Hi Roman. You've outlined a number of issues here, including some tax issues that you need to see a CPA about -- certainly the question about taxation of the settlement needs to be handled by your own tax advisor. As far as purchasing a home with funds inside the IRA (rather than taking a taxable distribution and purchasing the home) -- well, that's full of minefields, and not an option for a home you want to live in. Tell me more about why you're looking to buy a home and then immediately reverse mortgage it -- what's the goal with that strategy?
sorry for the delay, Deborah Frazier is in!
Hi Deborah! Great to have you back!
Hi Phil. Thanks for your question. yes the filing spouse has to be 66. The spouse, if 62 will receive reduced benefits.
Cindy, trading that you do in order to rebalance your 401k plan does NOT count as a taxable distribution, which is what I think you are asking. Obviously you buy and sell holdings to make the reallocation, but those sales and purchases are not what we call "taxable events." You are only taxed when you withdraw funds from your 401k.
Hi Dena. My recommendation is to start at www.napfa.org. Click on the link to "How To Guide", where you'll find NAPFA's "Pursuit of a Financial Advisor Field Guide". That's a great intro to what matters when it comes to choosing an advisor, and will get you started. You can search for fee-only planners who are NAPFA members on the site as well. Good luck!
JAM: The interest rate is permanently fixed once you have consolidated. So there's no changing that. Sometimes folks take loans from 401k plans. Technically, 401(k) loans are not true loans, because they do not involve either a lender or an evaluation of your credit. They are more accurately described as the ability to access a portion (usually the lesser of 50% or $50,000) of your own retirement plan money on a tax-free basis. You then must repay the money you have accessed under rules designed to restore your 401(k) plan to approximately its original state, as if the transaction had not occurred. The interest may be minimal and maybe be less than bank interest per Investopedia. Other options are home equity loans, but you don't have this option. Since your putting away $600/mon. for a rainy day fund, realize that this should be about 6 months of your fixed expenses. Once you cover this then the savings can go toward the down payment for a home. In terms of how much to save verses paying debt: your 10% saving rate for the 401k is a reasonable amount. As you get raises at work consider putting them toward the down payment on a home. You really are on the right track.
Joseph, that is a frustrating situation. I agree that sometimes smaller companies are a little slack in getting their contributions in, but for 2012? Your boss can be the administrator, but certainly can not hold the money, their has to be a brokerage company for that. Call them immediately and see what they suggest.
Gary, I'm not a big fan of annuities in general. Here are some pros and cons: PRO you do get a guaranteed rate of return, which is fairly low, so that you are protected from a severe market downturn. CON - you do not participate in 100% of the upside if the market index does well. PRO you have lots of choices since many insurance companies offer this product CON surrender charges and large fees. And a big CON that is not always well understood - how risky is the insurance company issuing the annuity? The annuity is a contract between you and the insurance company, and if they fail, you can have a lot of trouble recovering your investment.
Karen -- Would you mind resubmitting the question for us? You can also check the transcript later for everything we've talked about today.
Cindy, you may want to consider any redemption fees associated with the funds you are selling. Generally, plans require you to hold the funds 30 or 60 days from the time you purchase the fund until you sell the fund. This avoids participants from frequent buying and selling of funds within their workplace retirement plan.
Jae, I am sorry for your health problems. There are annuities that have :long term care riders attached.
Sorry Jae, hadn't finished. If you have an agent for your healthcare policy, try asking him or her. I don't know how old you are, but self insuring is another alternative. Any other suggestions NAPFA?
Hi Mary- Is the purpose to increase your cash flow to pay expenses? If so, then that is an option. If you don't need the cash flow then why not wait until a later date and push the taxes out to a later date. However, you might want to speak with your accountant about your tax liability at 70 compared to now, if you withdraw.
Hi Cindy. You're one of the rare few who still have a significant pension; that's great. The downside of a fixed pension is inflation risk, which you clearly understand. So that leaves the nest egg to supply more of your living expenses as time goes on. There two ways to skin this cat; I prefer viewing the pension as an income stream, and not folding it into the asset allocation decision via a PV analysis. In other words, I think you're in the same position as any retiree whose nest egg needs to sustain withdrawals over decades: balancing your risk tolerance, time horizon for using the funds, and required rate of return (do you need an aggressive return to see you through, or will a moderate, or even conservative return do?), to come up with the appropriate mix between low risk cash & bonds vs. high risk stocks in your portfolio.
Melorohrer, There is a rule of thumb that one should keep 6 months of Net Salary in emergency funds. Without knowing more, that would be my answer. I also think that you should consider any large expense (auto, vacation) coming. Retirement is important and I would contribute as much to that as possible.
Melorohrer, we usually recommend 3-6 months of fixed expenses held in an "emergency" fund (I prefer the term "liquidity" fund), which should include any large annual or semi annual expenses (such as insurance or property taxes). If you are securely employed 3 months is probably enough, but 6 months is better.
Jae, Pat Jennerjohn reminded me to recommend Low Load Insurance Services. They are terrific.
Hi Craig. I'm not familiar with the Ramsey TMMO plan you reference, so can't comment on it. It sounds like you're looking for asset allocation guidance: the right mix between cash/bonds/stocks for you given your risk tolerance, time horizon until retirement, and need for investment return. Kiplinger, do you have a handy guide that walks people through the asset allocation decision?