Ian, at least you have a good reason not to overspend on Christmas. So many people do...and usually those who can least afford it.
Hi Ben, the person paying the mortgage (you) can deduct the interest on your taxes if you otherwise qualify to use Schedule A where that deduction is addressed.
Joe what kind of interest rate are you getting and when to they mature?
Joe, what was the original purpose for the I bonds? If it was to provide a relatively "safe" return, then they aren't a bad option to keep holding for any income you need in the next few years. But if you're hoping to pass along that money to heirs and don't need the money to live off of anytime soon (10+ years), then a globally diversified mix of investments tailored to your goals and risk tolerance might be a better fit for that money.
Bob you can donate right up until 12-31-16 and get the deduction for 2016
Bob, you have until December 31st to donate to a qualified charity and get a tax deduction. But if you don't care about the deduction, feel free to make the check out to "Tyler Gray" anytime. ;-)
S103462, There's a required beginning date that has to be met. Ed Slott is a recognized expert and from irahelp.com: In only the first year you are required to take distributions, you can defer the distribution until April 1 of the following year. This is your required beginning date (RBD).
If you die before your RBD, then there is no required distribution for your year of death - even if you already took part of the distribution before you die. Your spouse or other beneficiaries are not required to take any further funds out of the IRA to satisfy your distribution in the year of death. If the beneficiaries do not need the money, then let it stay in the IRA to continue growing and compounding tax deferred until they need to begin taking their own RMDs from the inherited account (12/31 of the following year).
But, if you die after the RBD and have not taken your entire RMD for the year, then your beneficiaries must take the balance of the RMD before the end of the year. The RMD for the year of death is calculated as you had lived for the entire year.
It is important that your beneficiaries know to take this distribution. The penalty for not taking a required distribution is 50%; that is not a typo; it is 50% of the amount not taken. But wait, there’s more! The amount of the missed distribution must be taken from the account and the beneficiary must pay income tax on that amount in addition to the penalty.
S103462 straight from the IRS According to the IRS Final Regulations at Section 1.401(a)(9)-5, A-4(a),
[I]f an [IRA owner] dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the [IRA owner’s] death is determined as if the [IRA owner] had lived throughout the year. Thus, a minimum required distribution, determined as if the [IRA owner] had lived throughout that year, is required for the year of the [IRA owner’s] death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the [IRA owner].
Ann the one with the higher interest rate is the correct technical answer. But if you do have a small one that you could pay off, it may feel so good it will give you motivation for moving forward with the rest of it. We all like checkmarks.
Hi Ann, I'd suggest use the version that makes the most sense to you. Bobbie's right - the one you'll follow is the way to go, just don't switch back and forth.
Hi AL2, congratulations on what you're doing so far - excellent! Have you named any financial goals for yourself? Doing this - "what do you want, when/how often do you want it, and how much will it cost" can lay the context for future financial decisions. You can do this on your own or work with a planner who can model outcomes for you. Either way, you're wise to be a saver, now perhaps it's time to think bigger about what you care most about funding for your life.
Al2, I love that you are saving so much. There is never a better time than when you are young. When my clients reach retirement, they love to have money in different "buckets" (taxable, retirement, and tax free like a ROTH). So you might consider opening a taxable investment account with a low cost brokerage. Vanguard will let you buy a target date fund with as little as $1000. But if you want to maximize your current tax savings, you might just put more in your 401K at work IF, and this is important, they have good, low cost investment options.
Hi AL2, thanks for joining us! Are you debt free? No credit cards, no student loans, no auto loans, etc? If so, CONGRATULATIONS!!! To keep it that way, make sure your emergency fund is large enough to cover 3-6+ months of living expenses. Also, make sure to pay attention to Bonnie's advice of setting goals because it's hard to know where to save and how much to save if you don't know what you're saving for. Whether it's early retirement, a house, starting a business, or something else entirely, this will influence where it makes the most sense to save and how to invest that money.
A1, I forgot to mention, as you can't take money from the retirement accounts without penalty until you are 59.5, it is often nice to have a taxable account in case you see an opportunity you want to take and need the funds.
Lucie, there are a lot of great retirement savings vehicles available to self-employed folks such as a SEP-IRA, SIMPLE IRA, solo 401(k), and others. You might consider talking with a fee-only advisor to develop a retirement savings plan and to help determine the best place or places to save. I know of three good advisors on the chat right now ;-) or you can use the "Find an Advisor" tool at www.napfa.org to find a fee-only advisor near you! They'll also help you determine if it makes sense to keep those old 401(k)s with your previous employers or consolidate them by rolling them over to an IRA.
Lucie, it depends on how much you want to save. There is something called a SIMPLE IRA that is very simple to set up. You can open the account at a discount brokerage and fund it up to 12,500 per year (15,500 if you are over 50). It does require any ongoing filing with the IRS or the costs to have someone administer it (as with a solo 401K). You can also make it so you, the employer, can match up to 3% per years. But if you have employees note that you have to do that for everyone. Now, if you want to save more, you need to look at a solo 401K or a SEP IRA. I suggest you check with a CPA before you make these decisions. He/she can also tell you what kind of business records you will need to keep AND how much of your earnings you need to save for estimated tax payments.
AL2 thank YOU for making us optimistic about the future of young Americans.
GRH, the percentages that planners use are from my perspective an attempt to cover the entire market and you'll find planners (and clients) comfortable with a range on international anywhere from 5-25% in my experience. I can't speak to a typical planner, but the best ones I know have allocations that match their client's risk tolerance, risk capacity, and risk required at the minimum. Most planners can provide a copy of the Callan Chart of Investment Returns and that's a good look at how any particular asset class has performed in the last 10 years. It's a reasonable argument for diversification in the face of temporary disappointing returns.
Mike I assume you mean 403b. Yes, you will owe taxes on this money. To avoid a penalty you need to pay in as much tax as you owed for 2015 (there are exceptions but only if you make more) or the amount owed for the current year, whichever is lower. Now, withholding is considered as being done throughout the year while estimated payments are considered received when paid. That means any tax payment you make now is likely already late and there will still be a little penalty. You can avoid additional penalty by paying them by 1-15-17 or as soon as possible. But the truth is the penalty is likely to be very smalll.
GHR, Every investor is different due to their differing goals, risk tolerance, time horizon, etc. so whether or not 15% in international stocks is the right amount for you depends a great deal on your overall asset allocation and goals. With that said, just because a particular asset class (i.e. international stocks, domestic stocks, bonds, etc.) hasn't done particularly well in recent history doesn't mean that an investor should completely avoid that asset class. In fact, as the "Oracle of Omaha" himself (Warren Buffett) says, many times a successful investor is, "fearful when others are greedy and greedy when others are fearful."
GHR, we all understand how you feel. Unloading an under performing asset "feels" like the right thing to do. For instance, many of my clients had exposure to commodities, energy, and south america and it was ugly through last year. But then, those are some of the best performers in their portfolios this year. Decide on an allocation and stick with it. Your heart will usually lead you astray when it comes to investing.
Pete, I use a projected return of about 5.5% for a portfolio like that. With inflation of 2.5% which is also what I use, this means a real return of about 3%. Real return is the number that matters. If you had a return of 10% and inflation was 7% you would still have a real return of 3%. If you are young, you have never seen inflation numbers like that. But I promise you, it was even worse in the 80s and at some point, inflation will come roaring back.
Hi Pete, the long-term average 1913-2013 is 3.22%. Recently it's been much less - I can kill a retirement plan pretty quickly by adjusting the inflation rate to a higher amount and I do worry that we've grown very complacent in the last several years. I'd model different amounts like we do in the office to understand a pain point. As for an allocation, you won't be surprised that folks can and do disagree that 50/50 might be conservative. I hope we all learned in the Great Recession that things can look very different on this side of 19852 on the Dow vs less than 12 months ago around 15000. Please see a planner to discuss these important differences as they pertain to you.
Joe will they not give you the pension for the accumulation up until now? Hum. If they offer a lump sum, you might decide to roll it into an IRA and invest it yourself, perhaps with the help of a planner. The advantage of this is that you will always have access to the money. The disadvantage is that there are no guarantees on returns. At the VERY LEAST, shop around and see if you can purchase a better annuity product that the one you are being offered. Keep it simple and check with low cost shops like Vanguard and Fidelity. This is a complicated question and you should really check with an advisor who can see the actual paperwork you are being given. Many NAPFA members work hourly.
And another defined benefit plan bites the dust.
Joe, I'd also recommend you double and triple-check that your employer and the insurance company have all of the correct information that goes into calculating your benefit. I've known some folks who had their benefit substantially reduced in these types of situations due to simple clerical errors. Hanging on to your statements until you start collecting benefits will also help resolve any issues that might pop up down the road when you start collecting benefits.
Joe, I am wondering as Bobbie did, if you have other distribution options - if so, please get them evaluated with a planner to make the best decision for you.
And the fast answer is you can contribute even without earned income.
Mary, you can start taking a survivor benefit when you turn 60 but it will be much less than if you want until your normal retirement age. Will you have your own benefit? Will it be higher? If so, you may take the survivor benefit now and let your own grow. If yours is lower, you may choose to take it at 62 and then take your survivor benefit when you reach normal retirement age. This is complicated and you don't want to make a mistake. So I suggest you do work with an hourly planner.
Jenn, as Bonnie mentioned, you can continue contributing to an HSA without earned income. Just keep in mind you do have to be enrolled in an eligible high deductible health plan in order to keep contributing. Otherwise, the HSA contributions have to stop.
Mike if you can pay the fee from outside the IRA, that allows for more tax deferred growth. On the other hand, if you take the advisor fee out of the IRA, it will not count as a distribution and you will never have to pay tax on that money. Most people like it the way you have it set up now....no tax on the withdrawal to pay the advisor. As always it depends on your circumstances.
Seb, check with social security and see what the difference in your benefit would be. Remember, that amount is forever and is likely much more than the medicare premium increase.
Mike, typically it makes sense to pay as much of the management fee as possible from inside the traditional IRA so those fees effectively come out tax-free. If for some reason part of that management fee is attributable to financial planning, tax planning, etc. then make sure the advisor only takes out the amount that is attributable to investment management. If you don't, you could run into major issues if the IRS determines some of that fee wasn't for investment management.
My thanks to all of you who asked such good questions today. And Kiplinger you are wonderful for doing this. What a great holiday gift for your community. Happy, happy, ho, ho everyone!
A big thank you to everyone who asked questions today, and to all the advisers for being here to offer expert advice.
Happy holidays to everyone!