You get a call from your broker or someone else that wants you to invest money. You’re told that you can expect a double-digit return and there is no risk. No doubt the “sales pitch” will be more subtle but the proposition is the same: above-market return with low or no risk. The one immutable law of investing is: Risk and Reward always travel together. This means the promise of high returns always carries above-average risk, and rock-solid safe investments always have relatively low returns. Nonetheless, there is an eternal myth that somehow this immutable law is not always applicable. Let’s look at a couple examples.

The “life settlement” investment is gaining in popularity, because it promises above-market returns and low risk. A life settlement is an investment in other people’s life insurance policies whereby you’re entitled to the payment upon their death. The “pitch” is that the life settlement investment is “fractionalized” and contains small shares of hundreds of life insurance policies. Those “insured” are generally people who no longer need, or cannot afford, the life insurance and whose medical lives have been estimated to be no longer than ten years. Since the buyers of the life policies are responsible for the continuing life insurance premiums needed to keep the policies in-force, a “reserve” is created from the money invested to cover these payments. So where is the risk? What would happen if the underwriters miscalculated, accidentally or purposely, the remaining medical lives of the pool of insured people? Or what if the medical profession has a breakthrough and a major cause of death becomes treatable? If the insured do not die on time, the premium reserves may be inadequate which force investors to pay out-of-pocket to protect their investment. What’s more, longer lives lower or erase the return on the investment. If there is fraud, the situation could get ugly in a hurry. And, since you’re not the one doing the medical underwriting, managing the premium reserve and collecting the death benefits, there is ample opportunity for mismanagement and fraud. So, when you hear about a 12% return from life settlements, remember that risk and reward are traveling companions.

Another undying myth is that you can make more money with little long-term risk if you put your money in the stock or bond markets. Historically, this appears to have some validity, but the record is far from consistent. Granted, the odds of doing well are on your side, but there is still a meaningful probability of significant losses. For example, since 2000 there have been two major market meltdowns: first was the 2000-02 dot com bubble burst that dragged the Dow (the primary indicator of market performance) down by 50%, and second was the Great Recession of 2007-09 when the Dow dropped 50% from 14,000 to 6,500. Looking back ten years from September 2009, consumer prices have risen 29.26% — meaning what cost $1 in 1999 now costs $1.29. After adjusting the Dow for inflation, the market today is 29% lower than ten years ago and at the same level as early 1997. Twelve years of zero gains represents about one-half the normal time spent in retirement. If this outcome is unacceptable to you, then the market’s risk is not suitable. Again, the opportunity for higher returns long-term also means higher risk.

The Ponzi schemes surfacing in the Great Recession are proof positive that investors are lured by promises of higher-than-market earnings, yet fail to recognize the risks. The risk-reward law says no investment magic, no undiscovered secret, and no mastermind that consistently avoids losses while earning above-market returns. Thus, if you’re in or near retirement and cannot afford to lose any of your hard-earned savings that will support your non-working years, you must not be blinded by the promise of higher returns with no or low risk. Investors are generally motivated by two forces: greed and fear. If you’ve lost a big chunk of your retirement savings to the recent market meltdown, the fear of a reduced retirement and the greed to make up losses quickly can be dangerous. You can avoid the temptation by linking up with a financial advisor of your choice and selecting safe places for your retirement money. One last word, while bank CDs are rock-solid safe and you’ll never lose money, they are generally not a suitable place for all your retirement money because of their low rates and the tax treatment of earnings. Again,

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Frustrated with the limited investment choices available in your employer’s retirement plan? Don’t fret. You may not have to wait until retirement to unlock the investment potential of those retirement plan assets. That’s right. Your employer’s retirement plan may contain a little known provision that may allow you to roll over these assets into an IRA Rollover while you’re still employed and without incurring any immediate tax liability.

Here’s how it works. Normally, you’re eligible to take a distribution from your employer’s retirement plan after a triggering event, such as separation from service or extended disability. Some employer retirement plans, however, offer employees the ability to take a distribution upon reaching a minimum age or meeting a length of service requirement while they’re still employed. This is called an in-service, non-hardship withdrawal distribution election.

If you qualify for this distribution, you may elect to roll over all or a portion of these retirement assets, while continuing to participate in your employer’s plan without penalty. But first, you need to determine if your employer’s plan allows these distributions and under what circumstances.

Most often, only profit sharing and 401(k) plans allow for in-service, non-hardship withdrawal distributions. They are not permitted in defined benefit or cash balance plans. The only way to find out for sure is to ask your employer for a copy of the plan’s Summary Plan Description (SPD). If they cannot supply a SPD, then you can call the 800# on your monthly 401(k) statement and ask if you can take an in-service, non-hardship withdrawal distribution election.

The SPD will tell you if your employer’s plan allows this option and under what circumstances. In some cases, the plan requires you to be age 59 1/2 or older. You should also confirm that by electing an in-service, non-hardship withdrawal distribution election, you would not forfeit your ability to continue to participate in your employer’s plan.

Why should you go to all this trouble? The answer in a nutshell is flexibility. Used properly, an in-service, non-hardship withdrawal distribution election can provide additional investment and tax-planning alternatives not commonly available in a employer retirement plan.

Case in point; investment options inside an IRA rollover opened with a full-service financial firm can be unlimited. You can select from mutual funds, individual stocks and bonds, CDs or perhaps a combination of various other types of investment vehicles. In addition, if your gross income is less than $100,000, you may wish to convert your retirement plan balance to a Roth IRA. However, only by rolling your retirement plan balance to a traditional IRA can you later convert to a Roth IRA.

Also, if a portion of your retirement plan balance consists of company stock, rolling over these assets into an IRA will allow you to use limit orders when you sell shares. A limit order will authorize the automatic sale of a specified number of shares should the stock trade at a predetermined price. You determine and set the sale price limit.

Moreover, while a surviving spouse can always roll over an employer’s retirement plan into an IRA, the same is not true for other beneficiaries such as children or grandchildren. By transferring employer plan assets to an IRA rollover, you gain the ability for these beneficiaries to receive payments from an inherited IRA over their lifetimes. This "Stretch IRA" option is usually not permitted in employer retirement plans.

If you elect an in-service, non-hardship withdrawal distribution election be sure you roll the assets into an IRA. Otherwise, distributions not rolled to an IRA are subject to a mandatory 20 percent federal withholding tax, federal and state income taxes and a 10 percent premature distribution penalty if you’re under age 59 1/2.

In-service, non-hardship withdrawal distribution elections may not be suitable for everyone. If you currently have an outstanding loan, a distribution may cause the loan to be deemed a taxable distribution. Also, qualified retirement plans always provide creditor protection that, unlike an IRA, is dependent upon your state law. Finally, your employer plan may offer a specific investment option that is not available elsewhere.

Sam Webber is a Financial Advisor of Smith Barney, a division of Citigroup Global Market Inc. Member SIPC. Sam resides in Westwood, MA and practices out of Smith Barney’s Boston office at One International Place. He can be reached at sam.webber@smithbarney.com or 617- 951-9896.

Why Open an IRA

A traditional IRA is particularly attractive to those who are not eligible for a workplace retirement plan (like a 401(k)) or whose earnings limit their ability to contribute to a Roth IRA. With opportunities for tax-deferred growth limited, a traditional IRA can be a great way to increase the likelihood that your retirement years are prosperous ones.

How and Where to Open an IRA

You can open an IRA with Tennessee Capitol, LLC or at nearly any bank or brokerage house, either in-person or online. Opening an IRA is a very simple process, typically with help readily available. Often, there are just a few forms for you to complete. Bring your Social Security number with you as well as the Social Security numbers and addresses of any potential beneficiaries of your account.

Earned Income

The amount you are permitted to contribute to an IRA is limited to your earned income. Earned income includes wages and self-employment earnings, but does not include interest or dividends. If you are married, your combined contribution limit is restricted to the total of your combined earned income.

Contribution Limits

For the year 2008, the most you can contribute to an IRA is $5,000. If you are 50 or over, you may contribute a total of $6,000.

Contribution Deadline

Each IRA contribution relates to a specific calendar year. You can make a contribution from January 1 of that year until the filing deadline of your tax return. Those who wish to make a 2008 IRA contribution can do so from January 1, 2008 until April 15, 2009. You don’t have to make the entire $5,000 contribution at once; you can make many smaller contributions, as long as the total contributed does not exceed $5,000.

Tax Deduction

Many individuals receive a tax deduction for their traditional IRA contributions. Unfortunately, not everyone qualifies for the deduction. If you are eligible to participate in a workplace retirement plan (such as a 401(k) plan) and your income exceeds certain levels, you may not deduct your IRA contribution. This is true even if you do not actually participate in your company’s 401(k) plan.

For those who do qualify for an IRA deduction, this write-off is an “above-the-line” deduction, which means that you do not have to itemize in order to save on your taxes.

Tax-Deferred Growth

Regardless of whether you receive a tax deduction for your contribution, every traditional IRA grows tax-deferred. You do not have to pay any taxes on the earnings in the account. In fact, you do not even report the income to the IRS. It is not until you take your money out of the IRA, ideally during retirement, that you owe taxes.

No Income Limitations

Unlike Roth IRA contributions, eligibility to contribute to a traditional IRA is not restricted by any maximum level of income.

Required Distributions

Regardless, when making any contributions between now and April 15, be sure to designate them as “prior year” or 2008 contributions. By doing so, you leave open the possibility of contributing more in the future to your retirement account for 2009. Furthermore, depending on your income tax situation, you may be able to deduct your IRA contributions

Remember, there’s no reason to wait until 2010 to make your 2009 IRA contribution. You can do so today. The only reason not to is if you haven’t made your maximum 2008 contribution yet. Either way, get to saving!

Michael Rubin