Posts Tagged ‘Retirement’

The Right Way to Take Your IRA Withdrawals

Thursday, October 15th, 2015

ira withdrawals 1

What most workers are thinking about before retirement is what’s happening now, in their day-to-day lives. What some of those working towards retirement don’t think about often enough is after retirement. The process, the questions, the uncertainty. But Donna Rosato at Time (found on Twitter at @RosatoDonna) has written about that very topic in a piece that was published yesterday, Oct 14th.


Q: I need to start taking my minimum required distribution from my IRA soon. Is there any tax advantage to taking it in monthly installments as opposed to taking a lump sum once a year? —Sherwood Kahmer, Garnet Valley, Pennsylvania

A: There is no tax advantage to taking your required minimum distribution (RMD) in one lump sum annually vs. installments throughout the year. But the timing of your distribution is important, says Mark Copeland, a founding partner at Signature Estate & Investment Advisors in Irvine, Calif.

First, a little background on how RMDs work. At age 70½, you must start taking money out of your IRA and other tax-advantaged investment accounts such as 401(k)s, according to IRS rules. After years of waiting, Uncle Sam wants to collect the taxes you’ve deferred on your contributions. You must take your distribution by April 1 of the year following the calendar year in which you turn 70½. But after that, you can wait until December 31 of each year to receive the money.

You can choose to take the payments monthly, quarterly, or annually. You’ll pay the same amount of income tax no matter when you receive the money. But taking payments earlier in the year is a “lost opportunity,” says Copeland. “The longer you keep the money in a tax-deferred account, the more time your investments grow without the drag of taxes.”

In fact, most people do take the money in one lump sum at the end of the year, says Copeland. You shouldn’t wait till the last minute to do the paperwork though. If you don’t take the distribution by the December 31 deadline, you’ll pay a 50% tax penalty in addition to regular income tax on the amount that should have been withdrawn. A surprising number of people wait to the very end of the year.

You’ll also pay a penalty if you underestimate how much you owe in taxes. Withdrawals from traditional IRAs are taxed as regular income, based on your tax bracket for the year in which you make the withdrawal. How much you must withdraw depends on the account balance and your age. The IRS has a worksheet that can guide you through it. Or you can use a calculator like this one from T. Rowe Price to estimate your distribution (you must take a minimum amount but you can always take out more). To make paperwork easier, you can also have the taxes withheld from your distribution (10% will automatically be held for federal taxes if you choose this option, but you can elect to have more than 10% withheld).

Of course, there may be good reasons to take the money earlier in the year or in installments. Maybe you need it to cover day to day living expenses, or want the consistent cash flow from monthly distributions.

If you have a complex investment portfolio, there may be advantages to taking withdrawals quarterly; consult with a tax adviser.

The bottom line: “You can’t avoid the taxes, but keep what you don’t need tax deferred for as long as you can,” Copeland advises.

Biggest Retirement Mistakes That Can be Easily Avoided

Thursday, October 1st, 2015

Retirement mistakes 2

You’ve probably heard it all over the news lately, that people nowadays, of all ages, are simply not saving enough — if any — for retirement. Earlier this week, we talked about President Obama’s retirement plan called “myRA” and with tools such as a myRA, there’s hardly a reason not to get your head on straight and getting to planning.
What we’re going over today corresponds with last week’s blog, and we’re going to talk about today is retirement mistakes that are easily avoided.

Passing up money on the table

If you’re lucky enough to work for a company that offers a 401k program with a matching contribution, we cannot say this with enough enthusiasm, take FULL advantage. The main reason most people don’t take full advantage of a match is they either don’t know how it works, or don’t know how much they can get out of it. The problem is that every company does it differently, some match dollar for dollar up to a certain limit, and others match up to 50% of contributions.
Missing out on those dollars really adds up fast. It can be up to $1000 that you’re missing out on yearly (again, depending on what your employer offers), and that in turn can boost your nest egg by tens of thousands over several decades of saving, plus compounding interest.
The solution is that you need to talk to your human resources department. Write them out a detailed email, have all your questions up front, get all your bases covered, and then sign up, and start saving.

Not fully participating in your planning

The biggest issue with this is that you don’t know where your money is going, or how it’s doing. Don’t give someone else the reigns to your financial future. You may right now have an advisor, and that’s wonderful, but think about how much better two heads are over just one. If you’re watching out for yourself, and your financial advisor is as well, then I’d say that you’re in for a pretty stellar retirement.
Though, getting yourself to that point is where some hard work comes in. You have to choose yourself, pay yourself, and be kind to yourself. It’s all about self-education and responsibility.

Ignoring the obvious

As the song by Dusty Springfield goes, you’re wishin’ and hopin’ and thinkin’ and prayin’. And as we all know, that is no way to get anything done. Ignoring the fact that you will have to retire, or even putting off retirement planning is a surefire way to get you into some deep water. We at Accuplan challenge everyone to either schedule a meeting with a financial advisor, or just a serious sit down by yourself, and really start planning today, because wishful thinking can be dangerous.

Author: Tanya

Let’s Talk About the Pros and Cons of President Obama’s “myRA”

Monday, September 28th, 2015

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(image credit to The Monday Face)

In the State of the Union of January 2014, President Obama announced his plans to introduce a program called “myRA” which stands for My Retirement Account. It’s specifically built for workers who may not have a current retirement account, but would like to start building a nest egg. Here are a few of the specifications for opening a myRA.

How does it work?

The account is essentially a Roth IRA, so the contributions that you make each month are made tax-free, and through direct deposit (which means that your work will first have to offer the program). Your contributions are made automatically on whatever day works best for you, like a certain day of the month, or multiple paydays within a month. If/when workers switch jobs, the account stays with you since your employer isn’t administering the account, so no worries on that front.

The funds that you deposit are invested in government savings bonds, and backed by the U.S Department of the Treasury, so savers can never lose their principal investment. The cap on myRA contributions are $5,500, a year under current limits, just like with regular Roth IRAs.

Who’s eligible?

This new program is mainly aimed at low to middle-income americans who don’t have access to employer-sponsored retirement plans. With no fees to maintain the account, and no fees to open the account, it’s ideal for the target demographic. But all workers may invest in a myRA, including those who would like to supplement an existing 401k plan, as long as their household income falls below $191,000 a year.

What are the downsides?

One of the main downsides is that it’s not a long-term retirement plan. The myRA plan is mainly meant as a kickstarter for your retirement, because once a participant’s account balance hits $15,000, or the account has been open for 30 years, they will have to roll it over to a private sector Roth IRA, where the money can continue to grow tax-free. Another downside is interest that the account will gain, you’re not going to have a huge amount of earnings on this account. The White House said the accounts will earn the same rate as the Thrift Savings Plan’s Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012, and had an average annual return of 3.6% between 2003 and 2012.

The lack of investment control that the account holder has might also be a downside for some. As we said above, the funds are invested in government savings bonds, and so subsequently, the opportunity for workers to have some investment freedom is out the window unfortunately.

The truth is that no one thinks this alone will fix the fact that millions of Americans have little-to-no retirement savings, but retirement advocates are cheering on the new program as an important step in the right direction.

Author: Tanya

Financial Mistakes Retirees can Still Make in Their Golden Years

Thursday, September 10th, 2015

golden years 2

Unbeknownst to a lot of people, some, well into their golden years, still have some financial issues when it comes to their retirement. There are still mistakes to be made, there are still some downfalls and hard times, and there are ways to navigate around those issues unscathed.
We’re here today to talk about some of the issues retirees may encounter, and how to solve them with the know-how and tools you already have in your belt.

Keeping old debt

This seems like an obvious point to make, but it’s one that not many retirees take to heart. Not getting yourself out of debt before retirement is one of the biggest mistakes one can make, your retirement funds should never go towards your credit card debt, or car payments, those will burn through your retirement funds faster than you think.
Paying off your mortgage before retirement should be a huge priority, as it is for most people, but it cannot be emphasized enough since a mortgage is most likely to be the biggest purchase you’ll make in your life. Focus on paying down as much as possible before retirement, or even downsizing to a smaller home where the mortgage is manageable, the utilities won’t be outrageous, and the money you save goes right into your pocket.

Stopping investments

Keeping up with your investments and wherever else your money is going is an extremely important factor when it comes to financial-wellness, especially at retirement. Some retirees look at investing as a hobby, others as a necessity.
Whether you invest through more traditional routes like the stock market, or invest in real estate with your self-directed IRA, or even invest in a chicken farm, just keep your money moving, and working for you.

Relying on a single source of income

Don’t depend on a single source of income for anything, including your own retirement income. Social Security will not pay enough by itself, stocks hold the possibility of crashing, and do on occasion, bonds currently don’t keep up with inflation, and loans have to be paid back. This is where diversification comes into play, and why it’s crucial.

Living outside of your means

Most retirees don’t monitor and control their spending by having even a simple budget. For any situation, that’s a recipe for disaster. To just spend and spend, and then have an unexpected expense pop up, like a medical bill, or car repair, can cause serious financial damage. Keeping yourself realistically reeled in is imperative if your goal is to keep yourself afloat for 20+ years after retirement.

In reality, there will always be obstacles to hertel no matter what, whether they’re financial or not is up to you, and the decisions that you make today. A self-directed IRA gives the IRA holder the power to invest in what best suits them. Opening a self-directed IRA can be beneficial to almost all retirement strategies, so get in touch with Accuplan today to find out if a self-directed IRA is what’s missing from your retirement portfolio.

Author: Tanya