@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
@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.
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.
@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.
Ohio Buckeye, as you alluded to, however, within the choices available, there is file & suspend, etc. so a specific strategy based on your actual numbers is what informs a decision.
@Vark 77: Question 4. You're correct. Form 8606 is only for accounts that have IRA in the title. Traditional IRA, SIMPLE IRA, SEP-IRA. A TSP is not counted on 8606.
@Nikkia: "I was 18, alone, no financial education and just signing away." This was more or less me as well! Don't worry, you're not alone!
@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.
@Nikkia, and believe Tyler... you certainly are not alone!
@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.
@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.
In your example, Oregon is one of our least tax-friendly states for retirees, while we've labeled Washington as relatively tax-friendly
@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.
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.
Howdy ssa! We're not seeing your questions in the queue. Mind adding them again?
@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?"
@King Garlic - Yes, you're correct, the MRD (aka RMD) changes each year by age and 12/31 balance. Most custodians will do the calculation for you and print the amount on your statement. There are also online calculators available, just Google RMD calculator.
ssa -- That's what we see on our end. Just add your questions where you have been leaving your comments and they will come to us :)
Hi Rich, the funds you list are solid funds, decide an allocation based on your goals, timeline and risk tolerance and there is no perfect time to enter a market but I believe being at record highs makes it more difficult to earn a great return in the next few years. You could dollar cost average in over many months and that may be more palatable then investing now should a correction come soon.
@Nikkia - I find 20% is often a good "rule of thumb" target for getting on track for the long-term. It may or may not be right for you. Ideally we want to see about that much going towards long-term savings if you haven't been doing 15% to long-term savings over time. However, if you need to build an emergency fund, pay-off debt, then as you accomplish those things then you're already used to 20% going to financial priorities and it just naturally goes towards long-term retirement savings. If you can do more, go for it... a lot of us need to catch-up. However, keep in mind if you really see these being paid off before they are forgiven as well. It wouldn't make financial sense for you to put as much as you can towards the loans, have them forgiven, and be 10 years closer to retirement without any savings.
@Rich - I'm not a believer in timing the markets so can't help with any concerns on a correction. I would recommend you figure out what portion of your portfolio you may need for income over 7-10 years, and diversify the rest in growth assets like stocks. Vanguard is a great company to do that with, I'm not convinced your goal should be dividend investing however. During the last downturn dividends were slashed; the income won't be stable in a volatile market. I'd prefer retirees have years worth of stable income in safe (and yes, low-yielding) bond funds, mid-term money in real estate and real assets for diversification, and long-term money broadly diversified into all types of stocks. My personal philosophy may be different than others here, and elsewhere however.
@Cliff - Yes, pension and Social Security are a major part of an asset allocation. If pension and Soc Sec cover all of your income needs, you have a lot of flexibility in your asset allocation. You can take much more risk and try to grow the funds, or you don't have to take any risk at all since retirement is funded through other sources. You should calculate how much income you need from the portfolio and then allocate the portfolio based on the income need. A local NAPFA fee-only planner www.napfa.org can help determine the portfolio income need and allocation.