Ginny - Do you have a pension or 403b too?
Hi Ginny - Like most of these volatile periods, this too shall pass. You should develop a long-term strategy that meets your comfort level regarding risk as long as it also addresses your goals and stick with it, rebalancing on occasion
Ginny - This depends on your time horizon. When do you think you will need these funds? If it is within 2-3 years, then you may want to sit tight. If you have access to other funds and this is a long-term investment, then a low-cost well-diversified portfolio should serve you well
KS, your questions are probably best served by a tax professional.
WTerry - As long as you have earned income (not passive), you may be able to shelter some of the pension money using an IRA. You may also be eligible for a spousal IRA. And, it does not necessarily have to be a "rollover" IRA, you can simply establish a new or contribute to an existing IRA. If you are over 50 yrs of age, the limit for each of you is $6,500
Yes, we see it Don. You're almost up!
There were some generic Qs about what should be the Investing strategy in volatile markets. I know my answers are generic as well, but here are some thoughts that I think could steer us in the right direction: 1) focus on long-term goals and try to see the forest for the trees (I.e. Get a 'big picture' view). 2) Take advantage of dollar cost averaging by investing periodically.
You're almost up too, Mft. Thanks for your patience!
Ginny: An IRA online savings account will probably earn you more than a money market right now with no additional risk. I'm not sure what would be the right fit for you longer term. Generally speaking safer investments like savings accounts and CDs keep your principal safe but have a higher risk of not keeping up with inflation. Investments that have tended to exceed inflation over the long term generally are more volatile and your principal is usually somewhat at risk. Retirement can be really long so most clients adopt some kind of mixture based on their own ability to tolerate these risks to balance the pros and cons of these 2 ends of the spectrum. You may want to hire a planner to help you figure out what kind of mixture makes sense for you specifically.
Don, It's true that mutual funds are required to pass along their gains and losses, dividends and income to investors. That's why a lot of people choose to invest in broad-based index funds where there is not a lot of buying and selling, so you don't receive that tax hit that you do with actively managed funds. Whether or not you switch completely out of mutual funds is your choice, but remember that a foundation of a broad-based index fund will give you great diversification (like the Vanguard Total Stock Market Index) with very low fees.
Thanks for being here, WTerry.
Don - A couple of points. First, Mutual Funds offer diversification that is hard to replicate on your own using individuals stocks, and this cannot be discounted. Second, and admittedly this may be a bit of a stretch since I do not know the particulars, but the fund you are in may be generating many capital gains because it is actively managed. You may avoid some of the issues you are experiencing by investing in a more passively managed mutual fund. Also, there are a few tax-managed mutual funds, but tread carefully because you should also review their performance and expenses.
Mft, One way to keep them completely 'seperate' is to open another ROLLOVER IRA account with your custodian and rollover your 401K funds to that account. That is perhaps the simplest and the easy do-it-yourself option.
Mft - You will want to keep non-deductible assets separate form deductible assets in your IRAs to simplify record keeping. You are supposed to record and report annually your basis in the IRA with non-deductible assets so that you won't be taxed on that money when it comes out.
Hi Mft - I hope your accountant has filed an 8606 form for each of your non-deductible contributions. This will ensure that when these funds are distributed, they receive more favorable tax treatment
Mft - you can roll it into another IRA, but if you do a Roth IRA conversion or future withdrawals you'll need to look at all your IRA accounts together to determine what the basis is in your IRA. Before you roll the other 401k into a new IRA you may want to look into a Roth IRA conversion assuming you don't have other IRA assets. You would be taxed on the gain above basis, but would eliminate the need to keep all the basis info in the future. I'd recommend working with a financial or tax professional to see if this makes sense.
Don: In addition to what's been said, remember that if you sell anything you will be realizing any capital gains or losses based on how much you invested vs. what you sold it for. So remember that changing things now will probably come with a tax bill. And depending on your overall tax situation you might not want that to happen all in one tax year if you can avoid it.
Maybe consider looking into ETFs or low cost index funds with a low "turnover rate" (how much they buy and sell holdings) as a middle ground. I'm worried that if you shift into stock you won't be as diversified & your risk level might be higher than you might realize.
Karen and Nicole you are both up shortly. Thank you for your questions!
Wow. Time flies when you're having fun. Thank you to all of the NAPFA advisers who have been with us for the last two hours.
Joining us now are Mark Wilson, Michael Gibney and Russell Hall. Welcome!
Hi Karen - If there was absolutely no withholding, it does not surprise me that she owed money. I would ask her to ask her accountant how much she should be withholding. If withholding it not an option, then she may have to begin paying quarterly estimated taxes.
Hey Nicole - If these funds are all in what is known as a "qualified account", that is, an IRA or 401k then you can feel comfortable doing all at once. If they are not in a qualified account, then it is vital that you consider any tax implications of selling funds before rebalancing and you may want to do so over time to reduce capital gains taxes, if any.