Posts Tagged ‘Retirement’

How Will the End of the Obama-Era MyRA Impact Retirement

Monday, August 7th, 2017

 

On Friday the 28th of July, the Trump administration announced that they’re shutting down the Obama-era retirement program called ‘myRA’. The program was aimed at allowing mainly low-income earners, and also those who don’t have a savings program at their work a chance to save for retirement. The Treasury announced the program termination because the low participation in the program doesn’t justify the cost.

Little participation

Since its launch in late 2014, about 30,000 Americans have contributed a total $34 million to the program. The plan was an option for households that didn’t have access to an employer-sponsored retirement plan, like a 401k. About 20,000 accounts have an average balance of $500, and the owners of 10,000 accounts made no contributions at all.

The cost

The Treasury said it has cost $70 million to manage the program over the years. Including server costs and promotion, which was likely to cost an additional $10 million annually going forward.

Under the program, contributions were invested in U.S. Treasury savings bonds. Rather than a portfolio of stocks and bonds that typically yield higher returns over time. Same as a regular IRA program, savers could contribute up to $5,500 a year, or $6,500 for those 50 and older. A maximum of $15,000 could be contributed; at that point, the money would be rolled over to a private-sector retirement account.

What now?

Participants were notified by email on the morning of Friday the 28th that the Treasury’s myRA program will be phased out over the next few months. myRA savers will receive information about rolling their savings to a Roth IRA. A Roth IRA, unlike a traditional IRA, makes contributions with after-tax dollars, and withdrawals are tax-free.

So even though President Obama’s myRA is about to end, there is a bright side. These same savers, including low-income earners the program was aimed at helping, still have options that can bring them greater returns. As of August 2017, the stock market is at all-time highs, so savers should look at investment options that are best suited for their incomes and long-term goals.

Is Investing in Real Estate for your IRA?

Monday, May 1st, 2017

Real estate is definitely one of the more lucrative, and sought-after investment types. The reason it’s so sought-after is that the possibility of return on real estate investment is higher than other types. Plus it’s familiar, right? The question though is whether or not it’s right for you, and your IRA.

First thing’s first

You first need an IRA that’s held by the custodian and administrator of your choice. The custodian reports to the IRS on deposits, withdrawals, and year-end balances. Custodians hold your real estate IRA funds like a bank, so that your investments are IRS-compliant; because one of the easiest ways to get your IRA disqualified by the IRS is if it’s found to be in violation of IRS rules. So, to avoid that, choose a custodian wisely.

Speaking of rules, here are some more:

  • The IRA owner isn’t allowed to work on the investment themselves. Say you bought a fixer-upper through your IRA, it will need lots of work, right? You’re actually not allowed to do the work yourself, you will need to hire a contractor to take care of that for you.
  • All costs associated with the property must come from your IRA, and any income earned from that same property must also funnel back into your IRA.
  • You cannot live on the property that’s funded by your real estate IRA. It must be used as an investment property only.

Direct benefits and use

To expound upon what we mean by you’re only allowed to use your new property only as an investment property, and not for personal use, is simple. Since the property is legally owned by your IRA, it cannot be used as a vacation home for you or your family. Period. You also cannot use it as a rental home for your family. So no vacations, and no renting to your own family.

It may not be for you

There are a lot of technical and legal loopholes to jump through when you own real estate. It only gets more complicated when it’s an investment property. And even more so when it’s an investment property through your IRA. For those reasons, a seasoned real estate investor will catch on quickly, while a novice will have not only the real estate biz to study but also the real estate IRA world.

By no means is this suppose to discourage anyone from seeking real estate as an investment, you just have to know what you’re getting yourself into. It may be hard work at times, but the promise of rewards makes it worth it.

Don’t Let These IRA Myths Deter Your Savings

Monday, April 24th, 2017

How do myths about Traditional or Roth IRAs get started? Typically, you’ve heard myths from an acquaintance who knows someone who knows someone. That person then tells you that they once had either a bad advisor, or had a bad experience, and there starts a rumor/myth. Let’s move past all of that, and get to the truth of the matter.

I make too much/too little to make contributions

Even if you’re only able to contribute $50 a month to your retirement account, it’s SO much better than nothing. Starting to save in your early 20s means you can set aside less and come away with more once you reach retirement age. Set goals for yourself, and make a decision today that will impact your future.

It’s true that if you make $196,000, or more if you’re filing jointly (married), you cannot fund a Roth IRA. But you will, however, be able to fund a traditional IRA with no problem. But there’s a caveat that can make the rules more confusing. Your household income, as well as whether you or your spouse have access to a workplace retirement plan, like a 401K, can change eligibility. These factors impact how much of your traditional IRA contribution the IRS will allow you to deduct from your taxes.

All IRAs are the same

With a traditional IRA, the money you contribute into your account is contributed in tax-free. Once you reach retirement, your withdrawals are taxed as ordinary income.

Roth IRAs basically work the opposite way. Your contributions are made with after-tax dollars, but withdrawals can be made tax-free in retirement. The annual contribution limit for both traditional and Roth IRAs in 2017 is $5,500 if you’re under 50, or $6,500 if you’re 50 or older.

However, as stated above, not everyone can open a Roth IRA. If you earn more than $133,000 as a single tax filer this year, or more than $196,000 as a married couple filing jointly, you won’t be eligible to contribute to a Roth.

I’m too young to start saving for retirement

Impossible. The sooner that you start saving for retirement, the more interest you’ll accrue over your lifetime, also referred to as compound interest. Starting retirement savings in your 20s gives you a huge advantage over those who start a decade later. Again, due to compound interest. If you’re able to save just $2,000 a year beginning at age 25, (about $166 a month), you will have saved more than $500,000 by retirement age. If you start saving ten years later in your thirties, you will save less than $250,000 saved. Kind of speaks for itself. Start as early as possible.

Five Changes Coming to the Retirement World in 2016

Monday, January 11th, 2016

2016 changes

It’s still early in 2016, but big changes are coming in the retirement world, as it’s always changing. As you plan for retirement, it’s important to stay on top of specific changes that can affect your self-directed IRA retirement accounts, regular retirement accounts, Social Security and investment vehicles. These changes could impact your saving strategy:

The new myRA is now available

The myRA is a Roth individual retirement account (IRA) that has no fees, and the government guarantees that it will never lose its value. We talked about myRA’s back in September, and weighed the pros and cons. This is pegged as an ideal option for those who are just getting started on their retirement savings because it’s easy to set up contributions.

The saver’s credit threshold increases

People who make slightly more money might have a better chance qualifying for the saver’s credit in 2016. The limit for adjusted gross income (AGI) increased $250 to $30,750 for single filers, and for married couples filing jointly, the AGI limit rose $500 to $61,500.

Obama’s 2016 budget focuses on retirement

President Obama’s budget proposals include eliminating the special tax break for net unrealized appreciation on retirement accounts, limiting Roth conversions to pretax dollars, putting a cap on retirement savings and more.

While some or all of Obama’s proposals might not happen, these changes could impact what you can do with your retirement accounts.

No more ‘restricted applications’

The “restricted-application” option is being eliminated. Before this new law, couples would file a “restricted application” after reaching full retirement age to receive only spousal Social Security benefits while their own benefit earned delayed credits until age 70. But now, only those who were 62 years old at the end of 2015 qualify.

Rebooting ‘file and suspend’ strategy

Spouses have been using the “file and suspend” strategy to increase their Social Security benefits. Changes are coming by May. As CNBC reports, in order for your spouse to receive a benefit based on your earnings record, you need to actually be receiving benefits as well. Some extensions are possible for those 62 and over.

How Millennials Are Outpacing Everyone in Retirement Savings

Thursday, January 7th, 2016

outpacing in retirement

Most Americans still aren’t on track for a comfortable retirement, though.


Remember all the times your parents harped on you to save more for your nest egg, and to spend less on a night out in college, Millennials? You can tell Mom and Dad you’re finally listening to them.


Millennials have shown the greatest increase in their savings rate compared with any other generation, according to new data from Fidelity. The typical 20-something is now stashing away 7.5% of income vs. just 5.8% in 2013. Generation X and boomers are still saving larger percentages of salary but have not stepped up their contributions by nearly as much.


Overall, Americans significantly improved their “retirement preparedness” score—a measure of how well people will be able to afford at least their essential expenses in retirement—since the benchmark was last assessed in 2013 by Fidelity.


That year, Fidelity found that 38% of Americans were prepared for retirement. In 2015 that number jumped to 45% as a result of better saving and investment allocation, the analysis shows.


It looks like Millennials are making good on their pledge to save more, even though they’re three times more likely than older generations to justify spending on experiences.


Younger workers still need to step up their savings game, however. Millennials’ retirement preparedness score is 12 points below baby boomers, who are nearing retirement or already there. But Millennials have nearly caught up to Gen X, whose score is only three points higher.


Gen X has saved at a lower rate over the last two years compared with the cohorts just ahead and just behind them. But that’s understandable when you consider that their own savings potential is crushed under the weight of caring for aging parents (see: boomers) and children (see: Millennials).

And despite the progress across the generational board, the majority of Americans—55%—still are not “on track” for retirement.


If you find that you’ve got catching up to do, power up your savings by freeing up cash and taking advantage of windfalls. Don’t get caught up in misconceptions about risky investments paying bigger rewards. And Millennials, congrats on the good work—now take it to the next level.