Jump-Start Your Retirement Plan, June 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, June 5, from 9 a.m. to 5 p.m. ET.

  • Welcome to June's Jump-Start Your Retirement Plan Q&A! 

    During the event, expert financial advisors will answer questions across an array of topics, like:
    • Taxes and Retirement -- including gift taxes, estate taxes and wills
    • Saving for Retirement -- IRAs, Roth IRAs and 401(k)s for those building a retirement nest egg
    • Income in Retirement -- Social Security and income investing strategies from those in retirement and about to retire
    • Other financial challenges -- from investing to saving for college to paying down debt
    The floor is open for questions if you'd like to submit one ahead of time by clicking "make a comment" above.

    Talk to you Thursday!
  • Welcome to this edition of Jump-Start Your Retirement Plan day! Let's give everyone another moment to finish logging in.
  • For the next 8 hours, NAPFA planners will be on hand to answer your questions. You can find a Fee-Only financial planner in your area at www.NAPFA.org
  • Thank you to everyone who submitted questions early, and to those of you who will be joining us live today.
  • We received a number of questions in advance, and questions will be answered in the order they were received. Each question will be held for moderation until an advisor is available to give you a detailed, personalized response. So, if you don’t see your question right away, don’t be concerned!
  • If you have a follow-up question, please submit it, and we will bring it to the advisors’ attention.
  • I'm 38 y.o., single, healthy, no children. My portfolio is $400K, split 70% stocks, 25% bonds, 5% cash. Foreign makes up 25% of stocks and bonds each. My [lofty] goal in 12 years is to pay off my mortgage and work part-time to cover my living expenses. How should my portfolio allocation change as I get closer to my goal?
  • A big thank you to all of our NAPFA advisers who are on hand today. This morning, we have Mark Ziety, Lea Ann Knight, Tim Hamilton, Phil Lee and Peter Godino. Welcome!
  • Im just trying to figure out the best solution to my problem...for example i have 100 shares in ABC company that pays a quarterly dividend of $.50.
  • Assuming all basic living expenses are paid, you have no debt, and a satisfactory emergency fund; In which order should you allocate the remaining money into the following savings vehicles: 401(k), Roth IRA, Traditional IRA, and Brokerage Account? Each year should you max out your 401(k), then IRA(s), before investing in ETF/Stocks/Bonds with a brokerage account?
  • I am 65 and retired. I manage my traditional IRA account as two buckets. Bucket 1 provides the income I need between now and when I turn 70; bucket 2 is for 70 and beyond. My sources of income from now until I file for social security at 70 are as follows; military retirement, a pension from my post-military work in industry, my wife’s SS, and a monthly IRA withdrawal (Bucket 1). Bucket 1 is very conservatively invested.
    Bucket 2 is over $500K and is largely in equities including a big chunk in blue chip dividend stocks and maybe 20% in short duration bond funds.
    Two key facts; (1) Once I turn 70 and file for SS my income needs will be met without the “need” to withdraw from my IRA, (2) By delaying SS till 70, my income (therefore tax bracket) will be larger at 70 than it is today (even with my monthly IRA withdrawals from Bucket 1).
    Here is my question!
    Would it make sense to start doing incremental Roth IRA conversions from Bucket 2 now to reduce my RMD requirements when I turn 70 1/2? I would do it in a way that keeps me in my 15% effective federal tax bracket.
  • Good to be here! I look forward to answering your questions.
  • Michael: Ok what is your problem?
  • Good morning Ice! Retiring at 50 is a great goal. I think that a 70/30 split between equities and fixed income still makes sense at 50, given that you could live 40 years or more in retirement. You will need to stay ahead of inflation and having that exposure to equities will allow you to accomplish that. Once you completely stop working and need your portfolio to generate income, you may need to rebalance to accomplish that.
  • I am on track to retire in 4-5 years at 55. I have a cash flow model using non-deferred mutual funds and divendends to bridge the gap between 55 and when I can collect a traditonal pension at 65 and SS at 67. My company was unexpectedly acquired on May 1 and I'm now forced with liquidating a $175k SEIP account and $100k of stock options, which are of the non-deferred plan type mentioned above. Since I'm going to be taxed as I take the monthly SEIP withdrawls and the options I'm thinking of reivesting the proceeds in a nontaxable fund for the next 4-5 years to fund my cash flow gap. I'm looking for other suggestions or a mutal fund vehicle recommendation. Thanks for your time and consideration.
  • Hi, Vandelay. Great question. As is often the case, it depends on a few more specifics. Your marginal tax rate will impact this decision, as well as the value of current holdings within each of these types of accounts already, and your age can play a role. Generically speaking, the ROTH tends to be better at younger ages, when you have more time to grow the assets within the account. You would certainly want to participate in a 401k, up to any match, first and foremost.
  • While we wait to hear from Michael, here's one from MACK.
  • Hi J. Hart. Your plan for partial Roth conversions is a good strategy to follow and we recommend it for clients in situations like yours regularly. Keep in mind that a Roth conversion will increase your adjusted gross income (AGI). As AGI increases, other areas of your tax return also change - not just your tax bracket. For example, as income increases, more of your wife's Social Security will be included in taxable income. Given your income sources already, this may not impact you. Also, things like medical expenses are only deductible to the extent they exceed 7.5% of AGI, so higher income might mean you don't get to deduct medical expenses. Once final thought, once you reach full retirement age for Social Security, you can file and restrict your application to your spousal benefits and continue to delay your own Social Security benefit. This allows you to receive a Social Security check now based on your wife's work history while your own benefit continues to grow.
  • My dividends automatically purchase shares. Shares are liquidated monthly for my draw. Would it be better to just deposit dividends to use for monthly draw?
  • I'm 67 yrs old, recently retired. I'm thinking of starting a withdrawal schedule from my 401k when I'm 68. If so, when I reach 70 1/2 will I still have to adhere to the IRS's formula for Required Minimum Distributions? Also I have 4 separate 401K plans. If when I reach 70 1/2 the 4 - 401K's are still separate and not consolidated does the IRS require that I take a distribution from each of them? I would like to consolidate them before withdrawals begin but what should I look for in an investment advisor or in an investment company in order to decide where I should consolidate my funds. At the moment (due to a good market) my 4 - 401K plans total about $750,000. Not much to a big investment firm but of course it's large to me since it has to last until I die.
  • I am tracking our expenses this year to get an idea of where our money goes and how much we spend. At the end of the year I want to extrapolate any spending that I would not incur when I retire (I.e. Business expenses). I pay quarterly taxes and my wife has normal tax withdrawals (2x a month paycheck). Would I not count my quarterly taxes that I pay now in my retirement expenses calculations (assuming I am not working at all)?
  • Mack: Good question. I would recommend you turn off the automatic dividend purchases. Since you are drawing from the stock/dividends anyways, have the divident pay to cash and draw from that first. If you need additional funds then you can sell the approprate shares. This method will also make it a bit easier to keep track of your cost basis.
  • For anyone else wondering about 401(k) RMDs, here's a story our Kim Lankford just wrote about how to avoid them: mykip.co
  • I am now eligible for 401k at my new job. They have a safe harbor 401k plan. I have the option of making regular (pretax) or Roth deductions or a combination. Income is over 250k. I am 40. What would be the best option?
  • HI Richard. Sounds like you don't necessarily need these unexpected taxable payouts to fund your living expenses between 55 and 65, so I would also consider putting the proceeds into Exchange Traded Funds (ETFs). They are more tax-efficient than equity mutual funds. Retiring at 55 means you have a long retirement ahead of you and you will want to stay ahead of inflation, so equities may be more appropriate than a muni bond fund. If you do need some income from this bucket of money, focus your research on dividend paying ETFs.
  • I am married, 48 with a portfolio of 312000, if I put 15% away, is it better to take any remaining money and pay down the house (approximately350.00 per month extra cash) or stop paying extra on the house and max out Roth IRA. at the rate I am going house will be paid for in 6 years, 4 months.
  • Hi D. You still need to take required minimum distributions (RMD) starting at age 70 1/2 even if you take withdrawals before then. You can take more than the RMD, the RMD is simply the minimum you must take. Your RMD is calculated each year based on your age and the balance in your account on 12/31 of the prior year. Whoever holds your account(s) can do the calculation for you. Next, you can take the sum of your RMDs from one account, two accounts, or split it among all your accounts. You aren't required to take the exact RMD from each respective account. As for finding an advisor, check out Kiplinger's article, "6 Steps to Finding a Great Financial Advisor"

    6 Steps to Finding a Great Financial Adviser-Kiplinger

    www.kiplinger.com1. Align your interests by working with a fee-only adviser, meaning one who does not accept commissions. All advisers have some conflicts of interest, but fee-only advisers have the fewest. (Note that
  • Good morning. I am a federal employee - started with the government straight out of college 10 years ago. I have now worked my way up the ladder and am a GS-14. Since I began working for the government, I've been making contributions to my TSP account and now have a $115k+ balance in my account. A few years ago, the TSP began offering a Roth option. For now, my entire TSP balance and contributions are "traditional" TSP. How do I know if the Roth TSP would be a better option for me? Should I start making all contributions to the Roth TSP? Should I split my contributions? I know that the whole point of the Roth option is that it makes sense if I'll be in a higher tax bracket when I retire than the bracket I am in now. How can I know whether or not I'll be in a higher tax bracket when I retire? Thank you!
  • Hi travel man. Where are we headed next? Gettysburg for me. Yes, assuming the business income ceases at retirement, you could omit those tax payments from retirement expenditures. Same goes for your wife, if her income cease at retirement, her tax payment become less interesting for your retirement expenditures. You may want to include a tax "expense" for whatever retirement income sources you'll be using to pay your various other expenses. I hope retirement is well traveled!
  • Trying again! Hi Cecil - Unless your mortgage is at a higher rate than normal, you probably want to sock away what you can for retirement, including maxing out your Roth IRA. Once you stop working you won't be able to make Roth IRA contributions AND you will need to live off what you've saved. Your mortgage interest is tax-deductible, so chances are you could make more over time in the equity markets than what you would save by making extra mortgage payments.
  • Thank you. Maui in September. Just got back from Venice and Florence.
  • My company offers a choice between a 401K and a Roth 401K. I am 39 years old. Should I contribute 100% to either one, or a portion to each.
  • Setu: Good question. This answer may be dependent upon your current marginal rate and what you expect your own marginal rate in the future will be. Not only that but you would ideally want to know what or how Congress may change the tax code. The benefit to the 401k is that you get the current year deferral (good thing) and you may be able to withdraw at a lower future tax bracket (also good). However, the 401k is subject to Required Minimum withdrawals. The Roth IRA is not subject to the RMD rules which may people like. I like the approach of having a mix of pre-taxed dollars and post-tax dollars during retirement and would thus recommend a mix.
  • HI Chris - It depends on your current tax bracket. If you think you are going to be in a lower tax bracket in retirement and you are paying a lot in taxes now, you might want to take advantage of the pre-tax deductions of a regular 401k. If you think your taxes might be the same or higher by the time you retire, using the tax-free Roth 401k will make more sense. Of course, ideally over time it's good to have both, so splitting your contribution will start to build flexibility in withdrawal strategies in retirement.
  • That is a great question, Chris. I like to see tax diversification when it comes to this decision. In other words, a little of both tends to be helpful. I'd lean toward the ROTH, given your age, though your tax circumstance should impact the ultimate decision. It's not much fun to make a ROTH contribution into a higher marginal tax rate. An accountant can provide clarity on this point. Whatever you do, pick up any employer match! Best to you..
  • Here's a question from Tom:
  • I would like to set up a Roth IRA but struggling with what mutual funds to go with through say like Vanguard or Fidelity or TIAA etc. I am 50 and can contribute the max per year at this time. Any suggestions and also I have a 457 from a previous employer that I could roll over. It has about 16K in it. Am I able to roll that whole amount over and still contribute the maximum amount in one year? Thanks
  • @Chris -- Great answers. I've seen situations where people have ONLY deferred accounts from which to draw in retirement and every dollar is taxable. They have no flexibility in pulling funds from various accounts (pre-tax, post-tax)
  • Hi Clifton. You're correct that the Roth TSP or traditional TSP depends on your tax bracket now vs. your tax bracket later. To figure your tax bracket now, look at your 2013 tax return line 43 of your 1040. Taxable income on line 43 is used to figure your tax bracket. For 2014, if your taxable income is equal or less than $36,900 single or $73,800 married, you are in the 15% tax bracket. If your taxable income is below $89,350 single or $148,850 married, you are in the 25% tax bracket. My rule of thumb is if you are in the 15% tax bracket, use the Roth TSP. If you are higher than the 25% tax bracket, use the traditional TSP. If you are in the 25% tax bracket, you can do either. Given your age, I like the idea of making Roth contributions now since your income will likely go up during your career. As your income increases and you can use more tax deductions, switch back to the traditional contributions.
  • I submitted a lengthy question yesterday how do I retrieve it to enter ir in the queue?
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