Hi John, Can I assume you trust your financial advisor and this advice was given in the context of an overall plan? Is your advisor paid on the sale of the annuity? Was the suggestion made because of something in your situation that called for a specific fixed income need? It's not clear from your question what purpose the annuity would serve for you and your wife. Happy to follow up -
Jess - Refinancing can be a great idea and it can also be an expensive way to save money, so consider the interest rate savings and see if you can refi for no or low costs. Also consider going to your existing lender and asking them to lower the rate AND remove the mortgage insurance after you pay down the principal. Make sure you plan to stay in your house for many years. It sure is easy to just pay off the high interest rate personal loan. Use the rest of the money and your the monthly loan payments to build an emergency fund or pay down your mortgage and then go back to the idea of asking the bank to lower the rate and remove the mortgage insurance.
IRA, You cannot combine the ROTH with your current plan unless it has a ROTH IRA feature. In any event, I don't see any advantage in doing so. Now let's talk about the traditional IRA. There is a work around for high income earners who otherwise do not qualify for ROTH contributions. For those clients, we HAVE taken the money from their traditional IRA and rolled it up into their current employer plan. This would leave you with 25K in the Roth and -0- in the traditional IRA. Then you can make annual, non-deductible contributions to the Traditional IRA (there are no income limits on non-deductible contributions) and THEN immediately convert that amount from the traditional IRA to the ROTH (there are currently no income limits on Roth conversions). NOTE: If you do NOT rollover the current IRA to your current employer plan and you made the non-deductible contributions to the IRA, any conversion to a Roth would be taxable on a prorata basis. Kiplinger do you have an article on this? It can be complicated...courtesy of US tax law:-)
Hello EMEO91 - I'm not sure of any pecuniary benefits, but if you don't need the money to live on, she could contribute all her income to a 401k or 403b retirement plan sponsored by the organization and it would make all her income essentially tax free and you would be saving for retirement. If no retirement plan offered by employer, consider maxing out on a Roth IRA.
Lauren, Excellent question(s). Congratulations on a good savings rate too. Here's one way to back of the napkin think about a retirement 'paycheck' created from multiple sources. Write each source down, the timing of when it starts and the expected amount. It sounds like you will have enough based on what you've shared but I'd want to look to at least two other items - inflation projections and effect on your assumptions, and modeling expenses (like those recurring cars) and longevity. Also, have you ever received an optimized report regarding your specific social security numbers? That can be very helpful in planning. As for tax planning, much has gone by the wayside but you can look to tax managed funds for taxable accounts, muni funds too. Taxes are truly a bear right now and we all pay a lot of them and not just on income. I would try to build up your taxable accounts over the next 11 years to enjoy cap gains rates on withdrawal vs. income rates on the tax deferred accounts - good luck and keep at it!
First you done a few things correctly. Paying into your state pension, having your student loans almost paid off, having no credit card debt and a small mortgage at the age of 29 is great. But, yes, you are missing a major opportunity of potential future returns from stock, bond and other investment returns.
Blackguru, that mortgage is actually costing you less than 4% as you get to deduct it on your taxes. If you are in the 30% combined state and federal tax bracket, the mortgage is only costing you .7 X 4% or 2.8%. Now, if you were about to retire, I might feel differently. But you are young and I am confident that over the period of the mortgage you could easily beat the 2.8% by investing. Good question.
Ah Samy, Tim is going to answer you but I had to congratulate you for knowing about a back door Roth. Very savvy.
Most everyone can invest annually in some type of an IRA up to an annual amount of $5,500.
Hi Larry, I think you can handle this - in general we like to withdraw from taxable accounts first due to the lower capital gains rates on those accounts vs. tax-deferred like your IRA but sometimes there can be reasons we might go 1/2 and 1/2 or start with the IRA and that would usually be because of a particular low tax year anyway that favors taking from the IRA first. Does this answer your question? And congratulations on your impending retirement!
DK, if the money is withdrawn for something rather than education, the earnings will be taxed and there will be a 10% penalty. Savingforcollege.com is a good site for 529 info. Remember, this could be used to fund someone else in the family to include the parents or future grandchildren. And it can be used for trade/technical schools.
Hello Samy - You should consult with your accountant on some tax planning because you will have to take this money at some point and being as young as you are you might have to take this money when you are earning much more. You seem to already be in the highest tax bracket. Also consider what investment vehicles you have in the 457 plan. Remember that these plans are a general obligation of the company and not a separate investment account. Also consider what happens when you eventually leave the company via retirement or otherwise.
Hi PG, If you are rolling a 401k to a traditional IRA in a trustee to trustee rollover (never comes to you, just goes from existing institution to the place where you have an IRA), no tax consequences.
Hello JMac - Youth is fleeting! Save as much as you can in the TSP. Don't buy more house than you can comfortably afford, especially if you plan to have children and may desire to live on one income. You can save after-tax dollars to build an emergency fund to cover your costs for 3-6 months, then begin investing in mutual funds.
These annual amounts can compound over time to some material retirement savings balances. You, can invest $5,500 for 2014 and another $5,500 in 2015. Take a look at the Vanguard site and look at a fund called Total Stock Market Index. You'll likely want to talk to a Representative. You can save unlimited amounts in regular taxable funds. Stock Market Index Funds are relatively tax efficient for long term investments. In addition to investing outside of your employer, consider researching whether the state offers a 457 type contribution fund. This can be similar to a 401k where you contribute to a wide variety of mutual funds. Consider checking if your state has fully funded your pension. Some states have been struggling financially and have not been able meet this commitment. This is just another incentive to invest outside your employer in IRA's or regular taxable investments.
Hi sfmitch, a SEP-IRA isn't more complicated but it does have it's own rules so it has its own paperwork. You can start one by yourself, the reason to use a professional to assist is to confirm you are maxing it out as you'd like and investing the amounts as you'd like. I'm going to ask Kiplinger's to post a link to an article I'm certain they have the shows the options side by side (you could also google this) but SEP IRAs can work well.
Al, many of us work remotely with clients via webex or skype. So don't give up. I've been meeting with other clients who, like you, have a child starting college just as many who started their families earlier are empty nesters and able to save aggressively for retirement. You are not alone. I agree that working on your debt is number one on the list. Is it possible that you could use some student loans or have your child work part-time to fund college and or his expenses? The former is not the most pleasant idea but there is much more time to pay student loans than there is for you to prepare for retirement. As for the latter, I know many affluent clients who require this of their children. Children tend to do better if they have some skin in the game. Would these alternatives help you have the additional cash to retire you debt? If not, you need to go over your budget with a fine tooth comb, come up with a strategy that will let you pay off the debt within a fixed time period (3 years would be great) and still save for yourselves. It might mean giving up some things but the payoff will come later....when you really need it. Good luck!
Hi CK - Good to be thinking ahead! You should make some projections with your accountant to see what makes sense. Another key decision that goes hand-in-hand is when to begin taking social security. Both of these decisions have big impacts. You might find it does not pay to take IRA withdrawals before forced to at 70 1/2.
Hi Rita, great question. Here's my recommended order - emergency, 401k and then IRA - (just as you listed actually). Good luck on going back to work!
RIta, to be just a bit more specific, emergency of 3 months expenses (to avoid credit card runups), 401k to take advantage of free money (the match) and IRA to build more long term savings in another tax-deferred vehicle. Also consider a taxable account for the purpose of retirement.
Hi MoneyQuestioner, great question - and the answer is maybe. Family and personal health history matter as does cash flow which from what you've described is good. I really like John Ryan (been using John for 20+ years) who is a fee-only insurance pro licensed in all states. His website has a ton of info and calculators plus no hassle quote requests (although an actual policy generally requires a fairly invasive health inquiry at any firm) ryan-insurance.net
MoneyQuestioner, aside from the question of need, there is unfortunately also the question of the strength of that particular part of the insurance industry and the products offered. Include this in any discussion with a provider.
Ah wondering wife, you are correct. Keeping that debt will NOT improve his credit. Indeed, much of the credit score is based on how much of your credit you are using (which is why you shouldn't close accounts with -0- balances). A usage of 100% will DEFINITELY hurt his credit not help it. So he does need to pay this off. It would be interesting to get the the root of his thinking.....why is he holding on to this idea? Does he just want to spend more? Without figuring that part out, getting him to change is unlikely. Do you use a budget? Does it include irregular expenses? I have clients put money monthly into savings for home repairs, car repairs, vacations, holidays, and other big purchases. That way, the money is there when it is needed. And it WILL be needed as roofs leak and air conditioners break and cars, well..... you get the idea. There are many helpful sites for budgeting to include mvelopes.com and mint.com. Get it down on paper and it will help you both make decisions about where your money goes. GOOD LUCK!