KT: I would set some goals to fund Roth IRA's, then if you can't afford the IRA's out of cash flow, moving money out of brokerage would be fine. Remember, if you buy the home, don't take a lot of risk on those dollars..
KT, if you pay capital gains tax now you can be assured that you will probably never get a lower rate. And then if you put it in a ROTH (do you make too much for a ROTH?) it is tax free forever. I don't see any advantage in funding a traditional IRA but if they company has a traditional 401K, you will get current tax savings.
Marc, I agree with Delia. These things are complicated and under scrutiny. I always refer clients with this type of question to their CPA
KT, I haven't followed the earlier threads on your situation, but keep in mind that you can not reinvest dividends and interest on the brokerage account to raise cash over time to use for retirement accounts. Also, most people find it's very helpful to have funds outside of retirement accounts to tap when they need them at lower capital gains rates vs. the ordinary income involved with a withdrawal from a deductible IRA.
KT, to be clear, I meant that you can choose to not reinvest dividends and interest in the brokerage account...not that you are prevented from doing so.
KT and everyone...reinvesting dividends in taxable accounts means you have to do some good recordkeeping to make sure you don't pay tax on that money twice. Under current rules your brokerage should help you with this but if you have these from several years ago, you need to figure out your basis asap and keep the record for as long as you own the investment.
Angieh, wow, you're doing well, congratulations! I think you could answer your own question more easily if you can put a cost to that trip and a possible wedding (anyone in mind yet?). That will tell you more about whether you can afford to save for longer term. Remember, too, that if you qualify to contribute to a Roth IRA that you can always remove your original contribution without penalty since it's an after-tax contribution.
AngieH, if it is a one earner household, I usually suggest at least 6 months of income as a safety net. Yes, it is soo boring,, until you need it. Check with Ally Bank online to see if you can increase your interest rate a bit. But if you have a wedding and trip to boot, I think it might be best to wait on the investments. Of course, if you have a retirement plan at work, especially if it has a match, be sure to use it now.
AngieH, Delia makes an excellent point about the ROTH. You can go back and get the original contributions BUT if you have invested it, the account may decline if value by the time you need the funds. Such is the nature of investments in the short term.
Anleh, I can't predict the market but I would advise clients to invest based on when they need the money. If you need the money within the next couple of years, (e.g. vacation, wedding) it should be in the money market certificates of deposits or short term bond funds, if you don't need the money until retirement (e.g., greater than 10 years) it should be in stocks (I like stock indexed mutual funds) and bonds to balance out the rough edges. Historically, the range of stock market average returns over a 10-year period has been anywhere between a low of 0% and a high of 20% per year. Don't be afraid to take risk for money you don't need for at least 10 years. Be very afraid of taking on risk for money you need in a year or two.
Thanks for joining us, Jony!
Jony, this is a good question to ask of an estate planning attorney or tax professional in your state, since some states have inheritance taxes on recipients.
Jony, you also want to consider if the inheritance will be organized to go to your heirs if you pass away during the distribution years.
Emmy, we're not seeing it in here. Would you send it in again?
Emmyp, several of us answered questions for you. Did you have more than one?
Jony, the sad truth is that many advisors might tell you to take it out as a lump sum so they could immediately start making money off of management fees. A good advisor and a CPA can help you work through this. Factors are your current tax rate AND the expenses charged by the current investment company (an insurance company perhaps which could mean high fees).
Jony, make sure any advisor you use is a fiduciary as that will make them obligated to serve your interest before their own. All NAPFA advisors are fiduciaries.
Not greedy, just wanted to make sure. We are here to help you in any way we can.
EmmyP at your age I love the idea of a ROTH. As Delia said in an early post, it can even serve as an emergency fund as you can always get your contributions back without tax or penalties (caution, this for conversions from an IRA to a ROTH, you have to satisfy time requirements before you can pull the contribution out.) If you make less than $116K, you can fully fund a Roth for $5500/year. Your ability to fund a Roth phases out between $116K to 131K for single people (183K to 193K for couples.
emmyp - I would suggest rolling over your 401(k) into an IRA Rollover at a discount brokerage such as Fidelity or Schwab as there are more investment options than in your 401(k). Anytime you are able to contribute to a Roth, it is a good idea as you benefit tax free growth.
emmyp- Vanguard is a low cost investment firm with decent investment options
Emmyp, I agree with Mark's advice to rollover the old 401K. But for those who make too much for a ROTH contribution, you need to check and see if you can keep all your retirement funds in your current employer plan so that you can do a non deductible contribution to an IRA and then convert it to a ROTH. Most employers let you roll old plans into theirs. BTW, a 7% match! This is FABULOUS!!!!!
Wilson, first of all, with this much cash available, I strongly suggest you consider waiting AT LEAST until full retirement age to take your social security as if you take at age 62, your benefit will be reduced by 30%, If you wait until age 70, your benefit will increase by 32% from the benefit at normal retirement age. Most people can't wait but you can. Of course, if you are in bad health, a bird in the hand would be the way to go.
emmyp. Sorry for the delay, I am in Northern CA and we are having storm problems here. I second, third and fourth the idea of the Roth IRA if you are able to contribute. At least you know that the funds can be invested for the long term. If all goes well with the investments, they could also provide funds for a home buy or wedding. Depending on the investment choices and costs of the investments choices in your 401k (also the ability of the plan to accept rollovers from previous plans), rolling the previous plans into the current plan makes looking over your portfolio easier.
Angieh, Roth contributions are phased out between $114k-$129k for those filing single; $181k-191k for married filing jointly
Now lets look at the rest of your question. It seems like you are thinking about trying to live off the income. I suggest that you think in terms of a percentage draw every year based on the prior year end values (or an average of the 3 prior year ends to smooth out the bumps). You might consider 3.5 to 4% which would provide what you need. If your income (interest and dividends) doesn't equal that amount, make sales to come up with the difference. You will keep an overall allocation which considers your total investments and then you will divide them between the accounts for tax efficiency (Roth should have your most aggressive investments and be the last money you spend). Don't get too conservative in retirement. I usually suggest that retirees keep 3 years of cash needs ((total needed less social security or other income to be received) X 3) as part of their cash/fixed income allocation. That should make it where you don't have to liquidate in a down market which will make keeping a higher equity allocation palatable.
Emmyp, I think that couples are well served by visiting with a financial planner before the wedding to discuss investments, wills, powers of attorney, and insurance. Why don't you see if there is an hourly, fee-only (not fee-based) advisor in your area. Start your marriage off by learning to have the money conversation. It will be money well spent.
Angieh, if the wedding is soon I'd first save for it and not invest those funds. You want to be sure they're there for the big event!
Bill, built into the QLAC payment is an inflation factor for what that initial payment should be at that future age, so it's not quite right to say it's not inflating now.
Question: I've heard... a while ago.. that annuities are one of the worst investments out there. However, I've also heard that they've changed. Where's a good place to get an unbiased explanation of annuities and is there a best use case for owning one? Thanks Kiplinger for hosting!
KT, I haven't followed the earlier threads on your situation, but keep in mind that you can not reinvest dividends and interest on the brokerage account to raise cash over time to use for retirement accounts. Also, most people find it's very helpful to have funds outside of retirement accounts to tap when they need them at lower capital gains rates vs. the ordinary income involved with a withdrawal from a deductible IRA.
Anleh, I can't predict the market but I would advise clients to invest based on when they need the money. If you need the money within the next couple of years, (e.g. vacation, wedding) it should be in the money market certificates of deposits or short term bond funds, if you don't need the money until retirement (e.g., greater than 10 years) it should be in stocks (I like stock indexed mutual funds) and bonds to balance out the rough edges. Historically, the range of stock market average returns over a 10-year period has been anywhere between a low of 0% and a high of 20% per year. Don't be afraid to take risk for money you don't need for at least 10 years. Be very afraid of taking on risk for money you need in a year or two.
emmyp. Sorry for the delay, I am in Northern CA and we are having storm problems here. I second, third and fourth the idea of the Roth IRA if you are able to contribute. At least you know that the funds can be invested for the long term. If all goes well with the investments, they could also provide funds for a home buy or wedding. Depending on the investment choices and costs of the investments choices in your 401k (also the ability of the plan to accept rollovers from previous plans), rolling the previous plans into the current plan makes looking over your portfolio easier.
