Financially Speaking, What’s Your Money’s Worth
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live securely with dignity and fulfill their religious and moral obligations towards charitable activities)
Last year, when one person, let’s call him Raza, took a required minimum distribution from my 403(b) account, I was charged a $50 fee. I understand being charged for other withdrawals but not for government-mandated MDs. Is this legal?
Unfortunately, while this charge is neither employee- nor retiree-friendly, it's legal under federal law, says St Louis attorney Jerry Schlitter. He should know; his firm has filed more than 30 lawsuits alleging that other types of plan fees are excessive.
More bad news: That $50 charge is not only legal but is also commonplace. Twenty-two percent of 403(b) plans and 56 percent of 401(k) plans charge a fee for retirement plan distributions, according to the Plan Sponsor Council of America; the median cost for both types of accounts is $50.
So, what to do? If your former employer won't drop the fee based on complaints from you and other retirees, you could roll your 403(b) over to an IRA at a brokerage that doesn't charge for taking MDs. If you go that route, however, don't do anything that will end up costing you more than the fees you'll be saving on future withdrawals - for example, if you'd have to pay a big surrender charge on a variable annuity. To avoid the possibility of a big tax bill for a switch, do what's called a direct rollover to an IRA. And make sure that the investments available in the new IRA carry fees, or expense ratios, no higher than those of the investments you're in right now.
Someone asks a question that our house insurance goes up every year. We own our home with no mortgage and we have saved. We are in our 70s. Is there a case in which not buying homeowners insurance makes sense?
My answer is we all should know that insurance is almost a necessity unless one wants to ensure himself. This means if the house burns down you have enough money to rebuild the house and at another point, if somebody falls down on your property you have plenty of amount to pay whatever the person deaminates or whatever the court decides that you should pay.
You should evaluate yourself: do you want to take this chance and ensure yourself or continue to pay the ensure even though it does go up every year? Personally, I would prefer to buy insurance and pay the premium even though the premium is going up every year. I do not want to take a chance to use my savings if the house burns down, and the second part, if someone sues you. You don’t know how large the amount is going to be that you have to pay. It may be all of your savings and much more.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds, or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
