Hi Michael: I'm not familiar with the specifics of Oregon's 529 plan (I'm quickly glancing at it now). Generally, what is most important when savings for college is making sure that the money is there when your child enters school. Being too aggressive could mean the college savings pot could fall below what you put in and come up short on funds.
Chuckie, it depends on which CFP you get:-) While I am sure there are some great advisors who work for those companies, I have heard advice from them that I don't agree with. This is largely because they don't know that much about you, the client. Target date funds are certainly an easy and viable solution. But I suggest there is a third alternative. Several NAPFA advisors will work on an hourly basis. They could help you look at the bigger picture (what do you want you assets to fund?) and then you could see what kind of return you would need to make to satisfy those goals. The investment allocation would flow from that. I've often wondered how investment advisors decide how to allocate investments without knowing this important piece of the puzzle. In any event, the charges for such sessions would likely be very reasonable and most of those advisors (if they are fee only) are going to use low cost investment vehicles like Vanguard funds.
Hi Sky: Having a $600,000 portfolio generate $30k-40k per year for at least 25 years might be a bit of a stretch as you'd be spending 5-6% of your portfolio per year. There is real risk you could run out of money. That said, it still may be possible if you are willing to adjust your spending in the future depending on how your portfolio performs.
Linda - I'm not familiar with the insurance limit you mentioned for Texas, but your question really revolves around your savings habits I believe. Since you said you're already maxxing out your 401(k) and IRA contributions, you're doing an awesome job of saving. Keep up the good work. Regarding the annuity, I'm not sure I completely understand your question. So you have a $4,600 contribution going into an annuity that you'd like to redirect to a brokerage account? It's impossible to answer that specific question in this forum for lack of information. My hunch is that you should just keep saving and not stress out too much about which savings vehicle you're choosing. Thanks for your question!
Sky: re: buying an annuity. An annuity can makes sense in certain circumstances. So folks like having the security of knowing they have a reliable monthly stream of income. For some, I suggest getting an immediate annuity that covers only their basic costs of living.
Jan - Converting an IRA to a Roth IRA is a recognition of taxable income, so it could alter benefits you are currently receiving such as a subsidy that depends on keeping your income below a certain threshold. You cannot use pension income to fund a Roth IRA. A Roth contribution has to come from 'earned income'. That's not pension income. Sorry.
Mike - It's hard to give a time estimate, but this chat will definitely be archived so you can come back to it at any time!
Hi Chris - Rather than incur the tax bill of converting IRA money, why not just fund a third bucket of money and open a personal investment account? I don't know what your retirement tax bracket will look like, but given your income, you're only in the 15% marginal tax bracket. If you fund a joint taxable investment account, any appreciation would be taxed at the 15% long term capital gains rate, which for taxpayers in your current braket is 0%. Consider this as an alternative to your Roth idea. Thanks.
Hi Connie: Contributions can be made to a regular or Roth IRA in a year you (or your spouse) receive compensation and have not reached age 70.5. If you don't work then contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation.
Karen, several thoughts on this. First, why do you want to convert? You will have to pay tax on every conversion whether you end up using that money or not. Now this might make sense if you have grandchildren as beneficiaries as they could get YEARS of tax free growth in a ROTH they inherit. But for you, why pay the tax if you don't have to? As for timing the market, I suggest that you never know when "prices are lower" than they will be. Finally, it sounds like you are using a fairly complicated strategy. You are converting money in the same amount (not shares) into 3 different ROTHs. The ROTHs should be invested in different assets classes...perhaps one is domestic stock, one in international stock, and one is some sort of bond fund (perhaps high yield if it is a ROTH). Over the year, you can see how they perform relative to each other. Then, if one of them drops in value during the year, you can re-characterize it back to the traditional IRA and then covert it back to a ROTH. The idea is that you would reduce the amount of tax paid on the conversion because the when you re-characterize, it wipes out the first conversion and you pay tax on the lower amount converted after you re-characterize. This is a fine plan on paper. But with the wild market volatility we see in the markets from day to day, I suggest that you could loose all the benefit of such a strategy during the time it takes to enact it.
Mulbyte - I think your question was around the 72(t) withdrawal, right? The strategy isn't inherently risky, but once the withdrawal amount is determined, it can't be changed until you extract yourself from it after at least 5 years or reach age 59-1/2. So if the value of your IRA crashes during this period, it could cause further losses due to the irrevocability of the 72(t) election. I hope I made sense here. Thanks.
Andrea, we're glad you could join today!
Thank you to everyone who has submitted questions so far! We're taking them as quickly as we can. But, if you have to hop out before your question is answered, the transcript will be available after the chat.
Hi Mike: earning 2.5% isn't terrible in our current interest rate environment. This money is the bond/fixed income part of your portfolio. If moved it to a target dated fund (a mix of stocks, bond, and cash) that would likely be a major shift in your overall asset allocation. Is increasing your allocation to riskier asset what you want to do?
Andrea, the 401K contributions are NOT capped because of income limits and your tax filing strategy which makes them attractive as opposed to the limited IRA possibilities for Married Filing Separate. As you are young now and expect to make more later, I suggest you forego at least part of the tax deduction now that would be provided by a traditional 401K contribution and do at least some in the ROTH. Definitive answers are hard to come by so I often suggest clients do a little of each. When you income is higher, the tax benefit of the traditional 401K deduction will be bigger as your tax rate is likely to be higher. Also, you will be older so the benefit of the ROTH, while still nice, is not as impactful. At that time, I would go strictly for the deductible, traditional 401K. Does that make sense to you?
Deborah - there are pros and cons to the answers to your questions. If you take your pension and SS then you will have two unalterable income streams which is a good thing. However, the cost of living adjustments are small to none. So to account for inflation, you could supplement rising expenses with draws from your assets such as the IRA and savings. However, if you are able to roll your pension amount to an IRA, you could have two IRAs--one with low risk investments and one with moderate risk investments. The first one could kick out a monthly amount to you that feels like a true pension and the second one could act as more of a growth bucket of money for higher cost of living later in life. There are multiple ways to construct a plan for you and due to the brief nature of these chats, it's hard to give you a final answer. Social security will be higher the longer you delay, so you need to answer that question in the context of your family history and how long your parents and grandparents lived. My personal bias is to delay and take the higher benefit. After all everyone likes to think they're going to live a long life, and you have to play to win.
Andrea, please contribute enough to your workplace retirement plan to get any match.
Hi Caley. By the way your question is worded, it sounds like you are using whole life insurance as an investment and not necessarily for the insurance. So, let's focus on the cash value growth versus an investment and omit the death benefit. The majority of the time, you will do better with an investment account rather than an insurance policy to build assets. The argument for life insurance is the tax free withdrawals and tax free loans. However, after insurance expenses and loan interest, the investment account should provide more income than an insurance policy - even after paying taxes on the investments. This assumes normal market conditions. Of course, there are those few times like 2008-2009 where the guaranteed growth of cash value would be better than a volatile investment account.
Tom - I'm deliberating on your question. The issue of interest rates is fiercely debated in professional financial circles and I can tell you there is not clarity on the near-term direction of rates. Most agree that they will head up before they head down, but that's purely speculation. If you're committed to the annuity route, you should consult with your annuity salesperson on timing, but if you're looking for alternative advice, consider parking the $180,000 in a short-term "yield-oriented" bond portfolio which might get you to the same place. I'm sure Kiplinger has some ideas around that.
Hi John M: No, your benefit will not decline. In fact, the longer you wait to take SS, the benefit will increase (up until age 70). If you returned to work, even part time, that could actually increase your benefit as well.
Chis and Teresa, it is true than home equity lines of credit/loans ARE exposed to variable interest rates. In this environment, those rates are likely to increase over time. But it probably will happen slowly AND they would have to increase VERY much to equal that 15% you are paying on your credit card debt. So the smart book answer IS to pay off that credit card using the home equity loan. But you do have to remember that if you do so, your home is pledged against that debt. Are you comfortable with that? If I am reading your question correctly, you are paying enough every month to have the $22K paid in full in about a year. That short time period reduces your exposure on the home equity line. As for your credit score, typically credit card balances negatively impact your score more than loans so if you pay the card off, your already good score might go up.
Hi Kevin -- We have your question in the queue. We're answering the questions in the order they were received, but we will get to yours soon! If you have to leave, the chat transcript will be here later.