CafLM2: I don't have advice as to specific investments/ETFs/mutual funds as my role is a financial planner and not investment manager. However, I would ask whether the kids have completely maximized their Roth IRA contributions (for 2012, the lesser of $5,000 or employment income)?
Alright, here's our next question from Sheila
Sheila: In my experience, I haven't seen many beneficial reasons to transfer IRA $ to an HSA. Note that this transfer can only occur once, I believe, during a lifetime. Why not simply make an HSA contribution which is tax deductible? Perhaps you still have the HSA but no longer have an HSA compatible health to allow for HSA contributions?
Sheila, contributions to an HSA are tax deductible, but they are not part of the medical expenses (subject to the floor). They are deducted on the front page of your tax return.
One last note on the HSA, the most you can transfer is the maximum amount that you could contribute to the HSA, so it doesn't make sense to fund the IRA only to turn around and transfer it to the HSA.
Thanks, Kristine and Terry
Ready for our next one from Lisa?
When you're ready, here's our next question from Keith
Keith, assuming that your full retirement age is 66 your social security benefits will grow by 8% for every year that you defer taking your benefits up until age 70.
Keith, in addition to the 8% increase, you also get the cost of living increases.
Thanks, Keith. Glad we could help
Here's our next question from Irvin
Irvin, If you are over 70 1/2 you can make a gift from your IRA directly to a charity without incurring penalties.
Irvin, the answer really depends on how old you are. There is a speacial rule that allows for those who are at least 70.5 years of age to donate up to $100,000 from your IRA directly to a charity without having the amount counted as income
On the other hand distributions that occur on or after the IRA owner reaches age 59.5 may be subject to income tax but will not be subjected to the early-distribution penalty.
Irvin - it depends on your age - if you are over 701/2, you can have up to $100,000 transferred from your IRA directly to a non-profit without getting a tax-bill (or tax-credit for a charitable contribution.)
Thanks, all. Here's our next question from Hank
Hank, it is generally better to delay pulling out of tax-deferred accounts, (your IRA and 401k) until you are forced to do so at age 70.5.
Hank, unless you are 70,5 and have to withdraw from your IRA, we recommending tapping into taxable resources first due to taxes. Keep the tax deferred accounts growing.
Hank, the assets in your IRA and 401(k) grow tax deferred until you withdraw (and you have to take distributions from these accounts once you reach 70.5). So it is better to tap into your taxable accounts first
Hank - so much depends on your current tax bracket and where you expect it to be in the future. On top of that, there are estate-planning issues. So my first suggestion is to sit down with a Certified Financial Planner - see www.NAPFA.org.
That said, I like to see a degree of balance between taxable and tax-deferred accounts, so, all things considered, I'd start by taking money from the largest account. Of course keeping tax-deferral going as long as possible is preferred.
Alright, let's go ahead and tax our next question from Tom
Tom, there is much to consider here. For example, do you need additional $ from your 401k at this time to cover your expenses?
Interesting question Tom, lets think of all sides to this question.
One, you have money invested already in a tax deferred account that will grow over time. You would take the money out because you believe this is the lowest tax bracket you would be in, I am guessing because you will both get social security income in 11 years. We don't really know what taxes will look like in 2024 so I vote on the side of keeping your 401(k) growing tax deferred. Of course if you need the money, then your plan makes sense. You can't overestimate the power of compounding, particularly tax free compoounding
Tom - you may be right about taxes being low and going up, and you are in a pretty sweet spot, being a "senior" and in a low bracket now. Politically, this is a good place to be. However, speculating on what Congress may or may not do with regard to taxes is an exercise in frustration in my experience. You have to attempt to balance out what a future rate would be versus the guaranteed erosion of your withdrawn principal from current taxes. In the words of the old folk adage, "better the Devil you know..."
Alright, ready for our next question from Harry?
I need to pre-qualify that I am not up-to-speed on a TSP inheritance versus the IRA inheritance.
In general, the IRA will allow your wife to assume it as her own, or inherit the IRA.
I would suggest finding a NAPFA advisor in your area to work with and help you answer this question by looking at you full financial status. Check out the "Find an Advisor" link on the NAPFA website, www.napfa.org.
Mitch, I'm not familiar with the TSP distribution options at death, however in doing a quick search it looks as though a non-spouse beneficiary (children) are not able to retain a TSP account. However, they are able to direct the payment to an "inherited IRA" that would be with a different custodian. If this is what you are looking for with regard to moving the money to an IRA first then I believe keeping the money in the TSP plan will provide that end result. One thing to note is that the investements within the TSP have the lowest expenses out there. I found this information in a brochure on the twp website: "Death Benefits: Information for Participants and Beneficiaries".
Thanks, Shannon. That should be helpful
Thanks, all. Great advice
Here's our next few questions from Sammy S
Sammy, if your mom deposited the money into the account, since she is a joint owner it wouldn't be considered a gift. If she wrote you a check it would be considered a gift and no gift tax return would be filed since it is under the $13,000 threshold for 2012. My suggestion would be to move the money to a new account that is joint with your wife instead of re-titling the account.