Welcome to today’s Jump-Start Your Retirement Plan Live Chats!
Good morning. This is Erin Campbell with Beacon Financial Strategies in Raleigh NC.
Good morning. This is Ken Weingarten of Weingarten Associates in Lawrenceville, NJ
Questions will be answered in the order they were received. Each question will be held for moderation until an advisor is available to give you a detailed, personalized response. So, please do not be concerned if you do not see your question appear right away.
If you have a follow-up question, please submit it, and we will bring it to the advisors’ attention right away.
Erin, you can take this first one from Darrel J
Darrel, I believe you should consult with lawyer who set up the trust. There are income limitations . If these are exceeded, the trust may not qualify for government aid
Darrel, first I agree with James that this is a question for your attorney. In general, I like Roth IRAs, but unless you are working and have earned income, you cannot contribute directly to a Roth IRA.
Ken, here's one for you from DebtCrisis
Good morning Debt Crisis. I am not familiar with the income taxes in TX or NM (I am in NJ), but if memory serves me correct there is no income tax in TX. So for a specific answer you may need to consult a local CPA. That said, one thought to consider would be do some Roth conversions over the next few years while you live in TX. While this would create taxable income now, if you already have low taxable income, you may be able to do these conversions at a fairly low effective tax rate. Then, when you turn 70.5 the size of your IRA and subsequent RMDs will be lower; so if you do move to NM at that point, your taxable income would be that much lower. Again, you should probably consult with a local tax adviser.
James, here's another one for you from Georgianfan14
Target date funds have diverse portfolios in which asset allocation varies from agressive when you are young to conservative as you approach retirement. These may be a good way to start investing if your investment assets are not large.
And Erin, here's one from Sferguson1
Sferguson, first let me say that you are well on your way towards your retirement goals. Congratulations! In my opinion, the next step is to fully fund an emergency fund of at least 3 months of living expenses. The purpose of that money is liquidity and not rate of return. Then I would say it becomes a rate of return question. If your auto loan interest rate is more than your expected rate of return in the stock market, then the auto loan is the next place to send extra money. Also, you need to look at whether you are getting a tax deduction for the interest on the student loan debt. If so, the auto loan probably has a higher after-tax interest rate than the student loan. Good luck to you!
James, here's the next one for your from Kate.
Kate: In a ROTH 401k, contributions are taxed and distributions are tax free. In a traditional 401k contributions are not taxed but distributions are. So if you expect your tax rate in retirement to be lower than present tax rate, you would use traditional 401k. One advantage of ROTH is that there are no minimum distributions when you reach 70+1/2 so you may be able to keep funds growing longer tax free if you do not need funds. With so many unknowns, some people contribute an equal amount to both.
Erin, here's one from Scott.
And Ken, how about you take this one from Darryl.
Hello Darryl. Since all of your withdrawals from your retirement accounts are taxable at ordinary income tax rates, the only thing you could to to improve your tax position would be to reduce these withdrawals and find another avenue for replacing that income. If, for example, you have a non-retirement account brokerage or mutual fund account, you could replace your TIAA distributions for example by taking funds from these other non-retirement accounts. Depending on how that money is invested (if there is such an account), the taxes due would involve capital gains taxes which are lower than ordinary income tax rates. Of course, this will have the effect of allowing your TIAA account to grow faster and larger which will then create larger required minimum distributions at age 70.5. Hope these thoughts help a bit.
Dennis: Great question! You're absolutely correct that tracking IRA basis is tedious. If not properly tracked, these dollars are taxed when withdrawn. Yuck! Also, all distributions from an IRA with both pretax and after-tax dollars are pro-rata among pretax and after-tax dollars so you cannot simply isolate the after-tax dollars for a tax-free withdrawal. In general, it may not make sense to make non-deductible IRA contributions if you have quite a bit of pretax IRA dollars already. If you don't have pretax IRA dollars though, there's a wonderful tax-free "back door" Roth IRA strategy.
Dennis: By the way, the pro-rata distributions to which I referred are still applicable even if you try to separate pretax and after-tax IRA dollars in separate IRAs. The IRS views ALL IRAs in aggregate for this pro-rata distribution purpose.
Terry, we have a follow up from Dennis
Dennis: Sure. If you don't currently have pretax $ in an IRA and your AGI is too high to contribute to a Roth IRA, you can simply make a non-deductible contribution to a Traditional IRA. Then you can convert these dollars to your Roth IRA. There would be no tax on this "conversion" because you're only converting after-tax dollars. Therefore, you've essentially made a Roth IRA contribution. Note that, as of 2010, anyone regardless of AGI can execute a Roth conversion. You'd have to track all of this on your tax return via Form 8606, but it's a great strategy!
Dennis: Know, however, that the IRS also aggregates SIMPLE IRAs and SEP-IRAs so when I say "you don't have pretax IRAs" I'm considering those as IRAs too.
Dennis: Yes, the pretax dollars would be taxable.
Hello, this is Kristine McKinley from Beacon Financial Advisors in Lee's Summit, Missouri. I'm looking forward to answering some of your questions.
Here's our next one from Berta
Berta: Question 1 - If the $ are now in an IRA, this will count as an RMD from your IRA. But this really only matters if you have several accounts from which you need to take RMDs.
Berta: It's also important to know that the 1st dollars distributed from an account in the year you reach 70 1/2 is considered your RMD. So you don't want to rollover $ from 401k to IRA in the year you reach 70 1/2 without first taking your RMD.
Berta: Question 2 - Typically a taxpayer can claim up to $3,000 of capital losses on a tax return to offset taxable income. I think this is what you're asking?
Berta: Regarding question #2, you can use capital losses to offset capital gains. A stock loss is a capital loss and the gain on the sale of your home is also capital, so the two can offset each other. So if you have a $30,000 gain on the sale of your home, and you have $10,000 in capital losses from the sale of stocks, your net capital gain would be $20,000,
Thanks, Terry and Kristine
When you're ready, here's our next one from CafLM2