Jump-Start Your Retirement Plan, December 2014 - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Jump-Start Your Retirement Plan, December 2014

Kiplinger is teaming up with the National Association of Personal Financial Advisors (NAPFA), whose planners will answer questions on retirement planning and other financial challenges. Submit your questions here and get free personalized financial advice on Thursday, December 11, from 9 a.m. to 5 p.m. ET.

  • I would suggest that you look at several companys for their services that they provide, and also ask for a brochure on their company and what those costs might be if they were to work for you,also, ask for referrals of other clients that have similar needs.
  • I have ~ 300K in an IRA, ~70K in a 403b (noncontributory) and 60K in a 401a (also noncontributory). In the past, the two smaller accounts have had better returns, so I have not rolled them over into the IRA. But, the last couple of years, the IRA has done better. In the long run, would it make sense to roll them all into the IRA?over.
  • I have put some money in 529 education fund, but I'm hesitant to put in more because I can't be sure my two children (now under age 5) will ever go to college. If they don't, then I will lose all that 529 money (because my children don't have first cousins). Do you have any suggestions? Thanks.DerekDec 11, 2014 at 1:31 PM
  • It sounds like your IRA has more stocks in it than the other two accounts, since stocks have done well in the past couple of years. If you're no longer working for those employers and can roll them over it you should consider it just for the convenience. Just be sure that the investment mix is a good fit for your risk tolerance.
  • JG Herbert: The answer usually depends on your tax bracket and cash flow demands, but there appears to be a funding issue with your employer. You may want to consider taking the distribution if you are not optimistic about the credit issues your employer may be facing.
  • Hi JG, Would it be helpful to take the full amount as an immediate annuity? A pension is an annuity, a stream of payments over time. Depending on the amount of your Social Security and other retirement income and assets , a stream of payments could provide for your needed expenses leaving other assets to grow to support you over the long term. Interest rates are very low right now so the annuity payments will also be low.
  • Ah Derek, it is true that not knowing the future can complicate decision making:-) First I want you to remember that this money can be used for trade or technical schools as well as college.(even a PGA golf school). And, if they don't use it, you can make yourself the beneficiary (for instance, teachers may get a better pay/retirement if they get additional degrees) or put your grandchildren as beneficiaries at a later date. With my clients I usually suggest we hedge our bets by putting enough to fund 2 years in the 529 plan. That way, if only one child goes, it is fully funded but if both go it is an excellent start and in both cases, there is a lot of tax free money. In the worst case where no one uses it, you can withdraw it but you will have to pay tax on the earnings and a 10% penalty.
  • I'm a recent college graduate contributing $610/mo to my 401k and $715/mo to ESPP/Emergency fund. I have student loans, $11k@3.4% and $2k@6.2%, and an auto loan 7k@2%. My student loans begin payments in 3 months, aside from paying off higher interest first, how should i approach temporarily reducing 401k efforts to pay off debt?
  • If your children do not use the funds, you could use them for yourself or another family member.
  • Hello! My husband inherited money as a child and it was put into the stock market. He lost some of it during the recession but it's now just sitting in an edward jones account. He's withdrawn some here and there when he was in school and for living expenses and had to pay taxes on it as income. There's about $110K. We are both in our late 20s. Should we move some of this to an IRA or Roth IRA? Is that possible from just a straight investment account? We'd also like to buy a house in the future but are unsure how much we'd be taxed if we used a large chunk of this fund for the down payment. Thanks!
  • I'm curious to see the next step on investing for the future. I have class-c Mutual funds (American Funds) and they are growing. Do I re-balance? Do I open another portfolio with another company?
    I don't have a job that offers 401k yet but I will enroll when I do.
  • Plan to retire in 2 more years at age 62. I will be getting SS benefit for $2K per month. My wife is 57 years old, she is currently getting SS disability income for $1K
    per month. Our plan is that she will continue her SS disability check until she reaches her full retirement age at 65, by then she will switch her SS disability
    to SS retirement benefit, at the same time she will apply the SS Spouse Benefit and she should be getting another $1K (50% of my SS benefit)
    Does this sounds correct? Thanks
  • Michael, congratulations on graduating and getting started on saving for retirement and emergencies! The one loan at 6.2% is the one to target first, but I hate to have you cut back on the 401k to do it. If at all possible, be sure to contribute to the 401k to the amount to receive an employer match, if there is one. Then set a plan to pay that higher loan off as soon as possible with "power payments" so you can go back to "cruising level" on the remaining lower-interest loans plus be able to contribute again to the 401k.
  • KT: Roth IRA contributions will be based on your earned income and limited to $5,500 each per year. Yes, if you both qualify to contribute that would be a good idea. Personal funds sold for downpayment of a home could have tax due on the capital gain (if one exist). If your planning ot purchase a home in hte next 3 to 5 years, that money should be conservativly if at all. Leaving it in cash is not a terrible idea if the time horizion is within 3 years.
  • Im struggling betweena 20 or 30 year term life policy (for $750K).

    I'm 32, married with two kids under 5. A 20 year policy ($34 a month) gets my kids through college. A 30 year policy ($54) gets me almost to retirement. My wife works full time and will probably always work at least part time. (she has a 30 year, 500K policy that's $32 a month)
    We fund our 401Ks to employer match and throw a couple hundred bucks into our respective Roth IRA's and an emergency savings account each month.
    If I go with the 20, I'd hope I'd be in a position where I don't need another life policy....obviously I have no crystal ball. But what if I do?
    But the thought of $54 a month every month for the next 30 years seems overkill (no pun intended) too.
    Looking for thoughts on this. I want to make the right choice that balances protecting my family without throwing away cash.
  • neatfreak, I'm with you, the 20 yr looks best. If you make sure you can pay off major debt, such as your mortgage, along the way then I see no strong need for a 30 yr policy. To offset any risk of needing the additional life insurance be sure that you have disability insurance to cover earned income, and sufficient liability insurance through auto and homeowners, so you don't have a loss of that sort that requires extra funds.
  • 7 Tigers, C-class mutual funds have higher ongoing expenses. High expenses reduce your rate of return. I recommend that you research funds with lower costs (I advise clients to capture the return of the market with index funds). American Funds are a good mutual fund company but perhaps you could find a cheaper way to invest at a fund company like Vanguard.
  • neatfreak: Consider buying 2 policies. One 15 year and one 20-30, for example. The idea is the shorter term life policy will cover your kids educatoin and will drop off once the need is gone. Then the longer term policy will remain in effect for the later years leading up to retirement. I also suggest purchasing term policies that are convertable to permenant insurance.
  • Wilson, while I don't know your circumstance...like your health and longevity in your family.....taking social security at age 62 can be very costly as your benefit is reduced by 30%...forever. Now, your wife cannot get her own benefit AND a spousal benefit. A good strategy, especially if you are going to take your benefits at age 62, is to see what her benefit would be if she took the spousal benefit at full retirement age (half of your benefit) and then let hers grow until age 70. This is only a good idea IF her benefit at age 70 would be higher than your benefit at age 62. Whoever lives the longest would continue to receive the higher benefit. This is complicated and frankly, I've had clients call social security and get terrible guidance. It might be a great idea to work through this with an advisor who takes hourly clients.
  • I would suggest that you arrange for an appointment with the InternalRevenue  and give them what you do have information on yourself,if there would be a payment due work out a monthly payment plan.
  • Wilson, I agree with Bobbie, work with an advisor who uses Social Security analysis software to run some scenarios for you.
  • 7 Tigers, If you do not have access to a 401k or other employer plan at this time, you can contribute to a Traditional IRA or Roth IRA. Your traditional IRA contributions may be deductible depending on your taxable income. The Roth Contributions are always after tax. Do you have a tax professional to help you to look at your tax situation and help you determine which plan will work best for you?
  • This question might be too general, but I'm trying anyway. I have a savings account and a checking account. My friends in the financial world say I should be investing instead of having just these accounts. Where/how should I be investing? I had CDs for a while, but they didn't seem that useful to me. I don't know enough to responsibly play the stock market alone, but I've been told that money just "languishes" in the bank. I should say I already invest in retirement. Any advice of avenues to pursue?
  • Wilson -- I'm not going to argue against going to an advisor to nail this down. But also, check this feature out to better to familiarize yourself with the variables. When to claim SS is something we see a lot of questions about here at Kiplinger's.

    Best Strategies to Boost Your Social Security Benefits
  • Emmyp, what is your goal for the funds in the checking and savings account? It is not advisable to invest in the markets if your goal for use is less than 5 years.
  • I would suggest that you talk with your broker about options on possible changes,and or get a referral for a fee-only advisor as a second opinon
  • Emmyp, one of the biggest risks you can take is to not make enough on your savings. Indeed, at current rates, you are not even keeping up with inflation. Make sure you have enough for emergencies and then the simplest thing to do is to open an account with Vanguard and use a Target Date fund...one that allocates assets based on your age. Vanguard would be happy to help you.
  • emmyp: First i would set aside enough cash to have 3 -6 monts expenses covered for an emergency fund. If you have that set aside and you still have extra cash with no short term need (e.g. home or car pruchase for example) I would consider investing the funds if you wont touch them for a while.
  • KT

    May I suggest that each of you open up a ROTH IRA (before the end of the month) and contribute $5,500 each for 2014 and $5,500 each for 2015. You could make your 2014 contribution now and make your 2015 contribution in January for a total of $22,000 ($11,000 in each of your ROTH accounts). You just need to have earned income to contribute from the ROTH but does not matter where the funding is coming from. You will be taxed on the gains from the amount you take out of the Edward Jones account however this will be capital gains from investments in the stock market most likely lower taxes than your ordinary income tax rate. By opening up a ROTH account now and contributing in 2014 & 2015, you will be spreading the tax over two years.
  • Looking for clarification on 72t setup that starts mid year. If you setup the SEPP to occur twice yearly and distributions begin after the mid year point will the first distribution be equal to 50% of the yearly amount. Background; taxpayer born January, 1961 (Age 54.5 in July 2015). For example; SEPP amount to be $50k/year using at or less than federal mid term rate value for twice yearly distribution, would the first distribution equal $25k? Would completing distribution in July 2020 fulfill 5 year requirement and open taxpayer for unrestricted access to IRA funds effect Aug 1, 2020?
  • Marc, I recommend you see a tax professional for this one. After all, you want to be sure they can defend you to the IRS if there are any questions.
  • As a follow up question, since we have $110K in a regular brokerage account, does it make sense to sell some stock, realize and pay the capital gains taxes, then reinvest that same amount (less the taxes) in either a Traditional IRA or a Roth IRA? Or does it make better sense to just keep it in the regular brokerage account? I have a government job and am funding a traditional TSP account and my husband will likely have access to a traditional IRA or Roth through his company in a few years. We're just trying to figure out if the amount of money in the regular brokerage account should be reinvested a different way. Thanks!
  • 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.
  • Hi guys! Thanks for doing this :) I'm 23, starting on my 3rd year in the workforce. Right now I've got about 6 months of salary (not expenses) saved up, so I'm looking into putting the extra in something that's got a bit more ROI than just collecting interest on my savings account. The thing is, I'm pretttty risk adverse, so I don't really know where to start, how how much is reasonable to invest for a first-time investor. I'm also saving for a europe trip early 2016, and eventually a wedding, so I'm not sure whether it makes sense to put my money for those eventual expenses into an investment portfolio, or let it sit in savings (to make sure I don't somehow lose it). Any thoughts? :)
  • 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.
  • Thank you Kiplinger for hosting this and everyone else. I am to be a recipient of a large sum of cash inheritance, with the options of either receiving it in lump sum or spread across many years. The money is invested either way. Question is: From a purely tax planning perspective only on my part as the recipient, is there one option better than the other for me? In other words, does IRS have a rule or annual or lifetime limit that should make one option more attractive the other for me from a tax perspective? (let’s not complicate this with investment opportunities, but rather keep the question to tax obligations only). Thanks again,
  • 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.
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