CT - According to TurboTax there is a 30% tax credit on EnergyStar approved solar panel installations through 2016. That means you can take 30% of the cost of installation as a tax credit which is a dollar for dollar reduction of your tax bill.
CT - One more thing. . .make sure your state's utility isn't part of the trend in the West that is eliminating the 'net metering' standard that has been in place for many years now. If you're not sure what that means, you should search online for some articles on the 'net metering' challenges.
Hi Bob C., I've had several clients buy back service credits, and in most cases it's a great decision. From your description it sounds like a good idea for you too, assuming your wife has a normal life expectancy. It would be even better if her pension would pay the same amount to you too, if something happened to her (100% joint / survivor benefit).
Bob - We've run these numbers several times over the years and buying pension credits has generally been a pretty good deal if you live long enough. I ran a (very quick) calculation and see that making the purchase will be a good option if your wife lives into her late 70s.
Bob - The financial analysis seems to indicate that the break even point for recovery of the lump sum is about 13 years depending on the interest rate applied. I agree with the others that it seems like a good decision if she lives past 75 or so.
Bob-I agree that this sounds like a good deal. On thing we also like to look at with Pensions is the cost of the survivor benefit vs. the cost of buying life insurance on your wife. Many times for clients in good health the cost of insurance is less than the difference between the straight life annuity and one with a spousal benefit.
DB-Any brokerage accounts or stock/bond holdings with unrealized capital gains? Also, what do cash balances at the bank look like? How much do you need to supplement income annually?
Bob, let's look at this. 35K now inflated by 2.5% would be 40589 by her age 62. So that is the true cost of the 300/mo income stream. Now 3600/year divided by 40589 is 8.8% payout but you get nothing back if she dies early and you don't have a survivor benefit. If I use her planning age as 82, I get a 6.4% return and it is virtually guaranteed IF the plan is in good financial shape (which I would research). You may want to delve into survivor benefits if this is a large part of your joint retirement income. But, although as NAPFA members we don't use insurance unnecessarily, I agree with Allison on the possible TERM life insurance. For instance, I recently had a client where we were able to replace the survivor benefit with 2 term policies (one 10 year and one 20 year) and the cost was HALF that of what the reduction in the benefit would be if they had elected a survivor benefit. This basically saved them over $1000/month. As you can see, some good planning with an experienced planner might be well worth the amount you would spend.
DB - If you're going to pull money from your 401(k) to both live on and convert some to the Roth, that will increase your taxable income. You don't tell us what you need for lifestyle, so we're left guessing a little bit. Normally I tell clients to take from the Roth IRA bucket last or for one-time expenses, like a new roof for the house. That way, they don't have to gross up the net amount for income taxes.
Bob, while it is hard to analyze this in light of your overall situation, here is some basic math. Calculating for 20 years from the age of 62, your $35,000 today @ 5% growth yields $128,079 while your $300/ month pension from 62 over 20 years yields approx. $123,824. I am in no way suggesting you should run with these numbers. But, these should give you an idea that the key factor for you to make the decision is: to expect life expectancy as accurately as you can and then do the math (perhaps using a calculator ). Or even better seeking professional help from a Fee-ONLY NAPFA advisor..
DB - I'm not seeing that you have any assets outside of tax-deferred accounts. It generally does not make sense to do Roth conversions when the taxes due have to be paid from assets drawn from tax-deferred accounts.
DB, I love the idea of spending ROTHS last OR leaving them for young heirs (I often suggest grandchildren rather than children as beneficiaries as this gives potentially the longest period of at least partial tax free growth). Many people who delay social security until 70 are shocked by their tax bill the first year as they now have social security income and required minimum distributions. Therefore, I have them work with their CPA to take distributions from retirement accounts and/or do conversions to maximize a tax bracket in their retirement years BEFORE 70.
Checkman, you give us great detail on the kinds of investment products you are using but this tells us very little about your asset allocation. do you know how much you have in equities, bonds and fixed income, and cash?
Checkman - I'd suggest categorizing your assets differently - break things down into stocks and bonds. That mix determines most of the risk/reward you should expect. Unfortunately, mutual funds and ETFs can be invested in stocks and/or bonds so determining your mix should be your starting point.
Hi David, someone else who knows Turbo Tax can comment on accounting for it there, but I just wanted to say that you won't get an official tax form this year showing the recharacterization. That Form 5498 should come later, so make sure you keep it with your tax return when you get it.
Checkman, you might also check out Vanguard Wellesley Income Admiral shares (you have to have 50K to use this but they do have a retail share as well that only requires 3K). The symbol is VWIAX. The expenses are a very low .16%, it is currently yielding almost 3%, the allocation is 38% equities with the rest in cash and fixed income.....a reasonably conservative allocation. This fund, one of my favorites, is always at the top of its category in returns while still taking less risk than its peers.
David, the support at Vanguard should be very willing to tell you how they will report this.
David - I'm quite sure TurboTax (and other solid tax software) will ask you about recharacterization. I was a TurboTax user when I did my recharacterization and the software led me through the reporting process.
Elaine, "Vanguard" says it all. If you have good selections within the plan, we know it is low cost from a VERY reputable provider. So leaving it there would not be a bad idea. However, if you don't have a great investments selections, you might want to roll it over. Laws re IRA protection vary from state to state.
Elaine - Something else I forgot to mention is the flexibility of withdrawals when that time comes (if you're not already in retirement). Some 401(k)s have strict withdrawal rules and are a little trickier when it comes time to take required minimum distributions (RMDs). Just something else to keep in mind!
Rusty, it's really tough to answer without knowing more about your overall financial situation. That being said, you don't want to have a concentrated position in 1 stock or sector. While the Pacific Rim may be attractive from a valuation stand point, it's important to make sure you are diversified. If you are not working with a financial planner I would recommend a Target Date Mutual fund that is in line with your age and limiting any individual stock or sector holdings to less than 10% of your overall portfolio.
Hi Rusty H., if you're a good ways from retirement (i.e., needing to start spending those funds in the 401k) I would keep contributing to international investments. As Allison said, a Pacific Rim specific fund may be too aggressive for you and not well diversified. But I think keeping an allocation to international investments makes a lot of sense, and it's better to buy shares when they are cheaper if you have a long time horizon!
Rusty - If you're globally diversified and have a long time-horizon, then I wouldn't necessarily sell or stop contributing to a particular asset class or mutual fund just because that region has experienced recent losses. With that said, as Allison pointed out, if a large portion of your portfolio is in one region, country, or asset class, then it might make sense to "cut your losses" and develop a long-term asset allocation that's more diversified. This will typically help you avoid the behavioral tendency of selling at the bottom of a market cycle and locking in substantial losses.
Dick - I am not aware of a clearinghouse for health plans, but there may be one. Obviously www.healthcare.gov may be worth a look. Otherwise, you may have to purchase a family policy from a private insurer if you're not going to be covered under and employer plan.
Rusty, if the Pac Rim allocation was small and part of an overall, reasonable allocation, then hang tight. But if it was a (too) big player in your portfolio, you need to get a allocation plan that will take the emotion out of your decision making. Periodic rebalancing will make you sell high and buy low.
Dick - I'd start my search at healthcare.gov to see if you qualify for any government subsidies. If you don't, then I'd also see what insurance companies are popular in your state or area and check out how much it would cost to purchase insurance directly from the company. Don't forget to check any professional associations or your local chamber of commerce if you're a business owner for possible options!