Jump-Start Your Retirement Plan, February 2015
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, February, 19, from 9 a.m. to 5 p.m. ET.
3rd & 7 37yd
3rd & 7 37yd
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I'll retire soon, with an adequate pension and savings. I can continue the group policy term life insurance my spouse and I started when our now-adult kids were young (income replacement protection back then). But should I? My spouse will receive my pension after my death so income replacement isn't a factor any more. My instinct says cancel, but can you elaborate on how to make a good decision on this? Once I cancel the coverage can't be re-established (I'm grandfathered in to group plans no longer offered). Yes, the rates go up every year or two...
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Seeking to retire Jan 2016 –will be 56.5, very good health and active.
Husband already retired 62 on SS, not in best of health.
401K =$640K, house paid off. Spouse = Annual B4 taxes (SS/Pensions) $39,516 if he was to pass there would still be $27,744 coming in annually just to me. Annual expenses in retirement, after tax $50K. No long term care, No life insurance, no credit card debt, debt limited to car payment.
Questions:
1) Am I crazy to retire Jan 2016 based on these figures listed?
2) What is the best mix stock/bond fund mix based on situation?
3) Any other suggestions. -
Hi Philip, is the Roth IRA the child's Roth IRA? I prefer to see 529s used, then any other of the child's assets, then taxable accounts - does the child work? I really hate to see parents using their own retirement accounts or tax-deferred accounts to pay for college.
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Hi @Philip, I would stick with a 529 plan. Some states offer an additional state income tax deduction to sweeten the pot. But remember not all 529 plans are created equally. Just because you live in one state does not mean you have to invest in that plan.is a great place to find more info about different plan options.
The Internet Guide to Funding College and Section 529 College Savings Plans. Savingforcollege.com
Savingforcollege.comSave for future college costs by using qualified tuition plans (529 plan or 529 program). 529 plans are state sponsored investment programs that are given special tax status. -
Philip, this question requires knowing a lot more about your circumstances. In general, I do think a Roth IRA is an appropriate tool in many circumstances for college saving before a 529 plan... specifically because we can control the investments, the idea of college financing is changing so quickly that it may not be what we imagine, many 529 plans push excessive risk assets on clients that they otherwise would not be comfortable with. But, I would want to know more about your overall financial picture and have a deeper conversation before advising on any strategy.
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@Phil - 529 plans generally only serve one purpose efficiently - paying for "qualified education expenses." If your choice is to save towards your retirement in a Roth OR save for you children's education, then I would suggest saving to the Roth first. At least with the Roth (and to some extent the HSA) money can be utilized to satisfy multiple savings objectives. I generally suggest that clients save for themselves first and their children second.
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Bob, I sent this out over social media the other day -, if savers/investors are to be served well, they really need to comment on the desire to have any advisor 'put the interests of the client first' . . .
Retirement-Account Standards May Tighten
WSJBrokers who recommend retirement-account investments would have to put their clients’ interests first ahead of personal gain under rules expected to be endorsed by the Obama administration as soon as next week. -
DCRaider - I'm one that isn't confident that max funding a 529 is always the best option. The way college financing is changing so quickly.... what if in 18 years proposals to fund the first 2 years of college pass? I prefer to maintain flexibility, and you're doing that in the 401(k) and Roth, but perhaps a tax-efficient taxable account is also something worth considering. It certainly requires some tax planning to determine if the trade-offs of the 529 are worthwhile. If you decide to go with it, 529's allow you to actually fund up to 5 years of the gift tax ($70,000 for you, $140,000 if you have a spouse) in the first year (it's treated as you make the give over the next five years).
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It's the people that do the right thing and save that are the most impacted by future financing benefits! If you've got a 529 plan, you get no tax credits for using those funds... if you qualify for future tax credits in 18 years will be another story :)
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Hi Will, people love pensions. Some of my clients in California have exquisite pensions! They're still around, they just don't generally cover as well as they used to and for younger people not in the education or public service, they're pretty rare these days. It's wonderful that you and your wife have them.
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For DCRaider, the folks asking college financing questions so far haven't mentioned sticker price but I do hope we get to place where those paying (usually parents) require more for their money or require paying less. But until that happens, I don't think we'll get much relief on the prices. The oldest person I've seen die with student loans was 63 . . I'm concerned this will become normalized - ugh.
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@ChipHymiller Hi Chip,
I'm with you on the save for retirement first and children second. What I like about using the HSA contributions for my son's education is in case he decides to become a pilot or a real estate agent? I wouldn't know what to do with a load of money tucked up in a 529 if he choses the non-college route. From my understanding; to use HSA contributions for his education, we would use all of our saved health related receipts over the next 18 years to withdraw from the HSA.
Thanks for taking my question!
Philip -
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Phillip, I think you've got a lot going for you. You may be a little weighted presently towards real estate, so perhaps getting a little more in your own retirement plans makes sense. I've got a few thoughts throughout here on college financing and 529's. It's a tool. It has tax-benefits (presently). You may bump up your 401(k) and Roths. You can always withdraw from the Roths what you put in for part. You can potentially take low-cost loans against a 401(k) for part. Consider as well if you may be able to pay more from cash flow in the future than you can today... I find many young couples do not consider that their income rising over the next 18 years may provide a great way to pay for college (or, a part any how).
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Tax Diversification, if you do NOT have money in other IRAs you might be able to do a back door ROTH contribution. You make a non-deductible traditional IRA contribution (no income limits) and convert it by rolling it over tax free (it was non-deductible) into a ROTH (no income limits for conversions). IF YOU ALREADY HAVE FUNDS IN AN IRA THAT WERE BEFORE TAX THIS DOES NOT WORK WELL!!!!! That said, some of my clients have rolled their old IRAs back up into their current company plan (if the investments are good and low expenses) just so they can do this.
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Tax diversification, here is a Kiplinger article on the subject.
Getting Around Income Limits for a Roth IRA-Kiplinger
www.kiplinger.comAdvice on how to navigate income limits for a Roth IRA plan. -
Thanks, Bobbie. Here's another one, Smart Ways for High Earners to Contribute to Roth IRAs --
Ways for High Earners to Contribute to Roth IRAs-Kiplinger
www.kiplinger.comYou can reduce your modified adjusted gross income by contributing to a 401(k) or flexible spending account. -
Hi, Need Tax Diversification! Check out this Ask Kim column: Flirting With the Roth IRA Income Limits.
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My boyfriend has 2 kids from a previous marriage. Custody is 50-50 with his ex wife and money is 60-40 (ie he pays 60% of their tuition, she pays 40%). We have been discussing marriage, but I'm curious what financial implications this may have on his previous divorce rulings, college tuition/FAFSA for his kids etc. Anything we should really be aware of?
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I have a 401K plan with my company and understand that I don't need to claim it for my taxes as it's already included in my W-2. I also have a Traditional IRA with my bank that I've barely contributed to this year and have made pennies from. Do I need to claim it for my taxes? I didn't receive a form of any sort in the mail via the bank.
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I have 403(b) and 457 plans in place. Is there a reason to establish a 401(k)? The 457 is thru a state-sponsored program (low rates) and I can set up a 401(k) thru the same program but only before I retire. I've heard that there's advantages to rolling money into a 401(k), versus keeping it in 403(b) or 457, but haven't found anything definitive on the pros and cons of doing so, if it's even possible.
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Gerald, I have been using Quicken since 1990. With the memo feature and meticulous entry of receipts, even cash, I could tell you when I fixed the car window, how old the cats where (first bet bill), how much I spent on Christmas, when I last had skin rash. Then about 2 years ago, I stopped being so meticulous. I can't believe it as I am "one of those kinds of people" but I have loved it. So MINT may do everything you need. A lot of my clients use it and love it. Quicken is robust and will handle investments and just about anything you can think of. But if you do use it, I suggest you get a qualified person to help you set it up initially.
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Hi Gerald! Check out Kiplinger's story on the Best Online Money-Management Tools for recommendations.