Posts Tagged ‘Retirement’

IRA Rollover Mistakes You Cannot Afford to Make

Monday, March 19th, 2018

IRA Rollover Mistakes

There are times when having an IRA can be trickier than anticipated. There are a lot of rules to follow, there are papers that need to be signed, certain accounts that have to be opened, and sometimes it can be intimidating. This is one reason why having an experienced administrator and custodian on your side is so imperative, to help you steer through the (sometimes) bureaucratic ins and outs.

One unexpected trip up that we’re going to be talking about today is rolling over an IRA. Seems like it should be simple, but there are mistakes that could be made that can cause some serious headaches as some of you might already know. And when it comes to IRAs, we are not talking small potatoes; IRAs accounted for about 28% of all U.S. retirement assets, which totaled $19.5 trillion at the end of 2012. And this market is only going to get bigger, because, at the end of 2017, Americans rolled an estimated $451 billion into IRAs, making this an $8 trillion marketplace. This is part of the reason that there’s a lot of red tape. This is also why it takes time and patience and know-how. The best way to avoid the headaches is to avoid the potholes, to begin with.

The 60 Day Rule

The 60-day rule is one that you will want to be aware of well before you go through an IRA rollover. If you set up the IRA rollover to go through your hands before it goes to another brokerage, then you will be subject to this time limit. If you get the check for the full amount of money and do not get it to the next IRA account within 60 days, it will be treated the same as a cash-out. This means that you will have to pay a penalty of 10% then pay income taxes on the amount. The solution to this is to be sure to make sure that you get the money to your new broker within 60 days to avoid this mistake.

Leaving Assets in a Former Employer’s Retirement Plan

When you leave an employer, you typically have the right to roll over your entire vested balance into an IRA. A few reasons that you should is that you may gain access to a much wider array of investment options through your new employer, or administrator, they may offer attractive services like a gold-backed IRA, or a self-directed IRA, which help to diversify. Also, your beneficiaries may be able to take distributions over their lifetimes, which allows for a longer period of tax deferral that could extend even after your death, and you can avoid the 20% mandatory withholding for distributions if you rollover your retirement plan to an IRA.

Taking the Cash

When you cash out an IRA too early, you will be subject to some serious penalties. For one thing, you will have to pay a 10% early distribution penalty right off the top, then, on top of that, you will also have to pay income taxes on the entire amount. Depending on what tax bracket you’re in, this could be a pretty substantial amount of money that you lose to the government. There is a process for rolling over your IRA without paying taxes, so you should not just tell your IRA provider to send you the cash and you will later find a new IRA to deposit into. You need to have everything planned out ahead of time, this way you can avoid the fees and keep the full amount of your retirement money.

One Year Waiting Period

Another rule that everyone needs to be aware of is the one-year waiting period, it applies to making multiple rollovers from the same account. So for example, let’s say that you have an IRA and you decide you are going to open another IRA account, and you then rollover part of the money to the new account. Then later that year, you decide that you wanted to open a third IRA account, but if you try to fund the third account from the first account, you would be in violation of the rules, because you have to wait at least one year before you can rollover for a second time from the same account. The solution is to make sure that you wait at least a year before trying to rollover your account again.

Navigating the retirement waters can be a bit tough at times, but with an experienced administrator, like Accuplan, at your side, there’s very little that we cannot handle together.

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.

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.