(k), you get to decide how much money you can contribute to your plan; not your employer or the company managing your funds. There is, however, a yearly maximum to what you can contribute, but it’s still more than how much you can put into an IRA. Your annual maximum contribution depends on your age: This year’s maximum is $17,000 if you are younger than age 50, and $22,500 if you’re age 50 or older. As for the investment itself, your employer uses either a brokerage firm, insurance or mutual fund company to manage your retirement plan, but you get to choose how that company invests your money based on your risk tolerance and investment preferences. Most 401(k) plans allow you to choose from at least five different mutual funds, bonds or money markets representing different market sectors and degrees of risk. A few organizations even allow their employees to add company stock to their 401(k)s.

 
If your company matches a portion of your contributions, it’s like a free bonus check

Many companies offer an incentive to encourage their employees to save for retirement by way of matching a portion of your own contribution to your 401(k) plan. The match can vary, but 50 cents to the dollar is a common employer contribution. Employers also have a set maximum of how much they’ll match your contribution, basing it either on a percentage of your annual salary, generally from three percent to six percent, or less commonly, on a predetermined dollar amount. This company match is like a bonus, for all intents and purposes, so make every attempt to contribute what’s necessary to get the highest match possible.

 
A simple way to make saving for retirement automatic

 
Once you’ve elected your contribution amount and investment options and communicated those choices to your HR department, that’s pretty much all you have to do. After that, your employer automatically deducts the percentage of income you’ve allocated to your 401(k) directly from your paycheck. You’ll most likely receive quarterly earnings statements from your employer’s plan manager, and some companies also make this information available to employees on a secure website.
When all is said and done, you’ll have a solidly structured and properly managed 401(k) working quietly yet constantly in the background, generating retirement savings.

Photo courtesy of http://reviewfound.com

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Posted in 401k Solutions, Asset Protection, Managing Risk, Retirement Savings
Tagged with 401(k), Defined contribution plan, Human Resources, Individual Retirement Account, Investment, Mutual fund, Pension, Retirement

8 Points to Consider Before Rolling Over a 401(k) to an IRA

Posted on February 27, 2012 by Tony — No Comments ↓

When a plan participant leaves an employer a number of options are available with regard to their 401(k) plan. Participants, in many cases will actually withdraw the funds and pay the penalty. This is a hugh mistake and jeopardizes their ability to successfully retire in the future. Seeking the advice of a tax and financial professional is highly desireable. One great question to ask of a professional is ‘do they follow the fiduciary standard?’

Image via Wikipedia
  • If you’re in the year when you’ll reach age 55 or older, maintaining the 401(k) plan gives you an option to begin taking distributions prior to age 59½ (as early as age 55) without penalty. If you move these funds over to an IRA, this option is lost.
  • On the off-chance that you might need a loan from your retirement funds, you should know that IRAs do not have a loan provision. Retain at least some balance in the plan if you think you might need this option – but also you should check with your plan administrator to see if this option is available for non-employee plan participants, because it might not be (and actually, it likely is not). But keeping in mind #4, if you’ve maintained a healthy balance in the plan and you return to work with this same employer, you’d have a much larger account to work with if you needed to borrow.
  • Funds in a 401(k) account are protected by ERISA – and as such are generally not available to creditors. Depending upon the state you live in, IRA assets may be available to your creditors in the event of a bankruptcy. At any rate, ERISA protection is pretty much an absolute, so this is yet another reason you might consider leaving funds in a former employer’s 401(k) plan. Funds moved from an ERISA-protected account can carry the protection on to the IRA, but new contributions to the account are not covered by ERISA.
via forbes.com

This just part of the points to consider. Another point of value is when you own company stock in your plan. If you follow certain limitations you can utilize the Net Unrealized Appreciation NUA option.

Please comment or call to discuss all your options.

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Cash balance retirement plans: Annuity options

Posted on February 10, 2012 by Tony — No Comments ↓
PensionThe cash balance plan design can allow small business owners and professional service firms to take significant tax deductions to a qualified retirement plan. Provisions in the Pension Protection Act of 2006 clearly allow the cash balance plan to work for many successful business owners and professionals. Statistics show many successful baby boomers have not set enough aside for retirement and this plan design allows them to catch up while providing an employee benefit which will attract and retain top talent.

Cash balance defined benefit plans are offered by many large employers; according to a recent survey by Towers Watson, 25 percent of the Fortune 100 offer these retirement plans to their employees. A cash balance plan is a hybrid retirement plan that shares some features of both a traditional pension plan and a 401(k) plan.
Here’s how they work:- Like a 401(k) plan, your benefit is an account that grows with contribution and interest credits. Usually you can take the full amount in your account with you when you terminate or retire.

– Like a pension plan, your employer takes any investment risk; before you retire, your account always earns the interest crediting rate that’s specified in the plan, even if the assets in the pension trust tank due to a market downturn.

– As with a pension plan, at retirement, you have the option to have the plan pay you a monthly retirement income — a.k.a. an annuity — for the rest of your life, or take the money and roll it over to another type of income-generating account.

So when you retire, should you take your account and roll it over to another type of account that could generate a monthly income for you, such as an IRA or annuity, or should you elect to have the plan pay you the monthly annuity? One way to come up with the best answer to this question is to compare the monthly income you would get from your employer’s cash balance plan to the annuity income you’d get if you took the lump sum payout and bought an annuity from an insurance company.

via cbsnews.com

The cash balance plan is an excellent plan design for many closely held businesses and professional service firms. This is not appropriate for all companies but when it works it is a very attractive benefit to attract and retain top talent.

Please comment or call to discuss how this plan design might work for your company.

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Posted in Cash Balance Plans
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Younger investors save more for retirement

Posted on December 27, 2011 by Tony — No Comments ↓
One of the benefits of the “Great Recession” is the shift from a spending society to one of savers. The baby boomers were guilty of buying things they didn’t need, with money they didn’t have, to impress people they didn’t know. We must save, own equities, globally diversify and rebalance. This is a simple but very effective process to prepare for the future.

According to the survey, 85 percent of working Americans have an Individual Retirement Account or a 401(k)/403(b) plan. More than a third have both. But it’s the younger generation of workers who are more diligently saving: 25 percent of Gen Y and 23 percent of Gen X are funding both their 401(k)/403(b) plans and their IRAs, compared to 16 percent of Boomers and 9 percent of Matures. The survey also found that 74 percent of Boomers are not completely confident that they will reach their savings goal by the time they retire. “The good news is that many working Americans, especially those who are young, are taking advantage of saving for retirement in a tax-free environment through options like an IRA, despite a tough economy,” said Carrie Braxdale, managing director of investor services for TD Ameritrade, Inc., a broker dealer subsidiary of TD Ameritrade Holding Corp. “But funding these accounts on a regular basis is the key – even if it’s a small amount. Every year that you don’t fund your IRA is lost opportunity for tax deferral to help with growth.”

Many individuals over age 50 also are missing out on the catch-up contribution, which allows them to contribute an additional $5,500 to an employer-sponsored retirement plan. The survey found that 68 percent are not taking advantage of the opportunity. Half of them are skipping out because they can’t afford it and 21 percent said they never heard of it.

via benefitspro.com

This is very encouraging for the future of America. Perhaps the benefits of the ‘Great Recession’ are that the younger generation will save more for themselves relying less on the government.

Please comment or call to discuss how this affects the plan you provide for your employees.

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A Solo 401(k) Plan Can Cut Your 2011 Tax Bill by $9,800. But Need to Act Soon.

Posted on November 11, 2011 by Tony — No Comments ↓
Plot of top bracket from U.S. Federal Marginal...
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Self employed individuals must act very soon to take advantage of this deduction for 2011.

Solo But Duo RolesOne of the great advantages of a Solo 401(k) is the ability to play the roles of both employer and employee, enabling the owner to contribute up to $49,000 of his annual income tax-deferred in 2011 (or $54,500 if at least 50 years of age).  That’s a generous amount that might even drop the owner into a more advantageous tax bracket that can fast track the owner’s time to retirement.

The high contribution limits, tax savings and easy access to cash via penalty-free loans make the nominal price for solo 401(k)s a savvy financial move for any owner-only business that wants to save more than $5,000 a year (the traditional IRA limit).

In the past, many owner-only businesses have turned to traditional IRAs as a retirement savings strategy – an approach that, compared to a Solo 401(k), provides much lower contribution limits (not to mention penalties if the owner needed to access the money before reaching retirement age).  Solo 401(k)s also offer more flexibility than about any retirement option.  For example, just compare a 401(k) to a traditional IRA:

401(k)

Traditional IRA

Annual Limit per Individual

$49,000

$5,000

Age 50+ Catch-up Amount

$5,500

$1,000

Roth Income Limit

None

$120K*

Penalty-free Access

Yes, loan to self

No

via forbes.com

The solo 401(k) is more affordable than most self employed people realize.

Please comment or call to discuss how this affects you for 2011 and beyond.

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The New 401(k) Advice Rule and the Road to a New Fiduciary Standard

Posted on October 28, 2011 by Tony — No Comments ↓
The values and performance of collective funds...
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The fiduciary standard is actually what plan participants have assumed they were receiving. This will control if not eliminate conflicts of interest when advisors help plan participants.

I see this change as a boon to 401(k) participants and bigger boon to people who will now be the auditors verifying that the advice is unbiased. I see this rule change as just another exit on the highway to a new fiduciary standard. Why? It’s all about the lack of bias, whether it’s the use of a computer model or the use of a flat fee type of billing arrangement. This lack of bias is in conflict with the way brokers currently operate in the retirement plan space (under the current fiduciary rules, where they are not plan fiduciaries) who are in the business of selling securities and perhaps getting better commissions for certain investment products or 401(k) platforms they have to push. The fiduciary standard is about putting the retirement plan ahead of any monetary gain; it’s about not making transactions or investments that benefit the financial advisorof the plan at the expense of the plan’s assetsChange in the fiduciary rule is inevitable. The trip to that new rule on that highway may be delayed, but it’s inevitable. The new fiduciary standard is inevitable, just like fee disclosure and 401(k) advice.  While brokers may have been given a temporary reprieve, I believe that the DOL will make another attempt at changing the definition.

via therosenbaumlawfirm.com

The fiduciary standard is inevitable for qualified retirement plans and IRAs. Any delays may result in strictler policy.

Please comment or call to discuss how this affects you.

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Posted in 401k Solutions, Fiduciary Items
Tagged with 401(k), Employee Retirement Income Security Act, Fiduciary, Financial adviser, Financial Services, Individual Retirement Account, Pension

Leakage from 401(k) Plans.

Posted on October 26, 2011 by Tony — No Comments ↓
Seal of the Internal Revenue Service
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Loans from a company 401(k) plans should be strongly discouraged. Your retirement plan is not intended to be your emergency fund. The future of you and your family will be adversely affected.

CM:How do loans affect participants?OM: A plan loan is capped at half the account balance or $50,000, whichever is less, and the employee must immediately begin repaying the loan to him/herself. Failure to pay back, for instance, at job termination, results in the unpaid loan amount being subject to income tax (as well as a penalty tax if the individual is younger than age 59-1/2).

According to Employee Benefit Research Institute (EBRI) research, 21% of partcipants have plan loans with an average loan balance of 15% of total assets, or $7,346.** A Vanguard report from earlier this year indicates participants with no loans have balanaces that are, on average, 12% larger that those with loans. ***

What is worrisome is the loss of a significant portion of a participant’s balance as repayment for a loan at retirement. With balances already considerably less than those without loans, most can’t afford any “leakage”.

CM: What about plan distributions when leaving an employer… do most roll it over to an IRA or new plan, or do they just cash out?

OM: Someone who takes a plan distribution in the form of cash prior to the age 59-1/2 will have to include the payment in reported income for the purposes of income tax, plus pay to the IRS an additional penalty of 10% of the lump sum (only the income tax applies after age 59-1/2). If the plan distribution takes the form of a rollover to an IRA, or to a new employer pension, the income and penalty tax is not charged.

The Vanguard study cited earlier shows 30% of those leaving an employer cash out their 401(k) balance.

via promanageplan.com

Steps can be taken to control the ‘leakage’ or loan program in your plan.

Please comment or call to discuss how this affects you and your organization.

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Posted in 401k Solutions, Retirement Savings
Tagged with Employment, Income tax, Individual Retirement Account, Internal Revenue Service, Loan, Retirement, Tax

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