Alright, hang with us here as we transition from advisors.
Kim Howard with KJH Financial Services in Needham MA
Kathy and Vivian, you can take this one from Sander
Hi Sander - whether you can contribute to Roth IRA depends on your adjusted gross income (AGI). If you're single, the ability to make Roth IRA contributions phases out starting at AGI of $112,000 for 2013. If you're married the phase out starts at AGI of $178,000.
Sandor: Here are the income limits. Contributions allowed for 2013 begin to phase out for $112- $127,000 (AGI) for singles and heads of household and joint filers with incomes exceeding $178-$188,000 (AGI) with married filing separately $0-$10,000.
Thanks, all! We have another question about Roths from Sandy. Vivian, how about you take this one, since it only requires a short response
Hi Sandy - yes, you can make a Roth IRA contribution based on spousal income - assuming your income is not too high (adjusted gross income).
Sandy: Spousal income may be used to qualify a non-working spouse for an IRA contribution, or to increase the available contribution for a spouse with earned income that is less than the full IRA contribution limits. If filing a joint return and taxable compensation is less than that of your spouse, the most that can be contributed for the year reduced by: the spouse’s IRA contribution for the year to a Traditional IRA and any contributions for the year to a Roth IRA on behalf of your spouse. The total contribution for both spouses cannot exceed $5500 plus catch up provision. See Publication 590 for explanation.
Your spouse can contribute to your ROTH, as long as he has earned income and meets the income limitations.
Advisors, here's a question from RR
RR - this is a little difficult to answer without knowing more, such as your tax bracket/income. In general, there is little downside to continuing to add to the pre-tax plans. Do you have any Roth IRAs? If not, and if you're eligible, I strongly recommend making Roth IRA contributions. If you're ineligible for Roth (income too high), then continue to make the SEP-IRA contributions. The nice thing about having funds in pre-tax plans is that you at least have the option to convert them to Roth IRAs down the line. I recommend this for many clients when they find themselves in a low tax bracket. This is generally in their 60s, after retirement, but before drawing Social Security - so their taxable income is low.
Hello RR - Great that you are saving for retirement! You will not be allowed to contribute to your IRA if you do not have income. Also, once you reach age 701/2 years of age you will no longer be able to contribute. The good thing is the IRA grows tax deferred - which means you will not pay taxes until you start the distribution phase.
Great job on the retirement savings! Having some savings in a ROTH or regular taxable account can allow you to regulate your taxes. If you need the deduction now, then keep adding. If you're going to retire early, before taking SS then I would look at putting some funds into a ROTH. Remember, all distributions from the IRA and 401K"s are taxed as income.
Hi RR: It helps to have a mix of taxable, pre-tax (e.g. IRAs, Sep-IRAs, 401ks), and Roth IRAs funds when it comes to funding retirement expenses. It's difficult to say whether 60 % is too much based on information given.
Katherine, Kim and Kathy (that's a tongue twister!), here's one from Chuck
Hi Chuck - if your cash flow allows you to pay medical expenses out of pocket now, I think your strategy is reasonable. Once you're 65 you can treat the HSA like an IRA - withdraw for non-medical expenses. However, you will owe tax on those withdrawals. It's much better to make withdrawals for medical expenses, as those withdrawals are tax-free. One downside of deferring your medical expense withdrawals is just the bookkeeping - keeping track of those expenses annually. I have an HSA and just pay all current medical expenses from it.
Chuck:: General rule of thumb for who should invest in a HSA: Young healthy couples with no children and older couples with grown children who have somewhat predictable health care expenses.
you can use HSA money in retirement to cover Long Term care without penalty also, so that is a consideration also.
There are social security analyzers out there, but it is more of an individual determination based on your particulars. Delaying taking it until you're 70 definitely increases the amount, but if you're married or widowed there are other options. If your cash flow allows, delaying is usually better, but using an analyzer or talking to an advisor proficient in this area if ideal
Hi Mindy - I encourage many clients to delay their Social Security retirement benefit. The benefit increases 8%/year over the "full retirement age" (65-67, depending on birthdate). i call this "longevity insurance". This assumes you can manage without the Social Security income in the meantime. If you're married, the strategy can be more complex and depends on your spouse's benefit, the difference in your ages, etc. There are definitely techniques to maximize the "joint" benefit between spouses.
Hello Mindy -- There are pros and cons for waiting until age 70 to start SS payments. The increase in benefits (8% per year) could help out in old age - as long as you have a family history of living long! Each person is different, but if you have a history of living long in your family and you do not need the money then the wait may be worth it.
Advisors, when you're ready, we have a follow-up from Mindy.
Mindy Vanguard does have low cost funds and ETF's, so that's good. As far as a specific recommendation for funds, that would require more information than we can provide here. You could look at the Kiplinger site for recommendations and some guidance.
Mindy -- on the social security question I usually try to tell people to delay if they can because the amount increases roughly 8% for each year you wait, under current law. However, if you need the money this may not work.
It's not an ETF but a performer that I use with people their ages for long term growth is Vanguard's VASGX lifestrategy growth fund. Solid yield, very low fee and a prudent blend of us / non us equities comprising 80%
Thanks, all! Great advice
Here's our next question from Nate.
Nate: Sorry I can't help there.
Nate Sorry I don't have that one
Hi Nate - I don't know average retirement savings balances, but here are target levels for different ages - as a multiple of salary:
Age 30 - 0.3
Age 35 - 1.1
Age 40 - 2
Age 45 - 3.2
Age 50 -4.5
Age 55 - 6.2
Age 60 - 8.2
Age 65 - 10.6
Thanks, Kathy! That's very helpful!
Hello Nate - Saving for retirement is based on more than your age. Your expect expense in retirement will also play a role.
Thanks. Vivian and Katherine, how about you take this next one from Karla Taylor