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.

  • Hacksaw, all of the advisors on the chat today are part of the National Association of Personal Financial Advisors. Check out and use their find an advisor tool to find a reputable advisor near you. They all work on a fee-only basis so the only person who pays us is our clients. This means you'll get objective advice and many of these advisors will work on an hourly or project basis.
  • Scott all of the advisors are probably debt averse:-) But where is the cash going to come from? Do you have it on hand? Are you going to have to take a withdrawal lump sum from a retirement plan which could result in a big tax bill? I tell clients there is a often a difference between the right answer and the good answer. The right answer in this case is that technically, most diversified allocations should return more over the next 20 years than any mortgage interest rate you would pay. The good answer may be that you would sleep much better if the house was paid off.
  • I got a lump sum from my mothers annuity. Paid tax on the gain. Can I give portions of it to my siblings without its being taxed? Or am I limited to the annual gifting amount?
  • Hacksaw, Along with going to or searching at I'd look for a Certified Financial Planner and and NAPFA Registered Financial Advisor. 
  • You are limited by the gift tax exclusion of $14,000 but if they are married, you could, if everyone gets along well, give $14K to their spouses and/or children as well.
  • Hacksaw, that site also has good information on how to find an advisor. At a minimal I would look for a CFP, fiduciary (puts your best interest first), and full disclosure of any fees or commissions (fee based is perceived as having less of a conflict of interest and IMHO is true most of the time).
  • Maryann, yes if you have a married daughter with 2 children you can give the annual gift amount to all 4 of them. So can your spouse even if all of the funding comes from one of you (in which case I would file a gift tax return clarifying how the gift was made so it doesn't count against your lifetime exclusion). When gifting to children remember that in a Uniform Gift to Minors account they will have control at some point, usually age 18. You could use the gifts to fund a 529 college savings plan for the children...them as beneficiaries with their parents as owners.....and not chance that the money gets spent on a new car:-)
  • Kathy, You're limited to the $14,000 annual gift to each recipient, spouse, kids, grandkids, etc. If you're married, both you and your spouse can give the $14,000 or $28,000 total, assuming you both own the assets being gifted. In the future, you could disclaim the inheritance and have it go to the next heir. But I'm guessing it's too late for that. Gifts over $14,000 are considered taxable gifts and must be reported on an annual gift tax return, Form 709. But they are subtracted from your combined unified gift and estate tax exemption after you die, which is $5.45 million. So you can give more, but you need to file a form to tell the IRS. 

  • My wife has only worked about 3 years in her career. So she only has around 12 quarters of paying into Social Security. Will she be eligible to collect on my Social Security when she turns 62? I am 2 years older than she. Thank you
  • Oh Kathy, I see this often. The parent wants to make sure the responsible child gets the proceeds (so they pay tax on a large lump sum) and then distribute it to the others. If the money was divided before the distribution, the resulting taxes overall would probably have been less (unless the siblings are high income earners). Now can you give it to them? If you think your estate at death will be less than 5 miliion plus dollars, the you can give them any amount you want and use current part of your lifetime gift exclusion (but you would need to file a gift tax return...check with your tax preparer). If you DO think you will need that entire 5 million plus exclusion at death, then you are limited to 14K/year to preserve it. If you are married, you and your husband can give anyone 28K/year even if you pay all the money (but you would need to file a gift tax return).
  • Agree with you Bobbie -- wasn't sure how far down the family chain he wanted to go. Kathy, you can give these gifts each year until you've reached your gift exclusion, currently over $5 million. Since you've already paid the taxes, it's too late to undo and disclaim. Please make sure your CPA knows what you are doing so the correct forms can be filed if/when appropriate.
  • Terry, if you've been married 10 years or longer, she can receive spousal benefits. She must be 62 or older. But if social security is going to be a big part of your retirement income, I'd really recommend waiting as long as possible to collect. 
  • Yes Terry, she will qualify when she turns 62 but she will take a big hit on the benefit, which is half of your Personal Insurance Amount (PIA). She would get the full benefit when she turns Full Retirement Age (FRA), which is probably 66. If she files at 62, she could get up to 30% less.
  • Hello, I currently have 100k saved up that I plan on using for a down payment on a house, but not for another 2-3 years. The money is currently sitting in a money market account earning 0.75%. I live in an expensive real estate market and plan to double my down payment over this same period. How would you invest this money?

  • Terry, you have to work 40 quarters to be eligible for your own benefit. She will be able to receive a spousal benefit but I think you have to be taking your own benefit for this. Know that taking benefits early means taking a big haircut on the amount.
  • Does it ever make sense to go exempt on taxes and use equity line to pay year tax bill, the exempt money I would add to make additional payments to my home. I already pay double payments monthly, my original payoff was 2042 now its 2024. I plan on investing all my payments for retirement once the home is paidoff. I also do 14% in my 401k currently.
  • Kyle, I'd probably look for a CD that expires around the time you'll need it. I wouldn't invest it. The money market works if you like the rates. But keep an eye on it. 
  • I bought some I bonds in 2001 when it appeared as though they guaranteed a return of at last 3 percent per year. Unfortunately there were strings attached and many years (including now) the return is zero. Should I sell them now?
  • Kyle, if there's any chance you'll use the money in the next few years (which it sounds like there is), then I'd stick with cash like instruments (i.e. savings accounts, CDs, etc.). I'd echo Richard's comments on rates. Several online banks are offering 1%+ right now so shop around!
  • When dealing with one of the really large banks/brokerage, should one be concerned with exceeding the FDIC/SPIC limits. Splitting an IRA between several custodians does create other issues.
  • Do any of the FA suggest paying off your home early? Considering that I'm 34 and pay double house payments. It seems better to me to be 42 with a paid off 700k home (today's value) and start investing my double payment. I also put 14% in my 401k with a 4% match plus my employer drops an extra 10k yearly into my account. I feel I also have cash reserves that I think should be in Roth accounts.
  • Gam, I'm sorry for your poor fortune. I'd recommend getting a second opinion on an hourly basis from a fee-only financial advisor. They can take a look at exactly what you have and whether or not it makes sense to sell them given your overall investment strategy and financial planning objectives.
  • Do you think it prudent to always keep accunt balances below the SPIC/FDIC coverage? Splitting a large IRA between different custodians creates other problems.
  • I plan to use dividends from a couple of Bond funds to supplement my pension in retirement. To stay ahead of inflation, I plan to have 50-60% invested in stock funds, and then rebalance once a year. For the stock funds would it better to have a single Total Market Index fund or have a mix Large, Mid, and Small Cap Index funds. I suspect I will likely have more opportunity to transfer funds to the bond funds at time of rebalancing using a mix of Large, Mid and Small Cap funds rather than a single Total Market Index fund.
    Does that seem reasonable?
  • JP, you questions are relatively complicated for a chat and could require more analysis, especially regarding the exempt status. However, it seems that your cash flow is decent and you have time on your side, In your cause, it might be one of the few times I'd say let market compounding work for you and invest and pay down the house simultaneously. If you're saving 15% in the 401k already, just focus on the house. But for the most efficient answer, it'd require more analysis. 
  • Hello. I have 100k earmarked for a down payment on a house, but don't plan on buying for another 2-3 years. During this time, I plan on saving another 100-150k for the house. The money is currently sitting in a money market account, earning 0.75%. I live in an expensive real estate market and I expect I will need roughly 80-100k for a 20% down payment and would like to keep an additional 100k for renovations immediately after buying. How would you invest if this was your money?
  • James, the FDIC covers banks but not money market funds. To get around the FDIC limits on coverage, you can open account with different titles (one for you, one joint, one for your spouse) and fund each to the max....most likely using CDs. Or there is a group You can use just them and they distribute the money among different banks to make certain nothing is above FDIC limits. Now SPIC applies to investment accounts and only covers in the event the brokerage fails. The limit is 500K per customer including up to $100K in cash.
  • James, most custodians I know carry excess coverage with Lloyds of London or the like. Different custodians complicate things and make your estate plan a mess. My 2 cents

  • Joe, this depends a great deal on your investment philosophy and strategy. For example, a total stock market index approach will certainly help minimize the transaction costs from rebalancing compared to the large-cap vs. mid-cap vs. small cap approach. Research shows that asset allocation is the primary driver of a portfolio's return so the stock/bond decision is vastly more important than the large cap/small cap decision, all else being equal (i.e. adequate diversification, goals, risk tolerance, etc.).
  • Kyle, such a boring answer but I would not invest money I was going to need within the next 2 years, especially with the market at highs. Just make sure you get the best rate possible. Capital One 360 program or Ally Bank (paying 1.3% for 18 months with 25K minimum) are good options.
  • Kyle, I'd probably use a combination of money markets and CDs depending on when the money is needed. I wouldn't invest it in any equities. 
  • Kyle, you're right to not want to take much risk with your down payment funds. You could build a CD ladder or invest in a short-term bond index fund. Also, there are online banks such as Ally (formerly GMAC) whose interest rates are sometimes higher than your local or national banks.
  • Still working. Turned 70 in 07/16. RMDs to start in 2017, understand I can still contribute to Traditional IRA in 2016? Will I have to take 2 RMDs in 2017? May I contribute to Roth IRA in 2017 & continue during working years?
  • The goal for my IRA portfolio has been the mantra of a diversified package of stocks, mutual funds ( bonds and equities ), and international mutual funds. At age 62, I am about 70%/30% stocks/bonds in the blend. When the market goes down triple digits, all my funds take a hit. Is there a better balance which will produce growth and weather the market roller coaster?
  • I have a significant amount in a 403b account at TIAA, and in just a couple of years will be required to start RMD's which I do not really need for living expenses at this time. I know I'll have to pay income taxes on these at my regular rate, but I would like to shelter those distributions from future taxes on their investment income. My question is this: Can I take these RMD's as *after-tax regular IRA recharacterizations", then convert them into Roth IRA account money? Thus: 403b RMD -> after tax regular IRA -> into Roth IRA, and shielded from all future taxes.
  • I should add that I am retired with no current earned income.
  • Joe, you don't have to take the RMD until next year. Unlike a Traditional IRA, if you still have earned income, and meet income eligibility requirements, you can still contribute to a Roth IRA after 70 1/2, up to $6500/year.
  • @BobbieMunroe Thanks for your answers. What should one expect to pay using a fee based advisor thru NAPFA.
  • Ken, you can fund an IRA with the distributions, regular or ROTH, as long as you are working. The after tax part works ONLY if you don't have another IRA as if you do, the taxation at the Roth conversion is prorated re after tax amount vs total amount for ALL accounts. By the way, if your income is going to be lower in the next couple of years, you may consider taking some of the money out of your retirement accounts now while income is low. I know, people say that you should wait as long as possible but I often see many opportunities for lower taxation if earlier withdrawals are made.
  • Curt, it sounds like you may be invested a little too aggressively for your risk tolerance given your aversion to the ups and downs of the market. A portfolio's expected return is directly correlated to the amount of your investments you allocate to riskier assets (i.e. stocks). In other words, if you want less risk, you'll probably have to accept a lower long-term return and that's completely OK. As they say, "there's no such thing as a free lunch" especially when it comes to investing.
  • I am going to retire within a year. Is it smarter to have a total market bond fund or to have brokered CDs in a 401K in the event of rising interest rates.
  • I would appreciate your comments on my question regarding ROTH conversion: I am 70 yrs old and my wife is 66 yrs old. I have been doing ROTH conversions for
    last few years. In deciding on the amount of conversion, I have tried to stay at 15% income tax rate with the assumption that my rate after 70 yrs will stay at 25% or less.
    My wife feels that we should convert as much as possible regardless of the tax, so that our two children don't get saddled with paying high taxes (since they are in high tax brackets).
  • Ken, I should clarify as this is a bit confusing. If you aren't working, you simply cannot fund an IRA. So the RMDs cannot fund this. If you CAN rollover just the after tax portion of the TIAA account into an IRA then you can start converting that to a ROTH with little or no tax.. If all the money in the TIAA account is before tax, there is no advantage in this. And if distributions must be prorated between before tax and after tax savings, then the ability to rollover and then convert with no or little tax is significantly diminished. Talk to your tax consultant.
  • John, If you have earned income you can contribute to a Traditional or Roth IRA prior to the year you turn 70 1/2. So if you're 70 1/2 next year, you can contribute this year to either a Roth or Traditional IRA. Next year when you turn 70 1/2 you need to take a RMD before year end. You can continue to contribute to a Roth beyond age 70 1/2 if you have earned income. 
  • George hourly rates can vary between $150 and $300 and often depends on what part of the country. That said, it is amazing how much you can get done in a few hours.
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