Bunching itemized deductions

You always seem to have a lot of expenses that you think could help cut your tax bill if you itemized. But every year, they go to waste.

The problem: Your costs regularly fall just short of the income thresholds they must meet in some deduction categories.

Get around this tax-reduction roadblock by bunching your expenses. It's too late to help cut your 2011 tax bill, but by setting up this strategy now, you can ensure that your "nearly" deductible expenses become full-fledged tax breaks next filing season.

Deduction thresholds

The Internal Revenue Service allows some deductions only after they exceed a minimum amount tied to your adjusted gross income.

Medical expenses, for example, are of no use until they total more than 7.5 percent of your adjusted gross income. Similarly, miscellaneous deductions, such as unreimbursed employee expenses, must surpass 2 percent.

If your adjusted gross income is $50,000, these limits mean your medical costs must be more than $3,750 and your miscellaneous expenses have to exceed $1,000 before you get any Schedule A deductions in these categories.

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Pay attention to these costs throughout the year. If you find you're getting close to the limits, think about bunching as many deductible costs as you can into this tax year.

In the example above, if your medical costs are at $3,500, get to your optometrist's office by Dec. 31 for that second pair of reading glasses you've been meaning to buy. If your out-of-pocket expenses for the eye exam and new glasses exceed $250, you'll be able to claim the excess as a medical deduction on your next tax return.

Many deduction options

For miscellaneous expenses, think about prepaying any business magazine subscriptions or professional dues early to help you over the 2 percent mark.

If you looked for a new job this year, be sure to count your job-hunting expenses here, too. Just remember that your job search has to be in the same field in which you're already employed.

Do you have a hobby that nets you a bit of extra spending money throughout the year? Any costs you had toward that hobby can be totaled up as a miscellaneous expense. But you can't deduct more than you made on the hobby.

Write off your taxes, too

And if this whole deduction process is just too taxing for you and you pay a professional to figure it out, here's a final itemizing gift from the IRS: Fees paid to tax preparers are also deductible as a miscellaneous expense that can further cut your tax bill.

There are, however, a couple of downsides to this tax strategy.

Some items you might bunch into one tax year could cost you if you end up facing the alternative minimum tax. Some prepaid items, such as property and state income taxes, aren't deductible under AMT rules.

Not an annual advantage

Also, bunching deductions usually helps you out only every other year.

Generally, if you bunch your expenses into one year, you will find you don't have enough to be of use the following year. In those "off" tax years, your itemized expenses will just be smaller or, for some taxpayers, it might be more worthwhile to claim the standard deduction those years.

But getting the breaks only on alternate tax filings is still much better than missing out on them every year.

Banks giving ATMs the ax?

Used to finding a Bank of America ATM whenever you need one? Don't look now, but that could be changing.

This year, Bank of America has cut a record 1,536 ATMs, or about 9 percent of its total stock, write Hugh Son and Zachary Tracer of Bloomberg:

Bank of America chose to pull most of its ATMs at malls and gas stations in part because those devices only dispensed cash and weren’t available 24 hours a day, (Bank of America spokeswoman Anne) Pace said in an interview. Customers want to be able to deposit checks at an ATM, she said.

"It's about convenience and access, that’s what the customers are looking for," Pace said. "People aren't banking 9 to 5, they are banking when it’s convenient for them."

…

It costs banks an average of $1,700 per month to run an ATM on someone else's property, compared with $1,100 at a branch, said Tony Hayes, a partner at consulting firm Oliver Wyman in Boston. The difference stems from rental costs and fees for armored couriers to refill machines with cash, he said.

But is BofA's move an isolated event, or a sign that large banks are starting to abandon ATMs? Ann Carns of The New York Times Bucks Blog writes that it's more likely the former:

Other big banks say they have no plans to shrink their networks. JPMorgan Chase, the largest bank by assets, said it planned to expand its system. A Chase spokesman said in an email that the bank had more than 17,500 ATMs, "and that number will grow as we continue to build branches."

Citigroup has 10,428 Citi-branded ATMs, a spokeswoman said, including more than 6,000 machines at 7-Eleven stores, and has no plans to reduce those numbers.

Wells Fargo says it has about 12,000 ATMs since its merger with Wachovia, and has no plans for any changes.

U.S. Bancorp has 5,085 machines and has no plans to pull back on its network, a spokeswoman said.

Like Carns, though, I wonder about the long-term trend. Notwithstanding the old cliché, "cash is king," cash has grown increasingly rare as electronic payment methods like credit and debit become more ubiquitous.
I think as technologies like smartphone-based remote deposit capture and person-to-person payments become easier to use and more widely adopted, there will be fewer and fewer reasons to seek out an ATM, in the same way that the rise of cellphones has killed off the payphone. After all, if you have a device in your pocket that can perform many of the functions of an ATM, why go out of your way?

But in the meantime, having an extensive ATM network customers can use without paying an annoying fee is one of the major ways large banks differentiate themselves from community banks and credit unions, and so they'll continue to invest in them for the time being.

What do you think? Is a big network of ATMs important to you? Are ATMs on their way out, or will people always want easy access to cash?

Charitable giving: do's and dont's

Most people want to give back to their communities or offer help to causes that are meaningful to them. But in an uncertain economy and with stories of charity scams floating about, it can be difficult to know how to fit giving into your financial plans. Here are some basic guidelines to keep in mind.

Do:

• Make giving a priority. "So much attention is focused on building wealth, planning for retirement or investing in the stock market, but it is also important for people to do something personally meaningful with their money," says Brad Matthews, founder and CEO of MoGro.com, an online investment platform. "There are so many organizations and individuals in need of help, especially in this tough economy. So it is important to choose a charitable cause that you care deeply about."

• Consider carefully which organizations to support. Sophisticated fundraising and development professionals as well as friends and co-workers often can pressure you to make gifts "that do not provide a great deal of emotional satisfaction," says Susan Colpitts, a CPA and personal financial specialist, executive vice president and co-founder of Signature Financial Management Inc. in Norfolk, Va. "If, on the other hand, someone spends some time thinking about what matters to him or her, what charities have made a difference in (his or her) life or could have, charitable contributions can be made that provide much more satisfaction and perhaps even more impact in one's community."
• Make giving systematic. According to Matthews, every part of your financial life should be systematic, including charitable giving. Once you've determined which organizations to support, giving a set amount on a set schedule helps you include giving in your budget and keep track of what you're giving. One simple, efficient and tax-smart way of giving Matthews recommends is to utilize a donor-advised fund, such as those offered by Schwab Charitable and Fidelity Charitable. These funds allow the donor to immediately receive a tax deduction while their donation is professionally invested, with grants given from that fund to nonprofit organizations of the donor's choosing. "It doesn't have to be a daunting task that paralyzes you; it should be enjoyable," he says.
• Get to know your charities. Colpitts recommends volunteering your time to go along with your dollars at the nonprofit organizations you support. "Our experience is that this multiplies the benefit that the donor receives from the gift," she says.
• Keep track of your giving. Colpitts recommends developing a spreadsheet of all your charitable contributions each year to have when you are preparing your taxes. "Keep it over the years with a new column for each year," she says. "Study the types of charities and the amounts given. Do they represent your passion? How have they changed? Make a plan for next year."

Don't:

• Give randomly. Avoid giving a little here, a little there, as people ask for assistance. "(Organizations that) are less legitimate try to prey on people by catching them off guard," Matthews says. "Having a set plan about who you want to give to and how much you want to give helps to avoid this and helps you to stay within your charitable giving budget." If you are interested in giving to an organization that calls you at home, Colpitts suggests asking what percentage of every dollar given goes to support the cause, and what percentage pays for overhead expenses and the fundraising effort.
• Give to nonlegitimate organizations. If you want to get a tax break for your giving, make sure the receiving organization has 501(c)(3) tax-exempt status. Also, it's a good idea to save all documentation of the gift, Matthews says.
• Give more than you can afford. Some fundraisers will offer a very compelling pitch and convince you to give more than you had planned or more than you can afford. Rather than making a quick decision, always sleep on it, Colpitts says.
• Give out financial information carelessly. "Never give credit or debit card information to a charity that you do not know, (or) write checks to someone that just calls on the phone without first doing your homework about the organization," says Jesse Ryan, managing director at Accounting Principals in Jacksonville, Fla.

12 Tempting Tax Tips to Save You Money for 2012

In recent years, as Congress crafted new laws such as housing bills, health care reform or extended tax provisions such as the Bush-era tax cuts, lawmakers were careful to make sure that no major taxes took effect in 2012.

Why? Because it's a presidential election year. No candidate wants to explain to voters heading to the polls why they are facing added taxes.

But there are still many tax considerations in the coming year. Here are 12 tax tips, reminders and planning tools for 2012.

Remember Roth IRA conversion taxes

Anyone, regardless of income, can convert a traditional individual retirement account to a Roth IRA. But when that option first became available in 2010, a special feature that year allowed individuals who converted to a Roth IRA to spread the taxes due on converted amounts equally over the 2011 and 2012 tax years. That means your first Roth conversion tax bill will be included on your 2011 return filed in 2012. Make sure you have that cash on hand, and plan now for the 2012 conversion bill.

Claim your American Opportunity

The American Opportunity Tax Credit was a centerpiece of the 2009 stimulus bill. The new education tax break expanded the existing Hope Credit, providing a credit of up to $2,500 of the cost of qualified tuition and related expenses, and up to $1,000 of the credit could come back to the taxpayer as a refund.
The American Opportunity Credit was originally supposed to end in 2010, but it was extended through 2012. However, this could be the credit's last year. Congress is looking for ways to cut the federal deficit, and allowing tax breaks to expire is an easy way to save some dollars. If you have eligible education expenses, be sure to claim the American Opportunity Credit while you can.

Note health care info on W-2

When you get your 2011 W-2, you might notice some new information on the form. Box 12 is where employers will report the cost of your workplace's group health insurance coverage. This amount is both the amount the business pays as well as the premiums paid via payroll deductions by the workers.

Don't freak out. The amount, which will be designated by the code DD, is not taxable income. It's informational only, designed to help Uncle Sam confirm taxpayers have coverage. Under the health care reform law, the Affordable Care Act, the data will help to enforce the eventual individual coverage if it survives a Supreme Court hearing as well as the so-called Cadillac tax on more expensive workplace insurance plans.

However, if you don't see anything in Box 12, don't freak out about that either. The IRS ruled that reporting 2011 health care data is optional for employers.

Pay attention to Form 1099-K

If you get a Form 1099-K in 2012, don't toss it. The new form records payments received in 2011 by credit card or through third-party networks such as PayPal. This added income reporting mechanism was created as part of the Housing Assistance Tax Act of 2008 and is finally taking effect for the 2011 tax year because of concerns that some small businesses do not report all of their income. Previously, the Internal Revenue Service had to take taxpayers' word that all income was reported because the agency didn't have access to credit card or online payment details. The 1099-K changes that.

Be ready for basis reporting

Beginning with the 2011 tax year, brokers must report an asset's basis, the value that is used to determine profit when you sell, to the IRS. That amount will show up on the 1099 forms you receive in 2012 for 2011 stock transactions. Additional basis reporting will be phased in, in 2012 and 2013. You might have heard of this new requirement when your investment managers asked which type of basis reporting you preferred they use. Generally, brokers must report the sale of securities on a first-in, first-out basis unless the customer specifically identifies which securities are to be sold.

Accelerate income

Most tax experts will tell you to pay no tax before its time. However, impending income tax rate changes might make 2012 the exception to that traditional tax adage. The top ordinary income tax bracket in 2012 is 35 percent of annual taxable income. If Congress doesn't act, the highest tax rate will go to 39.6 percent in 2013. So, if you're in the top tax bracket, you might want to accelerate income into 2012 and pay taxes at the lower rate.

Cash in winning stocks

Along with higher ordinary income tax rates, there's a possibility of higher tax rates on investment income. Through 2012, the top federal capital gains tax rate is 15 percent for most taxpayers, and no tax is due from investors in the 10 percent and 15 percent tax brackets. These lower rates apply to assets held for more than a year. If you believe capital gains taxes might go up, 2012 could be a good year to lock in profits on long-term investments.

Plan for the added Medicare tax

Higher-income earners always have a few more tax considerations, and that's true in 2012. In 2013, a new 3.8 percent Medicare tax is slated for collection on profits from the sale of investment property.

This includes capital gains, dividends, interest payments and, for those who own rental property, net rental income. The tax will apply to individuals with a gross income of $200,000 or more or married couples filing jointly with a combined gross income of $250,000 or more. If you're in the targeted income brackets, talk with your tax and investment advisers about steps you can take this year to prepare for the new tax.

Assess AMT danger

The alternative minimum tax, or AMT, is a continual tax trap for millions of middle-income taxpayers. This parallel tax system was created in 1969 to ensure wealthier taxpayers pay a minimum amount of taxes, primarily by disallowing several common deductions that are claimed under the regular tax system.

But because the AMT is not indexed for inflation, Congress must increase the income levels affected by the alternative tax.

It's possible that tax reform in 2012 could eliminate the AMT, a longtime goal of many lawmakers. But just in case that doesn't happen and you fear you might end up paying the alternative tax, talk with your tax adviser about ways you can limit your AMT exposure.

Give gifts

Giving to charity can help reduce an annual tax bill, but if you have a large estate, gifts also are important estate tax tools. Thanks to the resurrection of the estate tax in 2011, the unified gift tax also returned. This means you can give away $5 million during your lifetime without having to pay the 35 percent gift tax.

There's also an annual amount to note in giving away your estate's assets while you're still around to get thanks. In 2012, you can give up to $13,000 each to as many individuals as you wish without any tax costs to you or your gift recipients.

Evaluate estate tax implications

Speaking of the estate tax, the inevitable meeting of death and taxes will be a hot topic in 2012. If Congress takes no action, the current $5 million estate exclusion will fall to $1 million, and the tax on estates larger than that will be 55 percent on Jan. 1, 2013. If your estate will be larger than $1 million, talk with an estate tax adviser in 2012 about options to reduce any possible larger federal tax bite.

Hire a registered tax pro

The IRS is continuing its efforts to regulate tax preparers. The process began with the registration of return preparers and the issuance of a personal Preparer Tax Identification Number, or PTIN, to each. The IRS is ramping up its effort to hold tax preparers accountable and weed out unscrupulous tax pros, with proposals to fingerprint preparers and, in 2013, require them to pass competency exams. If you hire a tax pro, ask about his or her IRS registration status, along with your usual inquiries to verify the preparer's ability to meet your tax needs.

4 tip to lowerThe rissing cost of Auto ownership

According to AAA, it's more costly to own and operate a vehicle than it was last year. They blame gas, tires, and depreciation -- but we have tips to save on all three.

It's not just the cost of gas that's going up. The overall cost of driving has also increased this year, AAA says.
Their recently released 2011 Your Driving Costs report shows that the cost to own and operate the average sedan has risen 3.4 percent -- to $8,776 a year, or 58 cents a mile. For SUVs -- the most expensive type of vehicle to own -- the cost has jumped to $11,239 a year ...

Based on driving 15,000 miles annually	Small sedan	Medium sedan	Large sedan	Sedan average	SUV 4WD	Minivan
Cost per mile	45.1 cents	57.3 cents	73.2 cents	58.5 cents	74.9 cents	63.3 cents
Cost per year	$6,758	$8,588	$10,982	$8,776	$11,239	$9,489

"Despite seeing reduced costs for maintenance and insurance this year, there is an overall increase in the costs to own and operate a vehicle in the U.S. this year," said John Nielsen, an AAA director. "The 2011 rise in costs is due to relatively large increases in fuel, tire, and depreciation costs as well as more moderate increases in other areas."

So let's break down those last three causes and see if Money Talks News can't help you drive a little more cheaply than the average motorist ...

1. Fuel
The cost: About 12.34 cents a mile, a 8.6 percent increase.

The reason: It's not what you think -- a shortage of oil, or maybe unrest in the Middle East. Today's rising oil prices are related more to what's happening in New York than in Libya, as speculators make huge bets on oil prices.

Our advice: The price of gasoline may dip in coming months, but the long term trend is up. That leaves you with three options: Buy a more fuel-efficient car, try public transportation, or just learn to stretch your gas dollars further. Little things like turning off the A/C, rolling up the windows, and not idling for long stretches can make a noticeable difference.

2. Tires
The cost: About 0.96 cents a mile, a 15.7 percent increase.

The reason: "The rise in costs of raw materials, energy, and transportation has led to notable tire price increases in recent years, and 2011 is no exception," AAA says. "Also contributing to higher average tire costs is a trend by automakers to equip their sedans with premium-grade tires as original equipment."

Our advice: It won't make your tires any cheaper, but regularly checking your tire pressure and inflating when needed will increase fuel efficiency and decrease wear and tear. If you don't know how to check your tires, find out: It's not difficult.
 
3. Depreciation
The cost: $3,728 a year, a 4.9 percent increase.
The reason: Depreciation is the gradual loss of your car's value. So as the price of cars rises, so does the annual depreciation expense. AAA says depreciation is "the largest cost for vehicle owners" -- yet is "the most frequently overlooked by consumers determining the cost of owning and operating a vehicle."

Our advice: New cars typically lose 40 percent of their value within the first three years. That's why it's best not to buy them. Buying used will reduce this expense dramatically.

4. Other Stuff: Insurance, Maintenance and Financing
Insurance and maintenance costs actually declined, according to the 2011 study. But that's no reason to ignore these expenses. When it comes to insurance, raise your deductibles to the highest levels you can comfortably afford, make sure you're receiving all discounts you're entitled to, and regularly shop your policies.

As for maintenance, do what you can yourself, and remember that a little preventative maintenance now can save you big repair bills later.

Then there's financing. According to AAA, the average car owner pays $823 a year in interest. Simple way to bring that cost to zero? Don't borrow money to buy depreciating assets. Or at least borrow as little as possible and pay it back as soon as possible.

Market Update

Weekly Recap - Week ending 10-Aug-12

Dow +42.76 at 13213.06, Nasdaq +2.22 at 3020.86, S&P +3.07 at 1405.87

Equity markets started today's session lower by nearly 0.5%. The losses held early on before the S&P 500 got a lift from a strengthening euro. Challenged by low volume, stocks then staged a slow climb off their lows resulting in a marginally positive close. The S&P 500 ended higher by 0.2%.

Two companies saw heavy selling after reporting their quarterly results. Ubiquiti Networks (UBNT 8.71, -6.30) fell 42.0% despite an earnings and revenue beat. However, the company issued lower guidance which was responsible for today's heavy selling which has dropped the stock to its lowest level since the shares started trading in October 2011.

Elsewhere, Grocery store operator Roundy's (RNDY 7.71, -2.52) plunged 24.6% after missing on earnings. Revenues were slightly below expectations and the company lowered their full-year outlook. The disappointing report combined with multiple analyst downgrades puts the stock at its all-time low, near $7.70.

The telecommunications sector has managed to stay positive today. As most sector components traded in-line with the broader market, Level 3 Communications (LVLT 21.94, +1.76) spiked 8.7% after securing additional financing. In addition, analyst coverage of the stock was initiated at Goldman Sachs with a buy rating.

Financials underperformed the broader market before rallying into the close. The SPDR Financial Select Sector ETF (XLF 14.94, +0.01) gained 0.1%. Within the sector, American Express (AXP 55.85, -0.62) and Morgan Stanley (MS 14.61, -0.10) slipped 1.1% and 0.7% respectively. Barclays (BCS 11.52, +0.31) outperformed other banks as shares gained 2.8%. Today's advance came on the heels of an announcement that Sir David Walker will be the next Chairman.

Manchester United (MANU 14.00, 0.00) was flat on its first day as a publically traded company as underwriters supported the stock at $14.00. This week's other IPO, Bloomin' Brands (BLMN 12.86, -0.63) dipped 4.7%. Shares of the company saw their first down day since it began trading on Wednesday.
J.C. Penney (JCP 23.40, +1.30) gained 5.9%. The company delivered disappointing earnings and reported a 21.7% decrease in same store sales. However, an upbeat earnings call and likely short-covering led to a reversal in the stock. The stock lifted off its pre-market lows as company's Chief Executive Officer Ron Johnson indicated that last quarter's earnings do not reflect the success of recent pricing and marketing changes which have only been in effect for less than a month.

The economic calendar was light today as well. Export prices, excluding agriculture, declined by 0.3% in July after they had decreased by 1.4% in the prior month. Excluding oil, import prices were down in July by 0.4%, which follows the 0.3% decrease experienced in the prior month.

The Treasury Budget for July showed a $69.6 billion deficit, which is better than the deficit of $71.0 billion that had been broadly expected. The report has mattered little to market participants as equity indices did not respond to the news.

Stimulus chatter continues as markets make slim advances
Looking back on the week, Monday started with headlines indicating that The People's Bank of China suggested it would take monetary policy up a notch in the back half of the year and vowed to bolster the economy with improved credit. It also sees a broader use of currency in cross-border trade and investing. Knight Capital Group (KCG 2.90, -0.17) confirmed weekend reports that it will raise $400 million in convertible preferred stock. The preferred stock will be convertible into approximately 267 million shares of common stock of the company. The S&P 500 ended higher by 0.2%
.
Tuesday began with comments out of Germany where a spokesperson out of Angela Merkel's camp indicated that the German Chancellor has conceded her hard stance and will back the ECB's bond buying program. Most notable earnings report was Chesapeake Energy (CHK 19.68, -0.63), which gained 9.4% for the day after missing earnings estimates by $0.03 but beating revenue expectations handily. The company also made positive commentary on asset sales. With no economic data of note being released, the S&P ended up 0.5%.

On Wednesday, European macro data was light, with Germany's Trade Balance exceeding expectations. In the UK, Bank of England Governor Mervyn King spoke in favor of David Cameron's conservative budget and said that further rate cuts may be counterproductive. Priceline.com (PCLN 563.16, +0.90) plunged 17.3% after missing on revenues. The company issued lower third quarter guidance, blaming the cloudy outlook on the persisting European debt crisis. The S&P 500 finished near the unchanged level.
Thursday's latest weekly initial jobless claims count totaled 361,000, which was lower than the expected 375,000. The trade deficit narrowed to $42.9 billion during June after an upwardly revised prior month deficit of $48.0 billion. Economists polled by Briefing.com had expected that the June deficit would come in at $47.5 billion. Consumer staples were Thursday's main laggard. Monster Beverage (MNST 54.27, -6.93) plunged 9.7% after missing earnings expectations by $0.02 and missing revenue forecasts by $3 million. The S&P was nearly unchanged on the day.

Handful of earnings scheduled to come in
There will be a considerable drop off in the number of companies reporting earnings next week. Just over 20 companies in the S&P 500 are expected to report their quarterly results. Going forward, earnings will largely be dominated by retailers whose fiscal periods end in July. Local deal website Groupon (GRPN 7.44, +0.79) will report Monday after the close, while Home Depot (HD 53.06, -0.09) TJX (TJX 44.46, -0.54) and Michael Kors (KORS 42.32, -0.68) will report on Tuesday morning.

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	13096.17	13207.95	111.78	0.9	8.1
Nasdaq	2967.90	3020.86	52.96	1.8	16.0
S&P 500	1390.99	1405.87	14.88	1.1	11.8
Russell 2000	788.48	801.55	13.07	1.7	8.2

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The Old Get Richer, the Young Get Poorer

The old have gotten wealthier, while the young have become poorer. That’s the conclusion of “The Old Prosper Relative to the Young,” a recent report by economists and researchers at the Pew Research Center.

In documenting a rising age gap with regard to economic well-being, the authors compare households headed by adults over age 65 to households headed by adults younger than 35. They examine data over time–particularly from 1967, 1984, 2005, and 2009-2010. (The comparison between 2005 and 2009-2010 illustrates the impact of the Great Recession.)

Here are some of their conclusions:

• From 1984 to 2009, the median net worth of older households rose 42%. For younger households, it declined by 68%.

• The gap in wealth between older and younger households widened over time. In 1984, the median net worth of older households was $108,000 higher than that of younger households. But by 2009, the median net worth of older households was $166,832 higher than that of younger households, the “largest (gap) in the 25 years that the government has been collecting this data.” (All figures are expressed in 2010 dollars.)

• In younger households, median adjusted annual income rose 27%, from $38,555 in 1967 to $49,145 in 2010. (Again, the figures are in 2010 dollars.) At the same time, income for older households rose 109%, from $20,804 to $43,401.

• From 2005 to 2009, median net worth for older households declined 6%, versus a 55% decline for younger households.  Meanwhile, the adjusted median income of the oldest households rose 8%, while the youngest households experienced a 4% drop.

Housing plays a big role in the trend, the authors say. Older Americans have been “the beneficiaries of good timing, in the form of the long run-up in home values that enabled them to accumulate wealth via home equity,” the report says. While older homeowners purchased “long ago, at “pre-bubble” prices” many younger adults “bought as the bubble was inflating,” and now owe more on their mortgages than their homes are worth. (They have also been saddled with higher college loan debt than their same-aged peers of past decades, the report says.)

There are labor market trends at work, too. Due in part to the recession, today’s young have experienced a “delayed entry into the labor market.” But older adults are staying in the job market longer. Currently, 16% of those ages 65 and older are employed, versus 10% in 1985.

With Social Security as a steady income source, older Americans have experienced less poverty and earnings volatility than their younger counterparts.

Still, the report documents hopeful signs for younger Americans: A growing number, the authors note, are college graduates, “and college education has been found to confer a significant financial payoff over the course of a lifetime.”

How to Tell if Your 401(k) Plan Is Great or Lousy

What if your 401(k) plan stinks?

You got the job. Good show. You even managed to eke out an extra $5,000 a year in base pay during the negotiation process.

You're going to need it, too, to compensate for that sorry excuse for a 401(k) plan.

"It's important for working Americans to know how their retirement plan stacks up because unfortunately, nowadays, it's the only source of retirement income we have," says Veronica Lee, senior vice president of client services with 401(k) Advisors in Aliso Viejo, Calif., an independent consulting firm.

Plan participants who get little in the way of an employer match, for example, will need to defer more of their monthly income to meet their long-term savings goals, she says.

Likewise, those who job-hop without regard to their vesting schedule may leave tens of thousands of retirement dollars on the table, money that could help supersize their 401(k) plan through compounded growth.

Generous match a good thing

There's no single feature that defines a "good" 401(k) plan, of course, but a generous employer match is a nice start.

According to a 2011 survey by trade publication PlanSponsor.com, nearly 89 percent of companies that offer 401(k) plans provide some kind of a match, in which the company matches a percentage of the employee's contribution. Employers are not required by law to do so.

About one-third (almost 32 percent) of employers match less than half of their employees' contributions up to 6 percent of their salary.

Almost 31 percent match 50 percent of their employees' contributions up to 6 percent of their salary (effectively a 3 percent match), and more than 27 percent offer a match that is between 51 percent and 99 percent of up to 6 percent of their salary.

Few (10 percent) match 100 percent or more of their employees' contribution up to 6 percent of their salary, the survey shows.

Consider the vesting schedule

The best plans also offer immediate vesting of employer contributions, but that's not necessarily the norm.

Vesting refers to ownership of the employer match -- or the length of time you must remain with your company to be able to take that money with you when you leave.

Those who leave before they are fully vested forfeit all or part of any company contributions. The pretax dollars you defer to your 401(k) on your own are always yours to keep.

According to the Bureau of Labor Statistics, 22 percent of employers offer immediate full vesting, but nearly half (47 percent) use a graded vesting schedule, in which the employees' right to company contributions increases gradually (say, 20 percent per year) until they are fully vested.

Another 22 percent of employees are in plans with cliff vesting, in which employees become fully vested all at once on a specific date. Under the Pension Protection Act of 2006, that must occur no later than three years after the date of hire.

Low costs make a difference

Plan fees vary dramatically -- and can have a major impact on your 401(k) balance.

Administration fees cover record keeping, accounting, legal services, marketing and investor education services. Investment fees cover expenses associated with managing the plan's funds, and these get deducted directly from your assets. As such, they are often more difficult to identify on your investment statement.

New U.S. Department of Labor regulations, however, will require employers to disclose greater detail to their workers about the fees and expenses associated with their plan. The deadline for disclosure to plan participants is Aug. 30.

According to a study by the "401(k) Averages Book," the average total plan cost for a small retirement plan with 100 participants is 1.3 percent, while the average total plan cost for a large retirement plan (1,000 participants) is 1.08 percent.

The total cost for a 100-participant plan with average account balances of $50,000 ranges from 0.36 percent to 1.71 percent. Does that seem like chump change? It's not. Those expenses to the average participant would range from $180 annually at the low end to $855 a year at the high end.

Too many investment choices

Quality 401(k) plans also offer a carefully vetted selection of investment options and asset classes that are not limited to company stock, says Lee. Too many choices, however, can be a negative.

"Study after study shows the more investment choices a company gives their employees, the less likely they are to participate because they feel overwhelmed," says Lee.

The better plans select a handful of solid investment options for their participants that include target-date funds, many of which automatically become more conservative as the employees approach retirement, she says.

Tom Chipain, a retirement plan specialist with Metis Investment Strategies and president of ReviewMy401k.com, which implements corporate retirement plans, agrees. "An important component of the 401(k) is to take investment decisions out of the hands of the employees and give them the option of having actively managed accounts," he says. "Employers think the answer is to educate their employees to invest for themselves, but employees don't have the expertise or inclination to sit there and research funds."

Low-cost index funds, which seek to track the returns of a specific market index such as the Standard & Poor's 500 index, are also favored as 401(k) investment offerings, says Chipain.

Automatic enrollment feature

Even the most generous employer match and the best investment options, however, won't help you hit your savings goal unless you start contributing to your plan.

For that reason, says Nevin Adams, co-director of the Employee Benefit Research Institute's Center for Research on Retirement Income, 401(k) plans that encourage employees to save through automatic enrollment get the highest mark in his book.

Such provisions, in which workers are automatically enrolled in their employer's plan unless they opt out, have helped boost participation rates in 401(k) plans nationwide, says Adams, especially among younger workers who don't always feel an urgency to contribute.

PlanSponsor.com reports that 91 percent of plans offer automatic enrollment to new employees, while less than 30 percent offer it to existing workers who were not previously enrolled.

Plans that get automatic raises

Automatic escalation provisions, in which the amount of pretax money that employees contribute toward their 401(k) plan automatically increases annually, are also the sign of a company that looks after its own, says Adams.

"The difference that auto-enrollment and contribution increases can make on people's savings is really significant over time," he says. Low fees are important, he notes, but they can never compensate for undersaving.

Such features can increase overall 401(k) accumulations between 11 percent and 28 percent for participants in the lowest income quartile, and between 5 percent and 12 percent for those in the highest income quartile, according to EBRI.

EBRI concedes, however, it remains unclear how long employees would allow automated escalations to continue before opting out, making it difficult to quantify the true impact on 401(k) accumulations.
Other perks of some plans
Some plans also enable participants to make either pre- or post-tax contributions (the latter generally via a Roth 401(k) plan), helping them establish tax diversification in their retirement plan. Others review their investment options on a quarterly basis to ensure they keep pace with market performance. And still others allow plan participants to begin contributing from day one instead of having to wait for several months.

By ferreting out the features of your own 401(k) plan, you'll be far better positioned to maximize your savings and, if necessary, lobby for change, says Chipain.

"That way, the employees can say, 'Hey, Mr. Employer, we really love working here, but do we really have the best plan out there for us?'" he says, noting employers don't always evaluate their investment options as often as they should. "Employers pass many of the fees along to the employees, so they don't have any skin in the game anymore, and that's part of the problem."

You can ask your employer to switch to a plan with lower fees or well-designed target-date funds, he adds.

Or you can ask for a selection of very inexpensive index funds to get broad exposure to the market while paying as little as possible for it.