Jump-Start Your Retirement Plan, September 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, September 25, from 9 a.m. to 5 p.m. ET.
3rd & 7 37yd
3rd & 7 37yd
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Hi Ohio Buckeye, we run an excellent report in the office that considers birthdate, gender, PIA, spending needs, future earnings, etc. It compares available strategies to show you which one provides the most overall income from SS to your household. You may choose a different strategy for other reasons but clients find it quite helpful. Most fee-only planners would have a similar tool available to provide the report at a reasonable charge. I recommend you get specific guidance with your actual benefit, spending numbers.
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@Vark77 it sounds like you have a lot of moving pieces, and I certainly can't say which accounts would be best to tap from an investment standpoint. I do think you appear otherwise are thinking about things correctly. Keep in mind the limitations on one-time partial withdrawals from the TSP. Also, try to coordinate your investment approach over your accounts. Some of your concerns are fairly (medicare costs) are likely minor compared to keeping your investment plan. While we want to incorporate taxes in the plan, don't put too much of the tax decision in front of the investment plan.
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@vark77 Working with your comprehensive financial planning software... model the baseline cash flows, then identify and prioritize your specific questions; then create "what if scenarios" to determine he various impacts. Your questions could be minimize current income tax, maximize inheritance, minimize future income tax, minimize income tax on inherited assets. As for form 8606 ask your CPA
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Vark77, you may want to read this recent Kiplinger feature on continuing care retirement communities --
Retire in Style at a CCRC Continuing Care Retirement Community-Kiplinger
www.kiplinger.comContinuing care retirement communities offer a resort-like setting and care when you need it. -
@Vark77: I agree with Robert S. It sounds like there is a lot involved with your situation and you really need someone to run a detailed income tax analysis for you to determine what's best in this situation. And to echo his comments, "Don't let the tax tail wag the investment dog." In other words, make sure you don't make
investment decisions solely based on tax considerations. -
I am 36 I have a lot of student loan debt. I have a career nonprofit and Fed Loans says that I am eligible after the 10 years of prompt payment for loan forgiveness because of my field. However, will having this much debt prevent me from saving as much as I need for retirement, buying a home or generally just having assets that will be valuable later for retirement? Do you have any advice? Any help for student debt holders on the horizon. I was 18 alone, no financial education and just signing away.
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Ohio Buckeye - another thought - we generally recommend everyone wait till age 70 if they can and there are two times we might say start earlier (neither of which you mentioned), if the household needs more cash flow or if there is an acute illness that makes waiting not worth it.
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@Vark77: Question 3. The medical expense itemized deduction is for expenses that exceed 7.5% of your AGI. As you take more money from your IRA, your AGI increases, as does the dollar amount for the 7.5% threshold. Use your IRA first; if you can deplete all of your IRA or your spouse's, you should combine it with Roth conversions. If you convert your IRA basis, and your IRA has $0 balance on Dec. 31st, your Roth conversion won't be taxable. This allows your IRA basis to now grow tax free in a Roth IRA. Work through tax form 8606 with your tax preparer.
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@Nikkia that is a question I see many struggle with. I would encourage you to try to both save for the long-term, and make payments at the same time. At the very least if you have a match from an employer retirement plan I'd like so see you try to get that. Since you are in a job that qualifies for forgiveness you can perhaps lower your payment below the 10 year schedule with the income-based repayment options. These are meant to help if the 10 year payment is too much to live, save, and pay back loans.
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@Vark77: Question 5. Yes, you're on the right track. The other consideration is the Alternative Minimum Tax which could be triggered depending on your income and deduction amounts. With so many moving parts to your strategy, consider working with a CPA or tax preparer that can run tax projections for you and show the impact of changes to the strategy.
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@tks So it sounds as though the cobbled together suggestions here suggest leaving the $$ in the plan, retiring after 55, taking money out (as/if allowed by plan document) to supplement income needs until claiming ss. You indicated (I interpreted) you will continue to work as a contractor at same company after retirement. I suggest you do some additional research on what it means to be a 1099 contractor. Retiring and going back to the same job duties subject to all the same requirements as an employee, just now you pay all you own income taxes, doesn't make you a non--employee. This is the IRS page for independent contractor status tests: http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Independent-Contractor-Self-Employed-or-Employee
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@Nikkia... try to have 20% of your income go towards "financial priorities" which would include paying down debt and saving. If it's a struggle to save much with that, then try to look at the income-based plans. However, certain plans such as extended repayment will not be qualified for forgiveness.
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This is a question about MRD’s (or is it RMD’s?).
I have a Traditional IRA, a Roth IRA, a Rollover IRA (funded from lump sum from 100% company paid pension) and an Annuity (funded from the Rollover IRA). All withdrawals are/will be 100% taxable, excluding the Roth IRA.
The question is should the Traditional IRA, the Rollover IRA and the Annuity be included in the MRD calculation?
And from the then calculated total amount to be withdrawn, can the amount be taken from one source or must it be taken prorata from all sources?
Then there is the question of existing withdrawals, such as from the annuity. If withdrawals must be from all sources, can “excess” withdrawals from one source be applied to another source to meet the required minimum in total? -
I have a friend who retired in Oregon but still close enough to the border of Washington because he wanted to maximize his retirement income by taking advantage of the tax differences in each of these two states. Would you be able to advise on the advantages of relocating to a different state to retire based on a middle class retirement income with a moderate IRA account?
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3 months ago we received notice our "Open line credit loan" through M&I bank (now BMO Harris bank) is being called due Oct.10th,2014. With BMO Harris, unfortunately trying to re-finance it has been a nightmare and we are still working on trying to save our home ! M&I Bank before BMO bought the Milwaukee-based financial institution in 2011. The bank regulators decided to dissolve the "Open line credit loans" . My question is: I thought we signed a contract ? Can they legally do this ? My grade for BMO Harris is an "F" ! I am over 16 k trying to pay down the 2nd to qualify on a refinance !
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Silvia, your question is wonderfully timed. Kiplinger just released its updated State-by-State Guide to Taxes on Retirees yesterday --
State-by-State Guide to Taxes on Retirees-Kiplinger
www.kiplinger.comState-by-State Guide to Taxes on Retirees -
Some states tax different types of income in retirement much differently. Use our map and state-compare tool to see how neighboring states stack up --
State-by-State Guide to Taxes on Retirees-Kiplinger
www.kiplinger.comState-by-State Guide to Taxes on Retirees -
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@Nancy K: I'm so sorry for your experience! As far as the legality of what they're doing, you'd have to consult with an attorney experienced in what you're dealing with. If you're not already doing so, it might also make sense to work with a reputable consumer credit counseling agency in your area who can help you negotiate with the lender.
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Hi King Garlic, my understanding of distribution options from different types of accounts must be calculated from each type and taken as RMDs from that type only (i.e. multiple IRAs can be combined to come up with an RMD, but you cannot combine a 403(b) and IRA to come up with an RMD) and you want to be careful to have your calculation correct because penalties for an RMD shortfall are 50% of the shortfall.
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@RobertSchmansky,CFP®,EA Thanks so much! I will make sure I am on the right plan. So you are saying that 20% of my income should go toward financial priorities like student loan, credit cards, saving and retirement--all combined? All of that together should be 20% of my income after taxes?
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MRDs must be calculated using the right table (i.e. for a spouse who is more than 10 years younger, it's a different table) - here's one example of an online calculator that may be helpful.
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@silvia The specifics of individual tax rules is really something for a tax expert in those states. I'm on the opposite coast, so I can't even begin to imagine what the state taxes are like in Washington/Oregon. From a planning perspective however, I would take into consideration how much greener the grass would be on the other side of the state line to make me move. Are there lifestyle changes? Would you need to change all your medical professionals? Would you be putting relationships at risk because you're not "just down the street"? As Robert Long points out the way and the on what income taxes are applied might have an impact. I would also consider estate taxes too. I would also caution against comparing your financial/tax situation to that of your friend as it is unlikely that you have identical situations. That old saying "if all your friends were jumping off the Brooklyn Bridge would you jump too?"
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@King Garlic: Here's Kiplinger's IRA RMD calculator.... http://www.kiplinger.com/tool/retirement/T032-S000-minimum-ira-distribution-calculator-what-is-my-min/
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When an individual investor at time of retirement is deciding how much of his/her investment portfolio should be split between bonds and stocks, should one count one's pension income and Social Security income as part of the percentage on the bond side? For example: if one has 60% stocks and 40% bonds, does one count the pension and SS income as part of the 40%?
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If I retire from my job as a clerical worker at a Public High School in Califorina, do I recieve my full pension from the Public School district that I work for as well as my full Social Security benefits that I also earned during my entire working career? I heard that the Social Security part may be cut down even though this is money that was deducted from my paycheck.. Please help
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My wife and I retired 5 years ago. Current ages 67 and 66. We have been living comfortably on cash flow provided by interest, dividends, rental income, social security, and a small pension. We have no debt and net worth has averaged 9.5% growth each of the last 5 years. My question is when and how much of our current net worth do we to gift to children and grandchildren versus continuing to save for unforeseen expenses such has long term health care?
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I have a question regarding my credit cards. I currently have 3, one that I use very frequently through my bank of which I pay off consistently, one Old Navy Visa Credit Card that I used maybe twice and paid off immediately that was opened back in 2013 and another JCPenny store credit card that was used once for a $30 payment that I again immediately paid off of which I opened back in 2012/2013. I was thinking about closing the JCPenny and the Old Navy Credit Cards as I never use them, and want to consolidate my credit cards and perhaps get another one in the future that will help me to redeem points towards something I actually use and have a lower APR. Is it a good idea to close these two cards and just keep the one since they are inactive? Will it hurt my credit score? And what hurts my credit score more, 2 unused credit cards or closing 2 credit cards? Thanks!