Knowing your contribution limits is important. If you can afford it, you should maximize your 401(k) contribution every year. Check out the article I wrote on my About.com Retirement site about this year’s 401(k) contribution limits.

You: Why are you talking about IRA’s now?

What do you mean?

You: It’s the dog days of summer.

Huh?

You: April is over, Michael.

So it is.

You: Most people only concern themselves, or in your case write about, IRAs during April.  Why is that, anyway?

Because the due date for contributing to an IRA for the previous tax year is the filing deadline of your tax return, typically April 15.  But April 15 is only the cutoff date;  you could contribute to your IRA right now if you wanted to.

You: Why would I want to contribute today if I could wait until next April to do so?

For at least two reasons. First, the earlier you contribute, the sooner you benefit from tax-deferred (regular IRA) or tax-free (Roth IRA) growth.  Second, by not waiting until the very last minute, you may be able to contribute more money.

You: Why do you say that?

The annual maximum contribution allowed is currently $5,000 ($6,000 if you are 50 or older).  But few people have $5,000 laying around right at the deadline.  More likely: a few dollars each and every month.  With 10 months to go before the deadline for 2010 IRA contributions, you could contribute $5,000 to your IRA without ever transferring more than $500 a month in the account.

You: That’s still a lot of money each month.

Indeed it is. But, when you’re struggling to save for retirement, don’t look at an IRA as an all-or-nothing proposition. Whatever you can manage to save is worth it. It will make a difference.  But saving a little bit each month is far more likely than squirreling away a big lump sum in one shot at some point in the future.

You: But then I have to choose between a regular IRA and a Roth IRA. How do I do that?

Fortunately, I recently posted Roth IRA or Regular IRA – Choosing an IRA at my About.com retirement site.  Take a look!

Over at the Retirement Planning site at About.com, I just posted an article about the best kind of tax deductions: those that come from saving.

Think about it. Most tax deductions require you to spend money in order to obtain the deduction.  In my practice, the most common and largest deductions are:

• state and local income taxes
• mortgage interest
• business expenses (especially for the self-employed)

But the best–if not the biggest–deductions are those that reduce your taxes but don’t require you to spend any money. In fact, they require you to save some money.

I’m talking about IRA and 401(k) contributions of course. Learn more about saving for retirement and saving on your taxes at the same time.

One of my relatives recently was charged a substantial fee for rolling his 401(k) plan out to an IRA.  In my opinion, that’s total nonsense, even if it’s disclosed.  It’s the equivalent of an “account closing fee.” Can you imagine?

You: I’d like to close my account.

Bank: I see you have $100 in your account so sorry, you can’t.

You: Excuse me?

Bank: We charge $100 to close accounts here.

You: That’s ridiculous.

Bank: It’s our policy.

You: So if I keep it open or if I leave it here, it’s the same for me, isn’t it?

Bank: Yes.

You: I’ll keep it open until you change your policy.

Bank: Very well then.

It’s as though you can’t win – you can only delay the inevitable.

You: It feels awful.

I agree. Jeremy at Taking Charge (a blog affiliated with creditcards.com) wrote of his experience trying to handle basic financial transactions and the onslaught of fees.  It’s an enjoyable read and not just because I’m quoted.  I give a couple of tips to avoid the headaches, including not dealing with banks for the types of transactions he was undergoing.

Rather than trying to get out of fees, choose vendors that don’t charge them in the first place.

What do you do to avoid silly fees?

Approximately half of all people cash out their retirement plan when they switch jobs.

You: Well, I wasn’t going to leave my retirement plan at my old company either.  My boss was a real jerk.

I don’t know your boss, but –

You: He was a jerk. I jut told you that. Pay attention.

We’ve all had bosses who–

You: Not like this guy!

Still, you can’t let emotions take over your financial decision-making.  Whether it be due to hatred of your former employer, a desire to experience some retail therapy post job loss, or just an intense desire to cut the ties as quickly as possible, an outright distribution of your retirement plan is never a smart idea.

You: So how can I take my money without distributing it?

Simple: roll it over. Take it with you to either your new employer’s retirement plan, if the new boss allows it, or roll it over into your IRA. Either way, you’ve ended the financial relationship but preserved your retirement plan.

You: Why is a distribution so bad?

Because you don’t get all the money in your plan.

You: My boss takes some if I distribute it?  UGH! I hate that guy!

No, but the government does.  A lot of it.  First the feds with withhold 28% of your distribution.  Then, you’ll be subject to a 10% early withdrawal penalty if you’re not at least 59 1/2 or meet some very other strict criteria.  Most states will take their share too.  It’s a mess.

This is one time when you don’t want to be like the other kids. According to the report cited in Half of workers changing jobs cash out 401k, 60% of those in their twenties cash out, by far the highest cash-out rate of any age group.

See it differently?

Today, I’m featuring a quick compilation of links I’m sure you’ll find interesting:

• Bankrate.com recently published a story Should you pay debt before savings? It’s a good write-up of an important question for those living Beyond Paycheck to Paycheck. Plus, I was quoted for the piece.

• Social Security recently announced that there will be no increase in monthly benefits checked sent to retirees during 2010.  Until now, retirees have almost always had an annual increase for inflation.  But not for 2010. If you’re still working, it won’t affect your day-to-day life too much.  But it might make for an interesting conversation with the folks, especially about this special $250 payment the government is considering. Over at my About.com site, we’ve started a spirited conversation and poll about the $250 payment.  Check it out or join in.

• I was also quoted in Credit card APRs fall slightly, reversing recent rate-hike trend, an article at CreditCards.com.  Many of the changes to credit cards are beginning to affect even those who pay off their balances every month.  We’re starting to see increased annual fees, reductions in available credit and outright cancellations, even among “good” customers. Make sure you’re paying attention and using your cards appropriately.

I’m off to Las Vegas for a speaking engagement tomorrow – have a good week.

You: You’re watching pre-season basketball?

No.  Honestly, I might even watch golf first.

You: What’s wrong with watching golf?

I find it more boring than the prospect of playing it.

You: Wow.  So what’s with the “fourth quarter” reference then?

I’m talking about the fourth quarter of the year, which begins today.  For better or worse, many companies – especially those which are publicly traded – tend to focus on a time period of three months.

You: Why is that?

Typically, corporate earnings must be reported on that basis.  While much has been written  about how quarterly reporting leads to short-term thinking at the expense a of proper long-term outlook, such criticisms typically don’t provide an alternative frequency for managing goals.  While I agree that three months is often way too short to judge an entire company’s progress, Beyond Paycheck to Paycheck is a personal finance blog (and book).  When it comes to personal finances, three months IS long enough to assess your progress towards your goals.

New Year’s Day is exactly three months away.  You have an entire quarter of 2009 remaining.  That’s enough time to make a sizable difference in what your financial situation looks like when you once again make those resolutions.  Here are some suggestions for what you can easily accomplish between now and then (if you’ve already done some of these things, congrats – less to do!):

• Q4 Task  # 1: Start saving. If you’ve already started saving, try to save some more.   Either way, remember: Save early, save often.

• Q4 Task # 2: Begin paying down your debt. But do it with a strategy.  The most important rule of debt management is to Get rid of expensive debt first.

• Q4 Task # 3: Decrease your income tax refund. If you consistently receive a sizable income tax refund, stop the madness. A refund does not represent the government giving you money. Instead, a refund is the government giving you your money back because you allowed them to take too much all year long.  A tax refund is not a savings program.

• Q4 Task # 4: Take advantage of your match. I’ve yet to meet a more compelling retirement planning opportunity than the 401(k) match.  The only reason you might not be taking advantage of the match is because you lack a fundamental understanding of how it works. Change that, first by reading An employer-match is not a corporate dating service. Then do something about it.

• Q4 Task # 5: Make sure you and your family are protected. This could mean insurance. it might also mean passing on insurance.  The most important rule of insurance: don’t risk a lot for a little.  Second most important, don’t pay to protect what you can easily afford to lose.

Just five little things to do to really begin to get your personal finances in order.  None of them will take very long nor require much money.  Just a small investment of both and you’re on your way.  It doesn’t have to be today or tomorrow, but give yourself a deadline.  There’s a quarter of this year left – plenty of time to take the lead in life’s “game” of personal finance.

Choosing whether to convert an existing IRA into a Roth IRA is an important decision. Currently, such conversions are limited to people with MAGI’s (that’s modified adjusted gross income in IRS-speak) of less than $100,000. But in 2010, that income restriction goes away.  Therefore, virtually everyone will have the opportunity to convert their IRA into a Roth.

Over at Mint.com, I posted an article about the Roth Conversion process.  I hope you enjoy it.

You: Cheesy title.

Monday morning.

You: You too?

Yup.  Anyway, I thought I’d take this fine Monday morning to highlight some of my best recent articles from around the web:

• Twelve Crazy Myths of Personal Finance was a ton of fun to write. Pretty sure you’ll enjoy it too, evidenced by its selection as an editor’s pick at this week’s Carnival of Personal Finance hosted by Almost Frugal in France.

• At the recently relaunched Mint.com blog (now called Mint Life), I wrote Understanding Roth IRA Conversions.

• You might recall I also guide the Retirement Planning site at About.com.  Recently, I published Contributing to a 401(k) and a Roth IRA: You Can Do It! as a reminder that these two fantastic options aren’t mutually exclusive.

• At ING DIRECT’s We The Savers blog, I guest posted How can you save more money? Spend more time!

• This just in:  I’m quoted on The Wall Street Journal’s blog “The Wallet,” discussing Credit Card Rules For Under-21s: Wise Idea or Ticket To Financial Hardship?

Hope you enjoy! Questions? Comments?  Anywhere else you’d like to see my writing?

One of the most common myths of retirement is “Plus, I’m going to get an inheritance.”

You: For you, maybe. My parents still love me.

It has nothing to do with love.

You: Sure it does.  If it didn’t, I wouldn’t let half my relatives in my house.

That’s not a good ratio.

You: Tell me about it; I was being generous at 50%.

It’s a mistake to count on an inheritance in your retirement plan.

You: Even a little bit?

Even a little.

You: Why?

Reason 1: Your Parents Might Not Have as Much as You Think (or Hope) They Do

You: My folks have a lot of money.

Do you know that for a fact or are you basing your comment on how they live?

You: What do you mean?

Have your parents sat you down and told you how much money they have or do you just think they have a lot of money because your parents earned a lot of money, live in a very nice house, drive nice cars, and go on exotic vacations?

You: More of the latter.

Which means you know nothing.

You: Excuse me?

While your parents are still your parents, if you haven’t had the “money talk,” you’re flying blind.  It’s no different than your utter lack of understanding of your neighbors’ or co-workers’ true financial picture; just because they might drive a nice car doesn’t mean they don’t have credit card debt up their eyeballs.

Reason # 2: Your Parents Might Have a Lot Less Money Compared to Two Years Ago

As The Wall Street Journal reported this week in Baby Boomers to Kids: Kiss Your Inheritance Goodbye, many retires and pre-retirees got crushed, like the rest of us, as the stock market tanked.  With very few years to make up the losses via additional savings and investment gains, many are doing what they can to preserve their ability to generate some sort of cash-flow for the duration of their retirements.  To do so, annuities and reverse mortgages are becoming more popular.  Those choosing such a path essential file for “Chapter Heaven” (a cute phrase from the article) by taking their wealth with them to the grave.

You: Why? How? What?

The typical annuity means a large lump sum payment in exchange for a series of smaller payments for the rest of life (or lives) of those making the payments. When the purchaser(s) (annuitant(s)) die, it’s over. No money is paid from that annuity for the descendants.

Reason # 3: Your Parents May Live a Lot Longer

Longevity is another reason why you shouldn’t count on your parent’s inheritance to help you in retirement.  Studies have shown that if you have two parents who live to age 65, at least one is likely to live until age 90.   Not only is that a huge drain on their savings, but you also won’t actually get the inheritance until they pass away. How old will you be when the younger of your folks turns 90?  Is that when you want to begin retirement or do you hope to already be retired by that point?

Reason # 4: Your Parents May Grow Old

If either one or both of your parents were to ever require assisted living and doesn’t have a top-notch long-term care insurance policy, even a potential inheritance of several hundred thousand dollars can disappear rapidly.  The cost of a nursing home is absolutely tremendous and absent the insurance, they’ll be paying for it. Medicaid only steps in when they’re financially wiped out, leaving you with nothing.

Reason # 5: You Have Siblings

Remember your brother or sister?  You can remember both? Great.  They’re blood relatives too and they’re likely to get an equal cut of whatever is left.  So divide it by two, three, or more.

Retirement is not about an inheritance. It’s about planning.  It’s one reason I discuss Retirement planning extensively here and why I guide the Retirement Planning site at About.com.  It’s also the reason I save aggressively in my IRA and my SEP-IRA. It’s why I saved as much as possible in my 401(k) when I was an employee. It should be the reason you’re saving – today.

What role does an inheritance play in your retirement plan?