Maximize Your Money With Kiplinger and NAPFA, December 2015
Kiplinger is teaming up with the National Association of Personal Financial Advisors (NAPFA), whose planners will answer questions on holiday money concerns, year-end tax planning and more. Submit your questions here and get free personalized financial advice on Thursday, December 10, from 9 a.m. to 5 p.m. ET.
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Great input. Thanks for providing additional clarification on that Bobbie. -
Hello all, I am a physician employed with an academic medical center. I am offered a 457b plan which I contribute to the max limit. My first question is - Can I open a 401k account on my own in addition to employer sponsored 457b?
And 2nd question, I have a traditional IRA which I rolled over from a previous employer 401K about 4 years ago. Now I want to take advantage of backdoor Roth, but to avoid pro rata calculation, someone advised me to first roll over that old IRA Money to a 401K. Can I do that? If yes, then how? -
Two great questions Ryan. First, yes, it is possible to be able to contribute to both a 457 and a 401k. Of course, your employer must offer a 401k plan for this to be possible, but if both plans are offered, you have the ability to max out both plans.
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Phil, keep in mind that if the exchange is allowed, any cash you would receive on the sale of the rental property that didn't go towards the new property would be taxed. As others have said, best to talk to a CPA and an advisor to take a closer look at the particular properties you're considering. -
Second, you are right on track regarding the so called "backdoor Roth IRA" conversion. (Some advisors warn about calling it as such, by the way, as it could indicate to the IRS that you are taking a series of actions in order to avoid one action that the IRS prohibits. Just a warning, but be careful). You'll simply need to speak to the administrator of your 401k plan about rolling your pre-tax IRA dollars into that plan, and things should be pretty simple from there. They will provide you with the appropriate paperwork. Once that rollover is complete you will now be able to convert any remaining after-tax dollars left in the IRA to a Roth IRA.
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With the impending increase in interest rates does it make sense to stay in a bond fund? Wouldn't it be better to buy actual bonds and how does one go about selecting an purchasing bonds? -
A short-term bond fund should not be affected greatly by an increase in interest rates. You can buy bonds and hold them to maturity in order to recover your full principal, but that could be a long time, depending on the term of the bond. A bond fund will reinvest proceeds from maturing bonds into new bonds to take advantage of the rise in interest rates. -
Jim, Individual bonds are still subject to interest rate risk, but if you hold them to maturity you will get a return of principal -- assuming it's a high-quality bond that doesn't default -- which many people like. But as Scott pointed out, you don't get the reinvestment of interest payments. -
Jim, advisors will differ on this, but my opinion is that trying to predict when interest rates will rise is as futile as trying to predict when the stock market will rise/fall. In addition, I believe the role of bonds in an investment portfolio is to help offset the volatility of the equity/stock portion. The stock portion is more for growth, while the bond portion is more to help you sleep at night. The nice thing about a bond fund (vs. individual bonds) is that you can get broad diversification at a very low cost, depending on the particular mutual fund you're investing in.
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Jim, it can also be expensive to build a bond portfolio using individual bonds. Y
ou must usually buy individual bonds in increments of $10k, and I think all advisors would suggest that diversification in bonds is just as important as diversification in stocks. -
Jim, even if you buy individual bonds, you could see the face value drop. But in such cases you must remember that you bought the bond understanding that, what ever happened to the price in the interim, you would get the face value at term and until then you would get the yield to maturity (or the yield to call) as quoted when you bought the bond. Certainly, bond managers take this into consideration when they make purchases. So even if you buy a bond fund and the value goes down, the yield will likely go up. -
Back Door Roth
I am 62, in my present Company’s 401K plan I have before tax ($57K) and after tax contributions ($23K). Before the New Year, I will call my 401K administrator and will request a before tax and after tax distribution for ALL my funds I have contributed. This is allowed since I am past 59 ½. The Company Match must be left behind. The Company will issue two checks, one before tax and one after tax. The before tax check will be deposited into my external IRA Rollover account. The after taxes check will be deposited in my external Roth which I have had for well over 5 years.
Anything else I need to know or should do? -
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Doing awesome Jay. You are ahead of the curve on this one. This is a brand new strategy and this is the first year it can be implemented. Most people don't know about it. Well done!!!
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I am 40 years old and contribute the max to my workplace's 401(k) plan. I have the option of contributing to both traditional and Roth options. I split my contribution, with more $$ going to the Roth. I am tempted to send all to the Roth, but am reluctant as I consider all the traditional vs. Roth comparisons I've seen that essentially say that the money you get to keep at the end is approximately the same. I don't see how that can be the case if you are taxed on contributions and earnings in traditional accounts but are only taxed on contributions in a Roth. Please clarify. This simple point never seems to be mentioned and the math doesn't seem to support the idea that Roth's are overwhelmingly beneficial if you have decades of growth in front of you.
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I would like to open a 529 for my 2 yr old grandaughter and was wondering if a target date investment is the best way to go ?
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Would an employer let me roll over previous pre-tax IRA money from about 4 years ago into a 457b plan?
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My wife and I are 29, $15K in a emergency fund, $35K in retirement and $13K in another online savings. I contribute to 401K but my wife hasn't for a few months. Should we take, say $4K-$5K from the online savings and put in a Roth IRA for her? Thanks!
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I am going to retire in 2016 and I was trying to find out if it is better to wait until end of year to pay federal taxes or pay monthly
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These are our favorite 529 plans from last year. Worth a look:
The Best 529 College-Savings Plans
www.kiplinger.comState 529 plans usually trump other options. The right one for you depends on what kind of investor you are. -
My company offers 3.5% 401k match that requires a 6% contribution to take advantage of all of it. The company also offers a stock purchase plan (after tax, non retirement) that will contribute $0.25 for every dollar I contribute to the purchase of company stock. At what point would it make sense to stop contributing to 401k and take advantage of the Stock purchase plan? Today I am able to contribute 15% to 401k and have not participated in the stock purchase plan. Should I dial back my 401k savings forgoing the tax break in lieu of the $0.25 bump on the purchase of stock? To what extent?
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My wife & I are in our 80s retired & our investments are very conservative since capital preservation is our primary goal. It's difficult to know how much to invest in stocks or perhaps not invest in stocks at all & invest only in TIPS & CDs. Perhaps you can indicate what's wrong with sticking with TIPS & CDs. Also, we have our IRAs with Fidelity &, assuming that we have some stock exposure, sometimes the funds that we'd be interested in have transaction fees. So, we either have to find a comparable fund that has no transaction fee or buy the fund outside our brokerage account. But this creates a situation where we have multiple investments in multiple locations thus making it difficult to keep track of it all. So how should one handle this situation be handled? For example, Kiplinger suggests various funds but from different mutual fund companies & I have not seen an article on how to consolidate such a portfolio.
Thanks in advance for addressing m,y questions.
Harold -
Hey Guys, I'm already retired and the wife will be 66 in Jan 16, she wants to still work awhile after that. Can she file for spousal benfits when she hits 66 and get half of my Social Security benefits without harming her right to claim her own when she quits work for good. Also how will this affect taxes? We currently live off her small salary and my social securtiy ok - we are not using our retirement accounts yet and don't expect to until RMD is required. Thanks
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We outlined the new Social Security rules here:
New Rules for Social Security Spousal Benefits
www.kiplinger.comBeneficiaries will no longer be able to take advantage of certain claiming strategies under new bill. -
My 2014 tax return was filed incorrectly by a tax preparer in MA. I traded spot FOREX and by default it's treated as ordinary gain/lost not capital gain/lost. I ended up broke for awhile and had to pay IRS $894 plus penalty. What should I do? Where can I find the official IRS document that show spot FOREX is treated as ordinary gain/lost (I know so according to "greentaxtrader"? Thank you in advance...
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What parameters need to be considered when evaluating the use of a QLAC in an IRA?
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What is the best way to take my RMD? At the beginning of the year and put it in a taxable account or during the year as in dollar cost averaging? Or do you have another suggestion. Thanks
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This is Jane again...apologize had to step away? Live n Ny, Both not working retired 64 , have 90k in IRA, 380k in 401k, spouse recently rolled 300k into IRA.
pensions not enough to cover expenses. Waiting till 66 for SS
Need help figuring out best way to makeup shortfall till 66 or 2 years
Debt: 10k in CC 150k mtge
Shortfall of about 2k month- Everything is pre- tax up to now we've been doing everything separately. Never worked with a planner before. Need to find FP reasonable cost. That can work with our differing ways of handling money. -
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Jane, you can find a fee-only adviser near you at
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I have the option of investing in a Roth 401k or a traditional 401k. The Roth appears to be the better choice since future distributions would be tax free although taxes would have to be paid today. However with the government's reliance on increasing taxes and the talk of raiding future 401k's would it be best to continue investing in a traditional 401k since a Roth would then be double taxed? -
My parents own a lot of farm real estate. What's the best way to transfer that to myself and my siblings?
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Hi Mark -- We answered your question earlier. Try flipping back through the transcript to see what the advisers had to say.
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Will need to start taking RMD's from a 2.5 million dollar IRA in 2017. Does it ever make sense to annuitize some of those dollars to guarantee a lifelong stream of payments?
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I have 2 IRAs 1 is a rollover from my 401k which is all pretax money, the other was funded only with aftertax money. If I want to convert only the IRA with aftertax money to a Roth, in computing the taxes due can i ignore the funds in my rollover IRA? Tnaks,
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Is borrowing from a 401(k) loan ever a good idea? I am contemplating a payoff strategy to eliminate my debt. I could either cut back my contributions to the 401k, and use those funds to pay off debt; or I could take a loan, pay off the debt now, and have a structured/forced payoff mechanism in the form of loan payments. My current debt is about 10% of my retirement funds. Age 55, two kids in college.
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I recently sold my house after retiring, and now I have a small pile of cash sitting around for a new house. In California we laugh at the idea of paying only half our monthly income for a mortgage, but now I'm renting and paying half my monthly income for rent! I like not paying property taxes but would like to buy another house if I can find one, not an easy task here. Should I be looking to invest my cash in the meantime?
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I am considering investing in HSBC Leveraged Buffered Uncapped Market Participation Securities, linked to the S and P Low Volatility ETF. As I understand it, if the ETF appreciates over the 5 years of the security, I would receive 120% of the total value. If it depreciates, I would receive the depreciated amount, except that I would be protected from a loss of the first 15% of my initial investment. What would be the advantages and disadvantages of investing in this? Thank you.
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I have a taxable account with a financial planner that I continue let dividends and capital gains reinvest every year I am now retired is it wise to just take these dividends in cash or continue the way I have done?
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If I am a sole proprietor filing a Schedule C and want to defer all of my earned income into a retirement account can I accomplish this with a Solo 401(k)? Earnings are about $8k after expenses. Investment income is just around $40k and I'd like to qualify for health care subsidies but my self employment income may disqualify me. Looking for a way to get it off the front page of the 1040.
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Carl, with a Solo 401k, you can contribute your first $18k of earnings (plus an additional amount if you are over age 50). That counts as the employee portion of your contribution. In addition, you can generally contribute approximately 20-25% of your businesses profit to the plan.
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Have to take RMD in 2016. Should I take it all at once in the beginning of the year or at intervals throughout the year? Thank You
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Hi Barbara -- We answered your question not long ago. Scroll back through the transcript to see what the advisers had to say.
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My ex and I have joint accounts we've set aside for our adult children when they turn 23. Combined they are in excess of $30K. What are the rules about gifting them to our children since we co-own but are divorced? Can we each give $14K to each of our two children with neither of us needing to pay gift tax?
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MY dau in law has significant student loans, 65K. I advised them to file taxes sep and my son makes contri to ira (and converts to roth) and 403?, she mmakes contrib to 403b at work. She works for a college and is on 10 yr public svc repayment plan. Together they make about 60K, she makes a little more than he does. Is filing sep the best and right thing for them? Shes 25, he is 31, one yr into public svc forgiveness plan.
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RE: IRA RMD. please confirm the following: i turn 70 the 2nd week of next july 2016. what is the month calculated as when i turn 70.5 to begin making withdrawals ? is it based on the total in my IRA from the previous december 31st ? nay i withdraw the appropriate amount any time during the specific year ?
thank you for your time. -
My question relates to retirement spending rates. There have been a number of articles and studies discussing spending rates in retirement. The 4% rule is prevalent. Consider though if a stock portfolio contained a number of stocks that pay dividends. Also, the annual dividend amount could cover your living expenses. Conceivably, you would not have to sell stocks annually for living expenses, just collect dividends. I assume that the spending methods mostly consider stock "sales" to provide income. Is that correct? If it is stock sales that you consider you might be reducing your portfolio by 4% annually. Are the rules the same if dividends alone provide the income? The dividends do not reduce your portfolio value the in same way. Thanks
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Annuity: I am 69, my wife 65. I was wondering if Vanguard's immediate income annuity is worth considering for the joint life. The way stock market is going, I think apart from the social security [if combined, we will have about $3k per month] there is no assured income on a monthly basis. However, many advisors say, return on annuities is not more than 2% and they are for more for brokers. Vanguard has a one time 2% charge on the amount invested. What is your opinion? I want the income for my wife and I during our lif time, I am not worried abut what is left after our deaths.
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Thanks to Kiplinger for hosting this fabulous event. And thanks to the other NAPFA advisors. I always learn so much from you.
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Thank you to all of the NAPFA advisers who answered questions today, and to everyone who submitted their questions!
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Remember, you can always find a fee-only adviser near you at
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We wish everyone happy holidays, and hope to see you next time.
