Maximize Your Money With Kiplinger and NAPFA, December 2016 - Live Chats, Q&As: Free Advice on Retirement, Investing, Personal Finance -- Kiplinger

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Maximize Your Money With Kiplinger and NAPFA, December 2016

Kiplinger is teaming up with the National Association of Personal Financial Advisors (NAPFA), whose planners will answer questions about end of year tax prep and more. Submit your questions here and get free personalized financial advice on Thursday, December 15, from 9 a.m. to 5 p.m. ET.

  • Feenst - here's an article from Kiplinger on rolling over EE bonds to a 529. I'm curious though if you'll need the money, why not just use the bonds for your education expenses if the rates are low? If the rates are higher, they may be the last place to tap.

    www.kiplinger.com

    www.kiplinger.com
  • Had question on after tax savings. Current portfolio is comprised of $1.5m in after tax savings (with 1.4m cost basis) and 700k in 401k monies. I'm 47 years old. If i wanted to retire earlier, do i value/treat after tax savings differently than pre-tax savings and/or how should i view after tax savings? Presumably 2.2m pretax savings not the same as 1.5m after tax/0.7 pretax. Thank you very much
  • I have a TDA with 60% wife (10 years younger), and 20% son (age 21) and 20% daughter (age 18). Which RMD table, do I use?
  • Hi Tquin3065 - If you're running calculations on what you'll spend, the pre-tax obviously may be less you'll be able to pocket down the road. What that ends up being in either case is impossible to know, so it's best to be conservative with your thoughts on future tax rates. From an asset allocation perspective, it's often a better plan to have your equities in your after-tax account, and more of your bonds, real estate, etc., in your pre-tax to defer oridinary income taxes until you make withdrawals. That, and everything else, can and does change with our tax code and your specific situation.
  • Tquin3065- I'm not sure if I understand your question but the normal order of withdrawing money for retirement expenses would have you use your savings first, then after tax investments, followed up by pre tax investments like your 401(k). The idea is to let your tax deferred investments grow while consuming your taxable investments and lowering your tax obligations. You might also have an opportunity to do some Roth conversions which could lower the required distributions that you would need to take from your pre tax investments at age 70 and 1/2. You have done a great job of saving and you have a lot of money. Why not get together with a fee only financial planner who can help you with your specific issues? Go to www.napfa.org to find one in your area.
  • Hello, incurred a $100,000+ loss through an unscrupulous fp/broker 15 mo ago and have been paralyzed to invest since than. I have no debt, am retired and my pension covers my mo-to-mo expenses, own real estate(s), have a few fixed income investments, but have $'s just "sitting in cash." How do I get over my loss and get investing again?
  • feenst With multiple beneficiaries you need to use the Uniform Lifetime Table. If your spouse was the only primary beneficiary you would be able to use the Joint Life and Last Survivor tables...

    Retirement Distributions When Your Spouse Is Much Younger

    www.kiplinger.comIf you\'re married to someone more than 10 years younger than you, you have to use a special life-expectancy table to calculate your RMDs.
  • Martha - I'm really sorry to learn about this. It makes all financial planners look bad. Go to www.napfa.org or www.garrettplanning.com and find a fee only financial planner to help you. You may want to start slowly but it is very important that you completely understand any product that you are contemplating investing in and, if need be, get a second opinion. Understand that investing has risks and you need to understand those risks.
  • What financial advice would you give to a married couple, both 30 years old, that own a home and are looking to start a family? Thanks!
  • Wow Martha, I'm very sad to hear that and it is absolutely understandable where you are at. I would hope this person wasn't a fiduciary like the NAPFA advisors who willingly accept that role in our client's lives. I often think that there are many people out there that would benefit from a second opinion from independent advisors, but it's one of those things that many just don't think to do. If you're dipping your toe into working with someone again, perhaps you can find an hourly advisor or a flat-fee advisor who won't take over your money. If you really need that service however, I would certainly start with NAPFA advisors. It may take a little time to trust someone to manage your assets, and I would expect any advisor you speak with should be understanding and not try to force you into anything new. I also recommend looking if there are any CEFEX-certified firms in your area if you want to work with someone who has gone through an independent review of their practices.
  • Dan - My three big ones would be: 1) Have enough long-term disability, life, and other insurances to cover the risks you can't afford to have happen, 2) continue to save even though it may be difficult for a time, 3) keep your lifestyle increases in check as your income rises - this last one will make it easier to pay for the expensive stuff down the road, and easier to 'catch-up' on savings for yourself if you end up in that position.
  • Thanks for answering the joint bene's with regard to RMD. I have other IRA accounts with my wife(13 years younger as sole bene). Do I use 2 different tables. Thanks again.
  • Hi Dan! Build up your emergency fund so that it is equal to six months of living expenses. Pay off credit card debt if you have it and avoid running up credit card bills. If you can't pay off your balance in two months, you are living beyond your means. Are you both going to continue working after you have children? If not, try to work out a budget on one income. If you are going to work factor in day care expenses - very expensive. Make up a budget that you can both live with and hold 'finance committee' meetings on a regular basis. Overall, I don't like new cars -prefer good used cars - think Car Max. Look at your mortgage rate and if it is worth refinancing do it while you are both working. If you have home equity, get a Home Equity Line of Credit (HELOC) to use as a super emergency fund.
  • @FrankBoucher Thank you fir the answers!
  • @RobertSchmansky,CFP®,EA Thank you for the answers!
  • Thanks for joining today, Dan!
  • The reason that I want to cash in EE bonds for college and other is that the mature when I will be 70 and a half and the tax situation might be high.
  • I am a first time home buyer and I closed on my home in November. Can I now after the fact take advantage of receiving 10,000 from my IRA with out a penalty to repay my parents for the amount they gave me? I know I have to file a tax form with my taxes to reflect this for my withdrawal.
  • feenst - I see on the EE bonds. Good choice. Your TDA is calculated separately than your IRAs. So, you will calculate the TDA separately and need to take the distribution from that account. I believe that you should be able to use the other schedule for your IRA calculation. Your IRAs you run the calculation separately and can take from any IRA. This is off the cuff information that I would confirm with your tax advisor.
  • Those first two hours flew by quickly! A big thank you to the NAPFA advisers we had on hand this morning.
  • Hi, this is Pat Jennerjohn, fee only advisor and NAPFA member in rainy Oakland, California. Greetings to all!
  • Joining us now are Vid Ponnapalli, Timothy LaPean, Michelle Mabry and Pat Jennerjohn.
  • i am 61 living in NJ. for 2016 i have lived off a severance package provided in late 2015. for 2016 reportable income will be interest and dividend of about 12K. for tax purposes expenses have not changed. can i take 6500 from regular IRA and move it to roth IRA ? i assuming tax burden would be negligible . Do i have until april 2017 to do this or must it be done in calen ?dar 2016
  • Matthew, the timing of the withdrawal for the home down payment is not too critical - you have a window of 120 days to use the funds and there is no rule about "before" versus "after." When you complete your taxes for 2016 you will simply indicate that these funds were used for a first time home purchase. Of course you will pay tax on the funds withdrawn, but you'll avoid the 10% early withdrawal penalty.
  • Maz3, thank you for your question. However, it is not clear to me what you were trying to achieve:

    - Are you trying to "recharacterize" a 2015 IRA contribution? or
    - Are you trying to convert some of your "traditional" IRA money to "ROTH"?
    - Do you intend to contribute new money to 2016 ROTH IRA?

    In each situation, here are my thoughts without looking into specific details of your situation:

    1. If you are thinking recharacterization of 2015 IRA contribution, the deadline is tax-filing deadline plus extensions - which has already passed.

    2. For converting traditional to ROTH, if you are assuming your tax bracket is going to be higher in future years, it is generally beneficial. But, the devil is in the details. So, it is best is to work with your financial advisor to analyze the strategy that is unique to your situation.

    3. In order to contribute to ROTH, one of the requirements is that you should have "earned income". So, it looks like the last option is not available to you.

    Hope this helps
  • Maz3 - Your thinking is generally sound if your taxable income is going to be higher again in the future. You may want to work with a tax professional or do a mock return yourself to determine how much you can convert to fill up the lower (than normal for you in the future) tax bracket(s) you are currently in. For example if you generally expect to be in the 25% tax bracket in most of the future, it might be advantageous to convert (or accelerate other taxable income) enough to fill up your 15% bracket this year. The conversion needs to be done by year-end, you don't have until April to do it.
  • Max3, the deadline for converting a balance to a Roth IRA is December 31. You do have a window in the following year to recharacterize (essentially, take it back) if you discover that the conversion wasn't the right thing to do.
  • I have 65% of cash in traditional IRA. I'm retired 5 years. The accountant asked about Roth, but I like to defer taxes. What do u think?
  • feenst, unless you think that your tax bracket may be higher in the future (and who knows how likely that is) a Roth conversion may not make sense. However, if you have a lot of deductions you don't use ( mortgage interest, property taxes and/or substantial charitable deductions) and you would lose some of those deductions because your taxable income would go to below zero you can consider Roth conversions simply to create enough income to use up the itemized deductions and bring your income to just below what would be taxable. That may be why your accountant suggested a Roth. This will not result in any additional taxes for you. Since required minimum distributions do not apply to the original Roth IRA holder you will also reduce your future taxable required minimum distributions (which start at age 70) in the future from your regular IRA.
  • Feenst-
    You have to have earned income to contribute to a Roth IRA. You may convert some of your traditional IRA to a Roth and whether you should do that depends on how long before you plan on withdrawing the money, what your tax bracket is now and what it may be once you take withdrawals or your beneficiaries receive the money.
  • Thanks for your answers. You have given me the information i need and have corrected some bad information from an account manager i received concerning the conversion deadline date
  • I currently have a Roth IRA, and is still very new to it, I was wondering, would it be fine, if i traded stock frequently, like every few weeks, as my stock picks goes up. Would there be any taxes consequence, that I should be aware of?
  • Hi Danny, - As long as the $ stays in your Roth IRA the trading you do should not matter tax-wise.

    Having said that frequent trading is generally a much more efficient way to lose $ than to make it and I have pretty much never recommended to anyone that they do that.
  • Sorry..Everytime I hit enter it put the post up. What I was trying to say is that there are no tax consequences to frequently trading your Roth IRA, however I would not recommend that you do that strictly from an investment standpoint. It is hard to always pick the right stocks and be correct 100% of the time or even 50% of the time. Those who buy good companies and hold them for the long term tend to fair better than active traders. Not to mention the costs of active trading eats into your investment returns.
  • I get Roth. I avoid RMD and probate and can pass on to heirs with no tax consequences to me or them (since already taxed). I can do combo of conversions (which is a taxable event when done from Traditional to Roth IRAs) and also put into Roth from my taxable wages as long as within Annual limits). Right? My question is on 529s. I want to save for grandson. But if I set it up in their name, it will count as their assets and impact FAFSA and student. Same thing if I put it inparents name. So thing if minors trust. So the best option is to set it up under my name as grandparent? Or just as easy to consider my Roth as inclusive for that purpose and skip the darn 529 in first place? 529 will also add extra fees and give less choices from looking at the state plans. And our state will tax withdraws, since we are a liberal tax heavy state. Thanks.
  • Hi Danny,

    Growth in a ROTH account is not taxable as long as you follow Roth rules from this IRS publication

    That said, the basic thing you need to know is as long as it stays in the ROTH account; you have no tax implications. However, when you pull the money out, your contributions always come tax and penalty free, and the growth could be taxed as per rules in the publication I pointed above.

    Hope this helps.
  • Jc, here's an answer to part of your question. A 529 plan set up by a grandparent is treated as the grandchild's asset when the money is distributed for education expenses, causing a problem with the FOLLOWING year's financial aid calculation.


  • Jc-Your line of thinking is correct that the 529 will count as assets on the FAFSA and potentially impact their ability for needs based scholarships or federal loans. There is no way to put 529 in your name without naming the child you intend to use it for as beneficiary so no matter how you set up the 529 it will count as his/her asset. That said...If you just want to pay the education costs out of your Roth IRA or out of pocket that is certainly a good option. If you wait until there junior year to give them money when they file their last FAFSA that is a good option as well. Here is a very helpful link on that topic:

    How 7 Different Assets Can Affect Your Financial Aid Eligibility

    Savingforcollege.comNot all funds are treated equal when it comes to determining financial aid eligibility.
  • Jc, I once had a client use a Roth IRA to save for college expenses for her child; there were no 529 plans at the time, and the timing based on her age (older parent) worked out fine. You withdraw the funds taax free after 5 years or age 59 1/2, and then use them for college expenses. In order to avoid an issue with gift taxes, you can make tuition payments directly rather than giving all of the funds to your grandchild. In 2017 you can give up to $14,000 per year without filing a gift tax return. Anything over that amount should be directly paid to the college.
  • Hello, I'm retired with pension, IRA and TSP. How do I invest for security and income in the current uncertain market?
  • BD- That is the question everyone wants to know. The answer is to structure your investments in a diversified manner to include both stocks, bonds and alternative investments which all perform differently in different market conditions. The diversification you get from the different asset classes helps "smooth the ride" so that you have less volatility or risk. It doesn't mean you can't lose money at times though. The mix of investments you will need will depend on the amount of income you are drawing out and your time frame. Understanding that you have to take some risk to get a return, you also need to consider what your personal risk tolerance is; that is, how much could you stand to see your portfolio fluctuate before you lose sleep. It would be a good idea to meet with a NAPFA advisor to determine how much you need in retirement and have them work with you to design a portfolio that meets those needs.
  • BD, the fact that you have a pension adds an element of security to your retirement. Be sure to take that into account when thinking about your investment portfolio. The pension is the stable element, and the TSP and IRA will allow you to invest for growth. It's difficult to give you an absolute guideline here, so I agree with my colleagues who recommend that you seek out a fee only advisor to get you properly set up!
  • Have not kept a cost basis on 3 stocks that are in a DRIP program. Individual stocks were purchased in the 1990's. What options do I have?
  • Hi BD,

    Thank you for your question. I know your question is on the minds of many who have retired or "about to retire." That said, it is difficult to give specific  Investing advice without analyzing details. For example, your Retirement Plan would depend on your age, longevity, and financial goals ( in addition to the sources of income). 

    I know I may not be giving the exact answer you are looking for, but perhaps my blog post on Retirement myths to avoid will shed some light.



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