Bayem Good question. Managing investments gets very complicated when you have it all over and funds have certain built in feature where the underlying securities are held by a custodian to help protect the investor. Many brokerage service also has SIPC coverage up to 500k and beyond sometimes to protect you. The best approach for the average investor is to have a brokerage fund and design an allocation across multiple asset classes and then select the funds to match your objectives. Once your funds are regulated, you should be more concern about the asset classes. If you get that down first then you can probably diversify across four or five funds . I do not have a rule of thumb so to speak
Hi Trecia: Way to save like crazy! I don't know the rules about naming non-US citizen/residents as IRA beneficiaries -- either the tax impact, or custodian rules. For the latter, start by talking to the retirement planning department of each institution where you have funds, and ask them the specific question of what info they need on the beneficiaries, and how they would handle the distribution at your death. An estate planning lawyer with cross-border experience would be helpful here. Any other advisor on the call have any resources for Trecia?
Molly - correct you will be taxed on your earnings and income on a LIFO basis.
Pres, hang on as this can be complicated. If you do NOT have a traditional IRA with deductible contributions, you can make non-deductible contributions to an IRA and then convert them to a ROTH. There is no tax on the conversion as the contribution to the IRA was not deductible. THIS DOES NOT WORK THIS WAY IF YOU ALREADY HAVE AN IRA WITH DEDUCTIBLE CONTRIBUTIONS IN IT. For instance, if you have 95K in an IRA that was deductible and you make a 5K non-deductible contribution, when you convert $5K to a ROTH you WILL pay taxes on 95% (95K deductible contributions/100K total value) of the converted amount. Opening a separate IRA for the non-deductible contributions will not avoid the tax as you have to make the proration based on the value of all of your IRAs totaled together. IF you are still working, you can roll your current IRA with deductible contributions to your current employer plan. Then, as you have no deductible contributions in an IRA, the strategy would work and the conversion would be tax free.
SISTADI, we love pensions that inflate. YEA! 2% is a good number given current inflation but do remember that in our lifetimes, inflation has been much higher and may be again in the future. But it sound like to you have the resources to keep your standard of living. FANTASTIC!
Pres a back door Roth operates like this: You make a contribution to a NON Deductible IRA (because your income is high and there is no income limit ) and then you convert it to a Roth IRA. You however need to be very careful however as you may have some tax consequences on the earnings from the NON Deductible IRA . Also the taxable portion is prorated over all your existing IRA you cannot limit it to the NON deductible part. MY suggestion is to speak to your tax advisor because it becomes complicated in a hurry
RicT: so let's assume you have a large IRA, and are simply asking: how do I invest these funds now that I'm subject to RMD? Back to the basics: start with the asset allocation decision, and from there choose specific securities. The right asset allocation (mix between low risk assets like cash & bonds and high risk assets like stocks) is a balancing act between three factors: your risk tolerance (at what point will stock market losses make you seriously uncomfortable?), your time horizon for use of the funds (RMDs for the next five years should be lined up on the low risk side, at a minimum) and your required rate of return (given what you have, and what you want your money to do, do you need an aggressive rate of return, or will a conservative rate suffice)? Then select specific broadly diversified mutual funds, for example, to fill your target allocation. Again, take a look at Vanguard's materials on asset allocation -- they do a good job of walking an investor through the trade-offs, and setting realistic expectations.
SISTADI, taxes are just part of life. You will minimize taxes by waiting until you HAVE to take distributions (age 70.5) and only take the required minimum. This assumes tax law will stay the same (unlikely but who knows). Remember, you were able to reduce taxes in your working years (presumably when you were in a higher tax bracket but maybe not given that you have a pension) by saving the money in a retirement account. This is just the other side of the coin.
Jack, I believe AARP has an online social security strategy calculator that you can use to run file and suspend scenarios; perhaps Kiplingers does as well? The think that jumps out at me is that the file and suspend strategies only work when both of you are at your full retirement age for Social Security purposes, which is a ways off for you. The general idea: the spouse with the higher benefit files and suspends, allowing the lower earning spouse to draw a spousal benefit only. Higher benefit spouse delays drawing anything until age 70, and spouse drawing spousal benefit only delays on her own record as well to age 70. You have to run the numbers as the best strategy depends on ages, benefits, life expectancy, ability to fund living expenses with other assets while you're delaying....
Susanh, there are different suggestions out there let me offer my own.. First of all you will probably need about 70 to 80 % of your current income depending on whether you will have a mortgage, college education etc to deal with in retirement. However because you will not be paying payroll taxes etc this can drop quickly to about about 58 % (providing you don't have a large mortgage). The best way to figure it out is to take 70 % of you current (to be conservative) subtract the income you will receive in retirement and then see you shortfall . You will then have to modify your lifestyle appropriately
Molly I am stepping in for Robert. You need to check with your annuity companies but most let you take up to 10% without annuitizing but you will have to pay tax on LIFO basis. How much you need will depend on whether you use both annuities or not. If you don't need to take 10% from each, start distributions from the one with the highest on going expenses (assuming you are out of the surrender charge period). You tax preparer should be able to help you model situations. For instance, if you are drawing your social security, such distributions may make some or all of your social security taxable (if it isn't already). If you do this work with your preparer at least you will know what to expect.
Bill the maximum amount you can contribute to a Roth IRA for 2014 is $5500. If you are over 50 you have a catch up provision . The contribution is base on you and your wife as individuals . Look in to 401k roth for your other entity Be careful as excess contribution have a penalty
Elizabeth, I am thinking about your question so hang in there.
Thanks again to all the NAPFA advisers who are taking questions today!
Good Afternoon! My name is Phil Hogg, a fee-only Fiduciary and CERTIFIED FINANCIAL PLANNER (TM) Professional with Hogg-Murnighan Financial Planning located in Chicago, IL and the world wide web at www.hmfinancialplanning.com I hope to answer a few of your questions today regarding personal finance and saving for retirement.
For our final stretch, we have with us Bobbie Munroe, Tim Parker, Adam Leone and Phill Hogg. Welcome!
RicT: you need to run tax projections! Broadly speaking, Roth conversions are generally beneficial if: you have funds in a taxable account to pay the tax on the conversion (in other words, you don't have to take IRA distributions to pay the tax, generating more tax) and you believe you will be in a higher tax bracket later in life when funds come out of the traditional IRA via RMDs. It's not an all or nothing thing: I have seen many people who find themselves in a surprisingly low tax bracket in the years between early retirement and the RMD/Soc Sec phase, who have been able to do small partial Roth conversions each year in a lower tax bracket than that money will see when it comes out as RMD.
Rich, 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, 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. Anywhere in between, intermediate bonds and bond indexed mutual funds. 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. If you don't need the money then a 60-40 stock mix should fit the bill.
Elizabeth, let me get this straight. You said your pension would increase 15k per month and that can't be right. Even 1500/month would be 18K per year which is a lot given that the current pension is only 30K/year. Please clarify.
No worries, Patricia. Will you send it one more time?