Trisha: A 529 Plan is better for saving for college. Depending on what state you live in, you may receive a tax deduction on your state income tax return for contributions. Roth IRA contributions are subject to income limits while 529 plans are not. In addition, even though funds grow tax-free in a Roth like a 529 plan, Roth IRAs have tax issues if you withdraw funds before 5 years of the account being opened.
Hey Brian: You can begin to make contributions to a Roth IRA as early as January 1st, 2015
Trisha: One other thing- 529 plans must be used for qualified education expenses for the distributions to be tax-free. If one child does not go to college, it can be passed to another sibling.
MD, this is an excellent question. Annuities for already tax deferred accounts are the worst investment in my opinion (IRA's for example) Low cost annuities for those that want tax deferred account with a longer time (usually until age 85) before withdrawal is needed can be a good investment vehicle. We think Vanguard is a great choice for this need. There are many decent sites to compare annuities, I will ask Kiplinger if they have a good article on this. Thanks for this important question.
Bob W: Your asset allocation in retirement depends on a myriad of factors including your current age, spouse's age (if applicable), and whether or not your would like any inheritance left for family members of friends. With that said, if I assume that you just need the funds for 25% of your income in retirement (and no other needs), your stock allocation should be more conservative than 80/100%. If your pension is not indexed for inflation, keep in mind that the amount you will need from your retirement accounts will rise over time. In addition, you will have to pay taxes on the distributions if it's an IRA or 401(k) account. To ensure less volatile returns, your stock allocation should be less than 80%. The exact percent, I cannot tell without more information.
AJ: Many firms don't offer the option to invest such as yours does in TD Ameritrade, so if you do then it would be possible if you wish to keep it there
. While your working at a company you can't roll the 401k into an IRA. Retirment plans that meet the Bankrupcy Abuse Prevention & Consume Protection Act of 2005, which protects ERISA (401k and rollover IRAs) and non-ERISA (IRA) accounts. IRAs are protected up to $1 million.
Frank: Ah, OK. Maybe. Here's my philosophy: Make pre-tax contributions up to your max ($17,500, or $23,000 if you are 50 or older) as long as you will not miss the income amount you are contributing. If you are considering after-tax contributions, same story contribute up to the point you are comfortable "affording", just make sure the after-tax funds are properly accounted for, because when these funds are distributed they should not be taxed again! The after-tax contributions benefit from tax deferral since they are in a 401k. Does this answer your question?
You know, fstone, your question went into the feed but it looks like the advisors accidentally skipped over it. We'll post it again.
Congratulations on your new career. I think you are definitely on the right track financially and I commend you for that! You can start saving for a down payment on a house but no rush on the time-table especially if the rent is reasonable. You are just starting out and career moves are not uncommon in the first few years after college. You may want to bump the emergency savings up to 3-6 months of net income after taxes. Keep up the good work!
Good afternoon. I'm Bobbie Munroe CFP, a NAPFA registered advisor at Supporting Your Choices Inc. I look forward to answering your questions. My thanks to Kiplinger for making this possible.
Thank you to the NAPFA advisers who have been fielding questions for the past couple of hours!
Joining us for the next part of the day we have Mark Coffey, Bobbie Munroe, Chris Remedios, Donald Nicholson and Delia Fernandez. Welcome!
fstone: Why are you wanting to pay down your mortgage early? High interest rate? Balloon provision?
fstone, I was wondering this as well.
Tatyana: If the annuity is what is known as a non-qualified annuity (i.e., not an IRA) it cannot be combined with 401ks or IRAs which are qualified. If the Jackson IS qualified that it can be combined with IRAs and 401ks, etc, and I would recommend combing all into one account.
Bradster we have you coming up momentarily! Thank you for your patience.
KMMJ: It appears you might be able to avoid the penalty for early withdrawal but not the inclusion of the withdrawal in your taxable income.
Tatyana, It can save you money and make your own record keeping more efficient to combine accounts. I like the idea that your new 401k has Vanguard funds, so yes, I'd seriously consider rolling your old 401ks into that plan. A second alternative would be to roll those old 401ks into a rollover IRA directly with Vanguard, which would be the option with the least amount of costs.
Tatyana (part 2): If the Jackson is non-qualified, then you may have tax implications unless it is transferred to another annuity (via a 10-35 tax-free exchange). If this is the case, I would look for a low-cost annuity from Vanguard or TIAA-CREF. If you rollover the 401k to an IRA at Vanguard as well, they can all be at the same company which will make things easier for you.
KMMJ, as you have been out of work for a year, if you have no other income, you won't owe tax on the withdrawal. However, if you are under 59 1/2 you will owe a 10% penalty of $120, I know this may seem like a lot given your situation but the truth is, as there is likely no income tax, this isn't that bad for an early distribution (which usually, with income tax, can cost a taxpayer 40% in total tax). I hope 2015 is much better for you.
Tatyana, Finally, yes, I think sitting down now, at this age, with a financial planner to scope out your retirement is a great idea! It's much easier to be successful if you start early.
Jaysir: Do you have a goal in mind for these funds? Home? Car?
Fstone, the short answer to your question is “no.” Unless there is a specific reason where you absolutely need to pay off the mortgage now and you cannot payoff the loan any other way, taking the tax and penalty hit would be the last of the last resorts. You may however, want to consider opening up a rollover IRA account if you do not already havre one, and rolling over the pension lump sum from your former employer into a rollover IRA account. this way you could defer the taxes while offering you better investment options.
JTS, Having a savings plan in place is exactly the right step in preparing for retirement. What questions do you have regarding your retirement savings. Do you have other goals you feel you are not able to fund?
Tatyana, I just wanted to add that, if you make too much money for a ROTH contribution, you might want to roll your prior 401Ks into your current one. This is because IF you have no other money in a traditional IRA, you can make non-deductible contributions to it and then convert them to a Roth without owing tax. THIS IS ONLY IF YOU MAKE TOO MUCH FOR A ROTH CONTRIBUTION. Another good reason to speak with an advisor one on one.
Bradster: This is a complex question. I think you'd be better discussing it with an accountant overseas experience. i don't have the resources in this chat room to answer this.
JTS : The pension is similar to social security in that it is a stream of income in the future. The challenge is that the future figure is unknown and can't be expressed as a present value. Your wife would have to remain employed by that same employer until retirement for the pension to amount to much.