WS: There are return on investment advantages form having a well diversifed portfolio and rebalancing annually to specific targets for each asset class in your portfolio. You should consult a NAPFA advisor to explain this further and assist you in selecting asset classes and specific targets for each asset class.
Advisors, here's our next one from DOC114
Doc114: probably not, if you are covered under her plan, and she is maxing it out as family contribution. Assuming that is the case then you would not be able to open a separate HSA account.
DOC114. COntribution limits for a HSA vary depending on weather plan is for an individual or if it is for a family. If you are included in wife's plan, she can contribute the family limit which is considerably higher than individual limit so there is no need for you to open a separate HSA. If you have not signed up for Medicare, there may be cost advantages for you to do so. Check with plan sponser. You do not have to sign up for SS at same time you sign up for Medicare.
DOC114, workers with HDHP can contribute and deduct up to $6,450 (for family coverage) in 2013. If she is over 55, she can contribute another $1,000. So, if she is already contributing the full amount, you cannot, by law, contribute any more to the plan. However, I would check Notice 2004-2 from the IRS (www.irs.gov). There is some indication that you may both be able to make catch-up contributions. However, there is language that indicates you may need to be under 65. I would check with your CPA.
Thanks, all. Here's our next one from Scott
Scott, I think you always need a will. It will control the distribution of assets that are outside of revocable trusts (like cars, etc). A revocable trust can be used to avoid probate and possibly in the case of incapacitation. A revocable trust allows you to set up a successor trustee that can control your finances if you are not able to do so. It is important to note that a revocable trust does nothing to reduce estate taxes or income taxes. While I like revocable trusts, I don't think everyone needs them. You may be able to accomplish the same thing with beneficiary designations and payable on death accounts.
Scott. I bleive the answer to trust versus will is that it depends . Wills must go through the probate process whch can be costly depending on state of residence and can be time consuming. Trust do not have this restriction. Wills are public documents, trusts are not. So a revocable trust may be best for you, depending on your objectives. Best to consult with an estate planning attorney before you make a decision and then have the attorney draw up proper document. Both are legal documents and financial advsors can not perform drafting of document.
Thanks, James and Erin. A good starting point for Scott
Here's our next question from Herestous
Herestous: yes, you can stop your monthly distributions when you reach age 59.5 since you took them for at least 5 years. I'm not aware of any forms you need to file when you stop the distributions, but you may wish to check with a CPA to confirm.
Herestous, a 72(t) distribution of substantially equal payments has to be made for 5 years. It looks like you are past the 5 year mark and stop the payments at any time. You do not need to file anything with the IRS.
Here's our next question from JS
JS, one of my favorite current strategies (if you do not have existing IRA money), is to contribute to a non-deductible traditional IRA and then later convert that to a Roth IRA. The conversion would not be taxed because the IRA contributions were non-deductible. This only works if you do not have existing IRAs. It's a great way to contribute to a Roth IRA when your income is too high to contribute to one directly.
JS: if you have high income, converting a traditional IRA to a Roth IRA will create even more income; you may not want to do that, especially if you are close to retirement. As far as contributing after-tax funds to an IRA, this is a 'it depends' answer. If you already have a large IRA without any after-tax funds, I'd probably avoid making after-tax contributions to the IRA. Simply invest the funds in a low-cost, tax-efficient investment like an index fund. On the other hand, if the IRA is relatively small and it has after-tax funds in it, then making contributions is certainly an option. If the account has enough after-tax 'basis' and a relatively small amount of earnings, then a Roth conversion should certainly be considered.
JS: Income limits for ROTH are higher than for traditional IRA. You may be able to contribute directly to ROTH. AGI income limit for ROTH is $178k for joint return, $112k for single return Traditional IRA is $95k and $59k for same limits.
Here's our next question from GadgetQueen
GadgetQueen: I think it is important to consider one's whole picture. Yes, one always wants to minimize taxes, but one also needs to think about maximizing Social Security benefits and how best to invest one's assets across different types of accounts. I agree that Roth IRAs should maximize growth as much as possible. One strategy that we use is to urge folks to consider delaying Social Security benefits to age 70 and then drawing down their investment accounts prior to age 70 for living expenses. (This could be a combination of drawing down tax-deferred accounts as well as non-retirement accounts.) This allows one to reap full advantage of the delayed retirement credits offered by Social Security, and then helps to minimize required minimum distributions at age 70.5. There are many moving parts to distribution planning!
GadgetQueen, I agree that maximizing contributions to a Roth IRA is a great idea for avoiding future taxes. Also, Roth IRAs probably do need to be invested for growth. As for the annuity question, that really depends on what you are trying to accoplish. In general, annuities have higher internal expenses and once you annuitize, you may lose the ability to leave the asset to your heirs. So, it really depends on your specific situation.
Here's our next question from Roberta
Roberta: If that annuity is already in an IRA, then yes, the payout counts towards your required minimum distribution. It is important that to note that your RMD will be based on the total amount of all of your IRAs. So you need to make sure the amount of the distribution from the annuity covers your RMD for all IRAs. If you also have assets in a 401k, then that account will have its own RMD. And yes, the payout is most likely ordinary income. As far as your 2nd question, yes, you can use any realized capital losses or loss carry forwards to offset any capital gains from selling a residence
Roberta: I should also note that if your annuity payout does not cover the RMD for all of your IRAs, then you'll need to simply take another distribution from one of the other IRAs. This all assumes there are other IRAs!
Roberta, let me answer the second question first. If you are single, you are not taxed on the first $250,000 of gains on your personal residence. So, your home would have to appreciate by more than $250,000 to be taxed. The basis of your home includes additions and improvements to the home as well as the original cost. If you still have a gain, then you can offset with stock losses.
Roberta, IRAs allow you to aggregate the account values and take one distribution from one IRA. However, 401(k) plans generally require that you take a required distribution from that account. Check with your plan sponsor or CPA to make sure. And yes, it is taxed at ordinary income rates.
Thanks, Ken and Erin. Ready for our next one from RAMFIT?
RAMFIT: since you were covered by a retirement plan at work, any contributions to a regular IRA would probably not be deductible. Sounds as if your income was too high. Contributions to a Roth IRA are never deductible. Sorry, but you may not have any options left regarding 2012 taxes. Good time though to think about 2013!
RAMFIT, the best time to plan for 2013 taxes is right now. 401(k) plans are generally a great vehicle to reduce taxes. However, if you do not have a 401(k) plan, you may be able to contribute to a traditional deductible IRA. Check with your CPA to see if that is a possibility. Roth IRA contributions are not deductible and will not reduce your current income taxes. Good luck to you!
Great. Thanks, Erin and Ken!
Here's one more question from Greg Emmers before you have to sign off.
Greg: sounds like your wife was not covered by a retirement plan at work so any IRA contribution would be deductible. You can only contribute a maximum of the $5,800 since this was the earned income. It is does not matter which IRA you make the contribution to or which bank account it comes from.
Greg, you are allowed to contribute to a traditional IRA if you have earned income. It does not matter where the funds come from. It can be your wife's IRA or your IRA or both as long as the total does not exceed $5,800 between the two. As long as neither of you are active participants in an employer sponsored plan and your income is less than $173,000 (in 2012), the contribution should be deductible. Check with your CPA to make sure. You have until April 15 to make the contribution.
Thanks so much for the opportunity! Have a great day!
Alright, hang with me here as we transition from advisors.