Welcome to today’s Jump-Start Your Retirement Plan Live Chats!
Good morning. Robert Dowling from Modera Wealth Management in NJ
Alright, here is our first question from Dave
Yes Dave you can open an Individual 401K if you have your own business or are a contractor.
You would have had to set up the 401K last year to defer for last year. However you can actually contribute more than the $17,500 as you can contribute an employer match as well. You have until your filing date to contribute the employer portion.
David: to expand on what Jane has said, you will need to create some form of business structure, such as a corporation ("C" or "S") or a Limited Libiability Company (LLC). I believe you are not allowed to simply do business under a Doing Business As (DBA). All of this raises other questions, such as do you have other reasons to create such an entity (e.g. limiting your liability). If not, this may cost more than it is worth. David O
Thanks, David. Good advice
Actually David you can just have your business set up as a Schedule C business - no need for a corporation
It is very easy to start a small business using your Schedule C form that is included with your other forms when filing your taxes. Here you include all of your income and expenses and can contribute all profits (up to certain limits) to an Individual 401K (also sometimes called a Solo 401K). Your tax preparer or financial advisor could be of help to you.
David - you have obviously raised a good question. It appears that what I said about the necessity of a some formal business structure is incorrect. I would underscore two things already said: I took a quick look at the Kiplinger article and believe it could be quite helpful to you. One thing it suggests is that Fidelity may be prepared to help people get started. Secondly, Jane's suggestion to contact your tax preparer or financial advisor is a must. You don't want to go down a path that you have to undue or, worse yet, incru have some kind of penalty for what you have done. David O
And here's our second question from Bruce
Bruce, I also am concerned about bond funds going forward and prefer to use individual bonds which can be bought in odd lots and can be laddered, if desired. By buying individual bonds you get the investment back at maturity and don't have to worry so much about loss of value. Risk with individual bonds is in possibility of the company going bankrupt.
Alright planners, when you're ready, here is our next question from Betty Rosekanne
Betty, it is difficult to answer your question without knowing a little more about your situation. It is excellent that you have the long term care policy. The projected increase in your pension is about 1.5% which helps to deal with inflation. With the health insurance picture changing, health care costs are difficult to predict. I would keep your $45K invested conservatively and try to keep it available as an emergency fund.
Alright, David O, here's a question fr you from William Junge
William: Another good question. It is helpful to think of Social Security as part of your insurance program. I know nothing about your health or family health history (i.e. if your life expectancy is short, we would consider another recommendation), but we normally recommend that people defer taking Social Security until age 70 (but not one day later because Social Security benefits do not increase after age 70). In that way you maximize your income for as long as you live. That is the insurance piece. You will get a larger benefit when you are 90 - or 100. Many things will change between now and 30 or more years from now. We want to protect you from having too little money in your old age. You might ask: won't I lose money if I die when I am 75? The answer is Yes. But insurance can cost money. In that case, it turns out you didn't need the insurance. But this plan overs more protection if you do live a long time. David O
Thank you, David. I like the idea of thinking of Social Security as part of your insurance program.
Jane, you can take this one from Olga
Hi Olga. I am not sure how old you and your husband are or what your health situation is. Also, your current tax bracket would be a consideration in how to handle conversion of your Thrift Savings Plan and/or your husband's 401k to a Roth. An analysis of your pension options should be done before deciding on taking the survivor benefit or purchasing some type of life insurance as an alternative. A financial planner could be a big help to you.
Tim, here's one for you from Bruce
And Robert, here's one for you from Tom
Hi Tom - you will not incur a penalty if you decide to take a distribution from your IRA at 66. The amount that you will pay in tax on the distribution will depend on your tax bracket. However, when we are processing a distribution for a client from an IRA, we consider 20% federal as a starting point, all things being equal.
Jane, when you're ready, here's a question from Nick
Some of the potential risk of MLPs: might have high fees, K1 (tax reporting )consideration, possible unrelated business income in an IRA, MLPs will look to raise capital to fund growth opportunities and this will dilute your ownership and possibly see a lower market price, industry specific risk, and all the other risks associated with the management team of the MLP.