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

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Maximize Your Money With Kiplinger and NAPFA, September 2016

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

  • I appreciate your feedback. thank you.
  • Thanks for joining, Victoria.
  • And, thank you to everyone who has asked questions. We have quite a queue but we're trying to get to everyone as quickly as possible.
  • If Spouse 1 is turning 65 next year and Spouse 2 is 62 and working with employer provided health insurance for both that is a high ($3000) deductible plan with a family HSA account, can Spouse 1 stay on Spouse 2's employer plan and NOT take any Medicare until Spouse 2 retires? If Spouse 2 continues working after age 65, can they both NOT take any Medicare until Spouse 2 retires?
  • Just moved to a new location for a job. I had to pay a moving company to transfer my belongings from my previous residence which I turned into a rental. I have two questions regarding tax purposes: 1. What can be used as a tax write-off when moving. 2. For rental properties, any fixes around the house or improvements can be a tax write off. 3. One more question, what is this maximum amount you can hold in an overseas account before filing for taxes if I consider in opening one. 4. Lastly, where you be the best place to invest money for my kids in order to get a greater ROI as well as tax breaks when they are old enough to apply for college, who are less than 8 years old.
  • Marc, there are some specifics that determine whether you can deduct your moving expenses. Check out the IRS website page on that and you'll find what you need. On your rental, the money you put into the property will either be considered a repair or a capital improvement. Repairs are deductible against rental income that year, capital improvements increase the cost basis of the home.
  • Don - A lot depends on the details of the group insurance. Many group plans will require one to sign up for at least part of Medicare at age 65 to lower the plan's costs. If that isn't the case one can put off taking Medicare until the group coverage ends. Read the article Vid posted.

    And in any event be aware that you are supposed to stop contributing to an HSA 6 months before you sign up for Medicare/Social Security.

    Here' an article about that:
  • I just entered the job market and have the opportunity to participate in both 401K and Roth accounts. I currently put 9% of income in each every month. What would you recommend as a reasonable allocation into each account, given how they are treated differently when it comes to taxes?
  • Marc, on your question about college I would suggest looking into a 529 plan. If you use your own state's plan you can usually get a tax deduction for some portion of your contributions and the earnings from your investments are tax free if you use the money for qualified education expenses. Within each 529 plan there is a list of available investment options. I typically use one of the age-based options which gives you broad diversification and gradually gets more conservative as your child nears college.
  • Marc,

    Regarding #4, have you heard of investing in a 529 college savings plan? In such a plan, you invest after-tax dollars, your investment will grow tax-free and it will come out tax-free as well if used for qualifying educational expenses. 

    Perhaps, you may be interested one of blog posts on this subject 
    Find ways to save money when you fund College education
  • Kristen, I personally put 100% of my contributions into my Roth 401(k) for the first several years of working. The real advantage of the Roth is that future qualified withdrawals won't be taxed, so you never have to pay taxes on the growth of your investments. The younger you are the longer you have to benefit from that.
  • I have read that withdrawals from IRA's and 401k's are taxed as income. I'm 62. No kids, RMD's are just around the corner. I have three IRA's totaling $63k. A 401k totaling $1,5M. If I want to simplify my future financial picture, would it make sense to make my withdrawals from the IRA's and close them out?
  • Tony, you could draw your IRAs down to $0 before reaching 701/2. That way you'd only have to take an RMD from your 401(k). You might also consider rolling your 401(k) over to an IRA. If all of your funds are in IRAs, you can calculate your total RMD across all accounts and just make one withdrawal to satisfy them. The determining factor for me would be what the investment options look like in the 401(k). Often the investment options in 401(k)s are more expensive than what you could buy in an IRA.
  • Kristen - I think there are few if any wrong answers on how to split that up. In a general sense, if your tax rates wind up being lower in retirement than they are now then the pre-tax contributions will have been better. If they are higher than Roth would have been better. But unfortunately, nobody knows for sure how that will shake out. There can be other factors too. One that leaps to mind is student loans on an income based repayment plan. If you do pre-tax, your loan payments next year may be lower but allow more interest to accrue. That might be a good or bad depending exactly what you plan with student loans. Leaning more toward Roth in the early stages of one's career is one fairly common approach.
  • Hello, my wife and I are both 54 and would like to take early retirement at 62. We've saved the max in our 401k plans and -- with a 4% draw -- will have just enough to cover our expenses. Fortunately, we will also have our mortgage paid off. We don't plan to file for social security until 70 (which will give us a nice boost), but of course Medicare isn't open to us until 65. Here's the question: what to do about health care coverage between 62 and 65? Neither of us have retiree medical and health care is our last obstacle to a worry free retirement.
  • Hi Kristen,

    Great Q. First of all, I should commend you to wanting to save early. How to allocate between 401K and ROTH depends on few factors such as what marginal tax bracket you are in, whether you have enough emergency funds etc.,

    For example, if you do not have enough saved towards your emergency fund, I would say maximize ROTH IRA contribution first. 

    This is because you are free to withdraw ROTH contributions anytime tax-free, and penalty-free. Yes, even one day after you contributed! For this reason, Roth IRA contributions are considered your means to fund your emergency needs.

    However, one word of caution: The tax-free, penalty-free rule applies only to your contributions, not to the earnings generated from your investment. And It is your responsibility to keep track of the contributions versus growth in your account balance.

    For example, say you contributed $5,500 each year for the last three years to your Roth IRA. Let us further say, thanks to your investment savviness, your Roth account grew to $20,000. Any withdrawals up to $16,500 incur no taxes or penalties. On the other hand, if you withdraw the entire $20,000, $16,500 will come out tax- and penalty-free, but you will have to pay taxes on the $3,500 of earnings. And finally, based on rules as defined in by the IRS in publication 590a, you may have to pay a 10% penalty on the $3,500.

    Hope this helps.

  • Lester these articles may help:

    A Reality Check on Health Care Costs for Early Retirees

    www.kiplinger.comIn drawing up your spending budget for retirement, you should prepare for significant health care costs
  • Strategies to Pay for Retiree Health Care Costs

    www.kiplinger.comPlan ahead by including medical expenses as a line item in your retirement budget.
  • 5 Ways to Ease the Pain of Health Care Costs in Retirement

    www.kiplinger.comThe best medicine is to plan ahead for this significant line item in your retirement budget.
  • Hi Lester, It sounds like you and your wife have done a great job preparing for retirement! From 62 to 65 you'll likely have to buy an individual health insurance policy. The Affordable Care Act made it easier for people in your situation to get coverage, although it isn't necessarily cheap. You should be able to buy insurance on the exchange to get you through until you reach 65. Since it's still 8 years away, it will be interesting to see how the exchanges have evolved by then.
  • Tony - I would recommend that you work with a qualified tax person and a fee-only financial planner to help you determine your best approach here in terms of taxes, taxation of Social Security benefits, future Medicare premiums, and other factors. Since you could roll the accounts together without taking the money out, I don't think convenience should be the driving factor in whether or not the take the $ out of the IRAs now.
  • If one is a Vanguard Flagship client, is there generally any benefit or value added by signing up for their Personal Advisor Services? It almost seems like a duplication of services. Thanks.
  • Lester - Unfortunately, I think it is largely wait and see. For now I would look at the healthcare exchange in your state to see what plans are currently running and make some estimates based on that plus some inflation. However, I don think we have a terribly clear idea where the ACA health care exchanges will be in 8 years, so take those numbers with a grain of salt. Would either of you consider working a part-time job that has health benefits during that period?
  • Brenda, my understanding is that the Personal Advisor Services provides some additional ongoing monitoring of your investments and that there may be some higher level of access to an advisor than with the Flagship services. I'm not sure either provides the one-on-one ongoing relationship with an advisor that you would get with a fee-only NAPFA firm.
  • I am 62 and have a Traditional IRA (250 k) and a ROTH IRA(27 k). I am looking for tax strategies over the next 8 years to keep the IRS out of my Traditional IRA upon reaching RMD age of 70.5
  • 6 Tax-Smart Ways to Lower Your RMDs in Retirement

    www.kiplinger.comLowering required minimum distributions once you turn 70 1/2 will keep more of your money tucked in a tax shelter
  • Brenda - My impression is that there's some overlap but the details are unclear to me too. I would recommend contacting Vanguard to have them clearly explain those differences.
  • Hi Lester,

    To answer your specific Q - I would say perhaps your options are 1) consider COBRA coverage from your ex-employer plan for 18 months and then self-fund, or2) self-fund entire 3 years. 

    That said, I am a little uncomfortable with a couple of points you noted regarding your Retirement plan:

    1) the 4% draw retirement plan. In fact, recently I wrote an article for Kiplinger on 3 most dangerous myths of Retirement Planning. Following Retirement rules of thumb is one of them. Hope you will find some useful information there.

    2) Depending on medicare to cover Retirement healthcare costs. “Health Care Costs for Couples in Retirement Rise to an estimated $245,000” claims a Fidelity Investments report. Unless you are comfortable to self-fund, this expense should be an important part of your Retirement plan. Given your ages, if eligible, a HSA is a great option to consider. The contribution, growth, and distribution ( if used for medical expenses) all tax-free all the way. You may be interested in my post "How to cover Retirement healthcare costs

    Hope this helps.
  • Gary, Without knowing your other sources of cash flow or your living needs I can't offer specific tax advice but you may be able to take withdrawals over the next 8 years and pay tax at a lower rate than what you might pay once you turn 701/2.

    Once you do turn 701/2, you could potentially avoid taxes on your RMDs by making a donation from your IRA directly to a charity. Qualified charitable distributions satisfy your RMD but are not counted in your income. Whether that is a good solution for you depends on your situation and goals.
  • Similar to Wade below but I’m not close to retirement– Former employer is offering a special election package for next 45 days. Choices are: 1. a lump sum payout now, 2.begin annuity payments now, 3. Wait to take pension benefit. The lump sum payout Choice #1 is approximately $26K, Choice # 2 is monthly payments of $124.00, Choice #3 waiting means $403 a month when age 65. I should mention I’m currently 48, have an IRA Rollover account approx.. $146K, a 401K with current employer approx.. $123K, and ROTH IRA approx.. $52K. Also have a sizeable cash emergency fund. My thinking is their offer to take Choice 1 or 2 is ridiculous – that I should wait for retirement age of 65. Do you agree? I am single and in excellent health. I also wonder if there would be a way to collect Choice #3 before age 65?
  • Gary - Almost nothing short of emptying the traditional IRA will keep the IRS out of your traditional IRA once it is time for RMDs at age 70.5. And taking it all out is probably not the best way to go. I would work with your tax person and a fee-only financial planner to use IRA withdrawals or Roth Conversions to make sure you are filling up your lower income tax brackets each year between now and then. But overall, there is a limit to how much you can probably do. Depending on your other income sources and tax situation you may be able to do a lot, a little, or almost nothing to head that off. And overall, the goal would be more to reduce your RMDs than prevent them.
  • We are Carrie, but yours just came up!
  • How to cover your Retirement healthcare costs - Unique Financial Advisors

    Unique Financial AdvisorsHealthcare Savings Account offers a solution to Retirement healthcare costs. Contributions, growth and distributions for medical expenses are all tax-free.
  • Carrie - As long as the pension is securely funded, my first instinct is similar to yours.
  • Carrie, I hesitate to give an answer on this because there are so many factors that could influence it. Just based on what you've shared I tend to agree that choice #3 probably makes the most sense. If you take benefits now, they are going to be taxed on top of whatever income you earn from your next job which means the pension will likely get taxed at a higher rate than it would during retirement.
  • for a short term play - what do the experts think about a quick buy on Monsanto, to capture the run up based on Bayer's tedner offer - is there short term gain to be made here?
  • TJMc - I don't recommend making short term stock plays.
  • When one takes a macro look at the US economy it is difficult to understand why the equities market has be bullish for so long. Is a appropriate to move to defensive equities or move out of the equities market entirely now?
  • TJMc and Eugene,
    There are investment managers who make moves based on their forecasts about what will happen tomorrow, next week, next year in the market. History shows us that those advisors and their clients do not typically outperform a more disciplined, index approach to investing. It's human nature to want to figure out what's coming next and make moves in advance to better position ourselves but in practice it just doesn't usually work when it comes to investing. A better approach is to choose a split between stocks and bonds you can live with, buy low-cost mutual funds in a variety of asset classes and use a systematic method (percentages, or a time-based method like quarterly) to make trades that bring you back into line with your target allocation.
  • Hello, I have what may be a general question but would love your thoughts.
    I normally don't panic. I've weathered the previous years ups and downs and falls knowing the market would come back. But I am currently 55 and now worried I am too close to retirement - even though its 10-12 years away, to loose a good chunk of my retirement money. and for the first time very concerned about what the market may do come this election year. I've read several different views about on it, some calling it a possible "black swan" . Currently all my savings are in my 401K and a Roth IRA and all in Target Date funds (which may be another question for later) but I've seriously been considering putting it all in Money Market /cash until after the election results. I know you can't time the market and as I type afraid it sounds like unreasonable panic but again would love your thoughts on it. Or your recommendations for someone who is closer to retirement and worried about the risk. Thank you!
  • Eugene - I don't recommend getting in and out of the equities market based on short-term predictions. The evidence seems to suggest that getting the timing right with any consistency over a long period of time is unlikely. I encourage my clients to have relatively boring portfolios made up of low-cost passive index funds. Set an overall allocation target that fits for your comfort levels and long term goals and rebalance back to it on a regular, disciplined basis. And spend the time you used to use trying to predict the future using economic data doing something you love.
  • Hint: It won't much

    How the Presidential Election Will Affect the Stock Market

    www.kiplinger.comMyths abound, but when it comes to your portfolio, it doesn't matter much which party wins the White House.
  • Hi Jean, I applaud you for sharing your concerns even though you know it generally doesn't make sense to move in and out of the market. The most money is lost when people react to the drops in the market by going all to cash. I understand you are thinking of doing that now, before any potential corrections occur. But then when do you put the money back in? Usually we are already well into the recovery by the time people feel comfortable reinvesting in the market and they've missed the potential upswing. My suggestion to you is to look at how much of your target date funds are comprised of stock. Let's say it's 60% and your investments are worth $500,000. That means you have $300k in stock. If the stocks went to half, as they did in the Great Recession, your investments would go down in value by $150k. Could you tolerate that without being compelled to go to cash at the worst possible time? If not, move into a target date fund with less stock - not zero, but maybe not 60% either. Hope this helps.
  • Jean - Now seems like a good time to evaluate how much investment risk you are really comfortable with. As the article suggests, presidential elections are generally a poor predictor of stock market performance, so I would focus away form that and more on making sure that the overall risk level of your portfolio is one that you are comfortable with even when you are nervous. I'll also second Danielle's comment which is much better written than what I was working on typing. : )
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