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Double Bottom
Sounds kind of dirty, right? Actually, it's because of a clean visual that technical analysts use this term. Technical analysts like charts (hence their nickname of "chartists"), and they like to give certain patterns they see neat little names.
Such is the case with the double bottom, which looks on a chart like, well, a double bottom. Think of three mountains (on a chart reflecting a rise in values) separated by two valleys (representing dips in value). The troughs of the valleys, and the size of the first two peaks, are generally the same, so the chart looks like the letter 'W.' The appearance of those two valleys represents a double bottom.
So what? Well, if you're one of those folks who believes in the power of the charts, seeing a double bottom suggests a long-term trend is about to reverse. So, if a stock chart shows shares falling for several months, then seeing a double bottom, chances are good (according to the chartists) that the shares will rise. And vice versa.
But, beware: charts can be a great tool, but they're more art than science. Use any charts with caution.
Home / Markets / Economy
Thursday, February 28, 2008
Young, Broke But Planning to Move Up? A Roth 401(k) is Right for You
Kathryn Glass
FOXBusiness
You may have heard of it, but it’s not likely your employer offers it. The Roth 401(k) was put into place as a permanent retirement
savings tool in 2006, yet the idea has been slow to catch on.
But if you’re young, making less now than you will be later and willing to start saving for retirement, a Roth 401(k) is a great savings opportunity.
“The key difference with a Roth 401(k) account is that because all of the money from it will eventually come out tax free, the account is effectively a bigger account” said Kaye Thomas, author of Go Roth! Your Guide to the Roth IRA, Roth 401k and Roth 403b.
Retirement is On Topic at FOXBusiness.com in February. Click here to read stories ranging from tips for how to build your nest egg to the top retirement destination.
Click here to read "Auto Enrollment Makes 401(k)s Easy, But Experts Say it's Not Enough"
For those who find themselves in the lowest tax brackets each year, and anticipate that they will make more in the future, there are advantages to paying taxes on all of that money you’re putting away. Those low-level salaries will allow you to pay a low amount of income tax each year, which means you’ll get to keep a higher percentage of every dollar that you earn. In retirement, when you’re income level is higher and you’re in a higher tax bracket, the withdrawals you make from your Roth account will be tax free.
Thomas argues that those who contribute to a Roth 401(k) are typically saving more than they would normally save by contributing to a traditional 401(k) because most people who save in a traditional 401(k) plan spend the tax benefit that they get. If an employee puts $4,000 into a traditional 401(k) plan, that contribution only really cost $3,000 after that employee receives the tax benefit of $1,000. If the same employee puts $4,000 into a Roth 401(k), it’s actually a contribution of $1,000 more than the $4,000 contribution to the traditional 401(k), because the taxes on that income have already been paid, Thomas said.
A Roth 401(k) is also a good idea for those in a high income bracket who are trying to save as much as possible for retirement.
“If you’re a high income person that’s in a position to stuff as much money as you can into a retirement account, then you are, in effect, contributing more money into a tax favored environment because the contribution costs you more because you lose that tax deduction,” Thomas said. “Putting 15,000 into a Roth account can be the equivalent of putting 20,000 into a traditional account if you’re in the 25% tax bracket, but you’re still not exceeding the annual contribution limits.”
There are a few criticisms of the Roth 401(k). One argument is that it’s impossible to predict what future tax rates will be, so there’s no way to guarantee that you’ll be saving money by paying taxes in advance.
“A Roth requires people to make assumptions about future tax brackets, and no one can guess that,” said David Wray, President of Profit Sharing / 401(k) Council of America.
Thomas acknowledges that if you’re close to retiring and you’re paying more in taxes now than you will be in retirement, then a Roth is not a good investment idea. But he said for young workers who are more than eight years away from retirement the plan is probably a good idea, since tax rates are likely to go up in the coming years.
“If anything the prospects in the future are for higher taxes,” Thomas said. “Overall the pressure is going to be for higher tax rates between the current budget deficits and the enormous pressure that will be placed on federal revenues thanks to the baby boomers. Throw in the potential restructuring of the AMT [Alternative Minimum Tax] and you’ve got all kinds of deficits. I’m not holding my breath for the Fair Tax.”
According to Hewitt Associates Research, a Chicago-based human resources consulting firm, only 11% of large employers offered a Roth 401(k) as of 2007. With all the possible benefits to employees, especially new hires, it may seem surprising that more large companies are not offering Roth 401(k) plans as an added benefit. Alicia Munnell, Director of the Center for Retirement Research at Boston College thinks the Roth is just too complicated for the average investor.
“One of the reasons we got such low participation in the beginning with 401(k) plans is because people were overwhelmed with questions about how they should invest and what they should do,” Munnell said. “Adding a Roth option adds one whole new degree of complication. The idea that you have to add this to your decision-making I think is a negative.”
But Wray of Profit Sharing / 401(k) Council of America makes it all seem pretty straightforward.
“If your tax rate stays the same in retirement as it does now then it makes no difference,” he said. “People in a small income tax bracket now should Roth. People in a high income tax bracket now, shouldn’t Roth.”
Whether the Roth is a benefit or not, some think it could still be a long time before the idea of saving after-tax dollars becomes popular.
“The challenge is that we’re in an immediate gratification society,” said Michael Doshier, vice president of marketing for Fidelity Retirement Services. “People spend a lot of money trying to minimize taxes, so if you have to save more to get the same amount deposited in the account, that’s a big mental hurdle for people to get over.”
Click Here for the On Topic Archive
But if you’re young, making less now than you will be later and willing to start saving for retirement, a Roth 401(k) is a great savings opportunity.
“The key difference with a Roth 401(k) account is that because all of the money from it will eventually come out tax free, the account is effectively a bigger account” said Kaye Thomas, author of Go Roth! Your Guide to the Roth IRA, Roth 401k and Roth 403b.
Retirement is On Topic at FOXBusiness.com in February. Click here to read stories ranging from tips for how to build your nest egg to the top retirement destination.
Click here to read "Auto Enrollment Makes 401(k)s Easy, But Experts Say it's Not Enough"
For those who find themselves in the lowest tax brackets each year, and anticipate that they will make more in the future, there are advantages to paying taxes on all of that money you’re putting away. Those low-level salaries will allow you to pay a low amount of income tax each year, which means you’ll get to keep a higher percentage of every dollar that you earn. In retirement, when you’re income level is higher and you’re in a higher tax bracket, the withdrawals you make from your Roth account will be tax free.
Thomas argues that those who contribute to a Roth 401(k) are typically saving more than they would normally save by contributing to a traditional 401(k) because most people who save in a traditional 401(k) plan spend the tax benefit that they get. If an employee puts $4,000 into a traditional 401(k) plan, that contribution only really cost $3,000 after that employee receives the tax benefit of $1,000. If the same employee puts $4,000 into a Roth 401(k), it’s actually a contribution of $1,000 more than the $4,000 contribution to the traditional 401(k), because the taxes on that income have already been paid, Thomas said.
A Roth 401(k) is also a good idea for those in a high income bracket who are trying to save as much as possible for retirement.
“If you’re a high income person that’s in a position to stuff as much money as you can into a retirement account, then you are, in effect, contributing more money into a tax favored environment because the contribution costs you more because you lose that tax deduction,” Thomas said. “Putting 15,000 into a Roth account can be the equivalent of putting 20,000 into a traditional account if you’re in the 25% tax bracket, but you’re still not exceeding the annual contribution limits.”
There are a few criticisms of the Roth 401(k). One argument is that it’s impossible to predict what future tax rates will be, so there’s no way to guarantee that you’ll be saving money by paying taxes in advance.
“A Roth requires people to make assumptions about future tax brackets, and no one can guess that,” said David Wray, President of Profit Sharing / 401(k) Council of America.
Thomas acknowledges that if you’re close to retiring and you’re paying more in taxes now than you will be in retirement, then a Roth is not a good investment idea. But he said for young workers who are more than eight years away from retirement the plan is probably a good idea, since tax rates are likely to go up in the coming years.
“If anything the prospects in the future are for higher taxes,” Thomas said. “Overall the pressure is going to be for higher tax rates between the current budget deficits and the enormous pressure that will be placed on federal revenues thanks to the baby boomers. Throw in the potential restructuring of the AMT [Alternative Minimum Tax] and you’ve got all kinds of deficits. I’m not holding my breath for the Fair Tax.”
According to Hewitt Associates Research, a Chicago-based human resources consulting firm, only 11% of large employers offered a Roth 401(k) as of 2007. With all the possible benefits to employees, especially new hires, it may seem surprising that more large companies are not offering Roth 401(k) plans as an added benefit. Alicia Munnell, Director of the Center for Retirement Research at Boston College thinks the Roth is just too complicated for the average investor.
“One of the reasons we got such low participation in the beginning with 401(k) plans is because people were overwhelmed with questions about how they should invest and what they should do,” Munnell said. “Adding a Roth option adds one whole new degree of complication. The idea that you have to add this to your decision-making I think is a negative.”
But Wray of Profit Sharing / 401(k) Council of America makes it all seem pretty straightforward.
“If your tax rate stays the same in retirement as it does now then it makes no difference,” he said. “People in a small income tax bracket now should Roth. People in a high income tax bracket now, shouldn’t Roth.”
Whether the Roth is a benefit or not, some think it could still be a long time before the idea of saving after-tax dollars becomes popular.
“The challenge is that we’re in an immediate gratification society,” said Michael Doshier, vice president of marketing for Fidelity Retirement Services. “People spend a lot of money trying to minimize taxes, so if you have to save more to get the same amount deposited in the account, that’s a big mental hurdle for people to get over.”
Click Here for the On Topic Archive
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