A lot of hair has been pulled over the United Kingdom’s Brexit vote. Sure, there were a couple of days when there was extreme volatility, but there are more important investment truths that need to be heeded.
It’s easy to take your eye off the ball when so much turmoil is dominating the business headlines. You want to get out of stocks, although most people would be better off doing nothing — or picking up bargains in the wake of the carnage.
When you take an early withdrawal from a Roth IRA, your nontaxable contributions to the account are distributed before the taxable earnings. If you don’t withdraw more than the amount you contributed to the account you won’t owe income tax on the distribution. Early withdrawals from Roth 401(k)s are prorated between contributions and investment earnings, so a portion of an early Roth 401(k) distribution is likely to be taxable. However, you might be able to get around the tax if you instead take a loan from your Roth 401(k), which is not a taxable event unless you don’t repay the loan on time. Loans are not allowed from IRAs.
Although most 401(k) investors stay put during a market blip, far too many try to time the market — and lose money. They also try to gin up their portfolios by buying products they don’t need or understand.
Investors often lose sight of one important fact: It’s your net gain after you subtract all expenses that counts when you tally up your retirement kitty. Net gains means subtracting all commissions, annual management fees and all other middleman expenses. They can add up over the years and devour your savings.
Overshadowed by the Brexit blowout was recent enforcement action by the U.S. Securities and Exchange Commission that illustrates my point. The SEC reached a settlement with Bank of America BAC +1.06%/Merrill Lynch over what Merrill called “structured notes.” These expensive vehicles were marketed as a way to make money during volatile market periods.
BoA/Merrill agreed to pay a $10 million penalty for failing to inadequately disclose all of the costs of the products, which were extremely expensive to own.