Quest for a Million – Net Worth – 4/2011
Last month I ended my post with the following bit of hubris: “The only net worth change I anticipate between now and next month is my tax refund which will serve as a 1 time gain that will be used to complete the funding of the 2010 Roth’s a little later than I’d hoped and to add to savings.” How wrong can one person be? Have you read Judith Viorst’s childhood classic, Alexander and the Terrible, Horrible, No Good, Very Bad Day
It all started on March 7, when I got this note from my employer:
Dear 401 k Participant, I want to advise you regarding an impending return of excess contribution check you will receive prior to March 15, 2011 . The intent of this email is to inform you the reason for the refund and advise you to confer with your financial advisor or tax preparer since the refund is a taxable event. Attached is a letter detailing why you were selected for the refund.
Briefly, the Internal Revenue Service rules require that qualified retirement plans like ours perform compliance testing on an annual basis. In general, a qualified retirement plan cannot favor highly compensated employees. This means highly compensated employees, as defined by the IRS, cannot contribute a substantially greater percentage of their pay to the plan than non-highly compensated employees.
Based on your income, you have been identified per IRS regulations as a highly compensated employee. For 2010 plan year testing purposes, the definition of a highly compensated employee is one who earned over $110,000 in 2009. Therefore, you are impacted by the results of this mandatory compliance testing for the 401(k) Plan. The average refund is approximately $3,900 which includes a participant’s contributions plus earnings for the 2010 plan year.
In order to maintain the tax benefits of our 401(k) plan, we are required to return a portion of your contributions and earnings to reduce the disparity between the average deferral rates of the highly compensated and non-highly compensated plan participants.
What a great reward for someone who is trying to save diligently for retirement. UGH! If you’re interested in more information related to 401k testing and my thoughts on how this punishes savers, check out this post.
It only gets worse from here. Read more
Google Option FAIL
I think the following illustration speaks for itself.
This is one of the risks of trading options with short term time horizon. I got black swanned or tsunamied or screwed. However you want to call it, it’s a FAIL. Hopefully, it will be a lesson learned.
Fortunately, I also bought some EWJ call options during this catastrophe, and they’re looking pretty good right now. I exited part of the position at a 25% gain and will hold the rest for a longer term bet on the recovery. I’ve still got a long way to go to recoup this loss though.
When is a Stock Split Important?
A couple of days ago I was reading an article by Matt Krantz over at USA Today entitled, “When will Apple’s stock split again?” In it he correctly notes that:
“there’s no real economic gain to a split. Along with the additional shares investors receive after a split, the per-share price is also reduced by an equal percentage.”
Thus, most of the time I really don’t care when a stock splits. However, there are cases where I believe a stock split is important. Read more
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