Wed, 24 April 2019
IRA, Roth and 401K management can be confusing, that’s why I answer listener questions in the Practical Planning segment of this episode. This is the last episode of the How to Use Your Accounts series. You’ll definitely want to go back and listen to the entire series to help you familiarize yourself with the different types of retirement accounts and how to finally use them in retirement. Next month we’ll dive into how technology improves retirement. But for now, listen to these listener questions about account management in retirement. How to make money simple for someone in your lifePeter Lazaroff joins me on the Hot Topic Segment. He recently wrote a fantastic book called Making Money Simple. Since graduation season is coming up, I highly recommend this book for any graduate. Many financial advisors and Wall Street bigwigs want you to think that saving money and building wealth is complicated, but that’s not true. It’s easy to make good choices with money if you can just get out of your own way. Peter teaches how to build a system that works around our human nature to complicate money choices. He shows that finding small sustainable habits that you can automate will lead to financial success. What do you do if you miss taking the RMD?One listener asks what would happen if you forget to take your required minimum distribution (RMD) one year. You really don’t want this to happen! The IRS imposes a 50% penalty on the amount you didn’t take. For instance, if you have an RMD of $20,000 but you only took $10,000 the penalty would be $5,000. The first thing you need to do if you miss your RMD is talk to a tax advisor. Then take the distribution as soon as you figure out your mistake. Do it alone and maintain records. You will need to file the form 5329 for the year in which there was a shortfall either with your tax return or separately. If you missed it multiple years then you need to file a form for each year. The IRS has grated redemptions from this so it is important to keep records and let them know why it happened and how it was remedied. Are there any options for tax-free growth investments if your income is a bit higher than the Roth income eligibility?One listener is looking for options on tax-free growth investments. Since he lives in Minnesota he feels that the 403B isn’t his best option because the state loves to tax retirement accounts. One option is a back door Roth IRA. The way to do this is to make a nondeductible contribution to an IRA and then immediately convert it to a Roth. Saving money in an HSA is a good option as well. When you save in an HSA this money is pretax. You can allow it to accumulate and even invest it. It comes out tax-free as well but it can only be used for medical expenses. However, if you keep a record of your expenses you can submit an expense for reimbursement several years later. One last option to ease the tax burden is to move to a different state in retirement. Basic retirement tax tips
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANHOT TOPIC SEGMENT
PRACTICAL PLANNING SEGMENT
THE HAPPY LAB SEGMENT
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeMorningstar article about the missed RMD BOOK - The Elements of Investing by Burton Malkiel BOOK - 30 Minute Money Solutions by Christine Benz BOOK - The Richest Man in Babylon by George Clason BOOK - Making Money Simple by Peter Lazaroff Roger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center The Retirement Answer Man Facebook Page |
Wed, 17 April 2019
![]() You may be wondering, should I convert my IRA to a Roth? It’s hard to know when the time is right for a Roth conversion. So today we continue the discussion on how best to use your retirement accounts and plan your tax strategy. But first, in the Hot Topic session, you’ll learn how important vision is to planning your retirement. So many people are stuck in the prison of their mindset. Listen to this episode to hear more about how important tax strategy is, whether you should convert your IRA to a Roth, and how to break free from your institutionalized mindset and really rock your retirement. Do you have a lack of vision about your retirement?When many people make their retirement plans they are still institutionalized. We have been working our whole lives. That every day 9-5 stunts our creativity and many can’t really visualize what to do with all the time freedom that retirement entails. To simply stop working takes much more forethought than you think. This is why so many people change their retirement plans drastically after they retire. You are only limited by your creativity and your resources. Do you have the vision to dream big? A Roth conversion can help you balance your tax equilibriumAt this point in your life, you have probably accumulated plenty of assets in tax-deferred IRA’s and 401K’s. You have set yourself up well for retirement, but you know there is a big tax liability looming ahead of you. At the age of 70 ½, you’ll have to take the required minimum distribution (RMD). If you have a lot saved in tax-deferred assets your tax liability could be significant. This is why proper tax planning could lessen your burden significantly. One possible solution to balance your tax load could be to do a Roth conversion. Should I convert my IRA to a Roth?If you have money in an IRA that you haven’t paid taxes on you can take all or part of that and convert it into a Roth IRA. The catch is, you have to pay taxes on the income the year that you do the conversion. Then the money can grow tax-free for the rest of your life and you won’t have to worry about the RMD. In effect, you are pre-paying your taxes. That is what a conversion is. Taxes are at an all-time low and many believe they will only increase in the future. Some people choose to do a Roth conversion all at once but others choose to do a partial Roth conversion. By studying your modified adjusted gross income with an online income calculator you can choose the amount of money in your IRA that you want to convert that will not push you into the next highest tax bracket. Careful tax strategy can be even more effective than an investment strategyWhen deciding how to convert your savings into a Roth you need to consider your tax strategy. Do you want to be aggressive about converting the money into tax-free assets? Or do you want to do rolling Roth conversions and think about your tax burden year by year? Here are some things to consider when planning your tax strategy:
If you plan well you can save a significant amount in taxes. If you can convert and save 10% of a million dollars that’s $100,000! Talk about your tax strategy with your financial advisor to decide what the best choice is for you to start planning how you will begin filling your retirement income buckets OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANHOT TOPIC SEGMENT
PRACTICAL PLANNING SEGMENT
THE HAPPY LAB SEGMENT
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeRoger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center The Retirement Answer Man Facebook Page |
Wed, 10 April 2019
You have been diligently saving in tax-deferred accounts for years and you finally have enough squirreled away to fund your retirement. But we need to discuss the elephant in the room. You have a looming tax burden that if not handled correctly can really mess up your retirement plans. On this episode, I’m going to teach you how to come up with a withdrawal strategy to help you fund your retirement. Are you ready to learn how to withdraw from your retirement accounts without Uncle Sam getting more than his fair share? Then listen to this episode of Retirement Answer Man to help you plan your retirement withdrawal strategy. The looming tax burdenYour money has been growing tax-deferred year after year. This is a great way to get you to save for retirement, but now it’s time to pay the piper. Do you know what your tax liability is? If you have $1 million in tax-deferred accounts and you take it all out in one year then you’ll have to pay 30% in taxes. Your million dollars just shrank to less than $700k. The good news is that you can minimize your tax liability in how you withdraw from your accounts. The great thing about retirement is that you have more control than ever in deciding which tax bracket you will fall under. You can manage how much you take out and where that money comes from. You need to be more tax aware than ever beforeHow do we take advantage of the tax system to maximize the amount of money that we put in our pockets? Early on in retirement is when you start to think of spending in big ways. You may want to buy an RV or a vacation home or remodel your current home. Many people spend on these extraordinary expenses with little thought as to how they should withdraw the money for these projects. You want to be aware of the tax brackets when you decide how you withdraw your income. Thinking about tax strategy is not nearly as exciting as when you think about investment strategy. It’s not glossy and sleek, but having the right tax strategy is even more important at this point in your life and having the right strategy to fund your retirement can save you thousands of dollars down the line. What are your income sources in retirement?There are usually 3 sources of income to fund your retirement. There is social capital like pensions and Social Security. Next, you have human capital, which is the income that you may earn in pretirement. Lastly is financial capital or the money you have saved in various accounts. Your financial capital is then broken up into 3 categories. The money you have already paid taxes on, money from tax-deferred assets (401K’s and IRA’s), and tax-free assets (Roth IRA’s). You have to have a strategy on how to manage all of these buckets of differently taxed assets. Having the 3 buckets gives you some flexibility on how to pull money out of these accounts. What can you do to frame your withdrawal strategy to fund your retirement?Retirement tax strategy can get really complicated. That’s why it is so important to have a plan. Follow these steps to help you minimize your tax burden.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANHOT TOPIC SEGMENT
PRACTICAL PLANNING SEGMENT
THE HAPPY LAB SEGMENT
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeRoger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center The Retirement Answer Man Facebook Page |
Wed, 3 April 2019
You have been saving into your IRA’s, Roth IRA’s and 401K’s for years. But once you retire how should you get money out of them? Over the next few episodes, we are going to dive into your different retirement accounts so that you can fully understand them. It’s important to understand the difference between these accounts so that you can create a withdrawal strategy to minimize the tax implications. Are you ready to learn about the different types of retirement accounts so that you can rock retirement? Listen in to this episode of Retirement Answer Man, to hear the basics of IRA’s, Roth IRA’s, and 401K’s so that you can understand how to create a sound withdrawal strategy. To click, or not to click?The secret your financial advisor doesn’t want you to know. . . With all the uncertainty in the current markets. . . Massive returns with no risk at all. . . Do these sound like headlines you’ve seen on the internet? We are all looking for the secrets to investing. Although we are all looking for the best return on our investment and we understand that there is no such thing as no risk, it can be hard not to click just to see what they are talking about. There must be some secret to what the rich are doing, right? But once you click on these ads you are put into a hard push sales cycle. If you see these catchphrases, run in the other direction. What are the basics of IRA’s?You’ve been contributing to an IRA for years, but what is it exactly? When you make a contribution to an IRA you can deduct it from your taxes. This money is tax-free when you put it in the account. It grows in the tax-deferred account for decades. At age 59 ½ you can take the money out, either a little bit at a time or all at once. This is when you will pay the taxes on the money. This type of account works well because you are usually in a much lower tax bracket once you retire. But the taxes can be tricky if you have been a great saver. The IRS wants you to take the money out eventually so that they can tax it. This is why they have a Required Minimum Distribution at age 70 ½. The Required Minimum Distribution is a certain percentage that you are required to take out of the IRA each year. And each year the percentage goes up. So if you are overfunded the RMD can be a tricky tax issue. What is the difference between Roth IRA’s and IRA’s?With an IRA you get the tax benefit when you put money into the account, with a Roth IRA you have already paid taxes on the money. The beauty of the Roth is that all the growth that the money earns in the account over time does not get taxed. It’s a great deal. Before you take money out of the Roth IRA it’s important to understand the 5-year rule. The 5-year rule states that 5 years must have passed since the tax year that you have made your first contribution before you can withdraw any earnings from the account tax-free. If you don’t follow the rule and you are under 59 ½ then not only is the growth taxable, but you have a 10% penalty as well. Another important difference to understand about the Roth IRA vs. the IRA is that there is no Required Minimum Distribution. What is a 401K?A 401K is an employer savings plan. Again you must be 59 ½ to withdraw from your 401K without a penalty. You can roll it over or transfer it into an IRA. You may want to look into starting a post-tax Roth 401K. These are bound by the same 5-year rule as the Roth IRA. Listen to this episode to learn more about the rules surrounding 401K’s, Roth IRA’s and traditional IRA’s. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MANHOT TOPIC SEGMENT
PRACTICAL PLANNING SEGMENT
THE HAPPY LAB SEGMENT
TODAY’S SMART SPRINT SEGMENT
Resources Mentioned In This EpisodeRetirement Starts Today with Benjamin Brandt Mark Lehman 228Main.com Roger’s YouTube Channel - Roger That BOOK - Rock Retirement by Roger Whitney Roger’s Retirement Learning Center The Retirement Answer Man Facebook Page |