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.

  • Rick, there are risks to both products. In both cases, interest rates will affect the value of the investment. But if you plan to hold them to maturity, then the brokered CDs may be worth exploring. Don't forget about reinvestment risk though. With a diversified bond fund, as old bonds mature, new bonds at the theoretical higher rates will be purchased and that interest will help offset the negative impact of rising rates. With a brokered CD, you'll have to find a way to reinvest that interest in order to take advantage of the higher rates. This might be hard to do if the dollar amounts are negligible.
  • Thank you again to all you wonderfully helpful advisers. What negatively impacts FICO score, a high percent of overall credit limit of ALL accounts or does it go by INDIVDUAL card accounts?
  • SR, if you do not need the money and do plan to give it to your children (wonderful strategy for ROTHS as it increases the number of years of at least partial tax free growth), AND they are in much higher tax brackets then it could make sense to rollover even more. But tax law uncertain and there is talk of changing ROTH rules. Since we can't know the future, I really like your strategy of maximizing the 15% bracket. That is so smart (good thinking) and probably what I would do for myself.
  • @BobbieMunroe Since I believe that in order to live the lifestyle that Im accustomed too I keep all my investments in a diversified portfolio of stocks vs a 60/40 allocation. Do you think I'm foolish with only a five year horizon before beginning withdrawl.
  • Hi,

    What type of bonds and bond funds would you recommend today with low interest rates compared to when rate begin to rise?
  • Victoria, I think what you're referring to is called the "credit utilization ratio" part of your FICO credit score. If so, there are actually multiple factors that play into this because not all credit is treated equally (i.e. credit cards are treated differently than mortgages and other installment accounts). In general though, it's best to have BOTH a low credit utilization per account and a low credit utilization overall.
  • Is fixed annuity safe? I keep reading that the contract may be changed along the road by the issuer
  • George, I think that finding this answer specifically for you is one of the best benefits of working with a planner. The answer is different for everyone. A REAL planner (CFP for instance and not someone who just decides to call themselves a planner) will review what you have (retirement income and investments) and what you want. Then they can determine how you need to invest to have the greatest probability of success. Many times I am able to show clients that they are more likely to be successful IF they invest more conservatively. Why take risk if you don't need to (you are the quarterback and you have the ball and a 2 point lead with 14 seconds left in the game---will you pass or take a knee?). Being more conservative though might fund all your requirements but it will probably leave you with less terminal money. So if leaving an inheritance is important, that might change the allocation. As for 60/40, alas some of my clients are so behind on savings as they anticipate retirement that they HAVE to take more risk, perhaps even more than that, to fund their goals. Go find out the right answer for YOU.
  • How does one figure an amount to sell from a taxable account to fund a ROTH without entering a new tax bracket? Thanks.
  • Wade, I'm in favor of keeping duration, or the time it takes to pay off the bond, short. So I'm a fan of short term bond funds. As rates rise, short term funds will adjust faster than longer terms. 
  • Can a non-taxable charitable contribution be made from a 457(b) deferred compensation account at 70 1/2?
  • Next question, my daughter lives and works oversee (Thailand) and is employed by a foreign company. May she make a contribution to her Roth IRA account?
  • Mia, if you want a single premium fixed annuity (you give them a sum of money and they pay you a monthly amount for the rest of your can take less to insure distributions of a certain number of years even if you should not live long), check with low cost vendors like Vanguard and Fidelity. There are a lot of products out there with bells and whistles that make it all confusing. These companies will offer you a plan vanilla annuity that is easy to understand. They have sound financial footing. Know that the older you are when you start the annuity, the higher the payout. Therefore, we often wait until age 75 and deplete retirement accounts to fund living expenses in advance of that. A good planner can help you discuss your options. There are a lot of good insurance agents out there put I prefer you work with a planner who is NOT selling you a product solution.
  • Penny, the good news it that you don't have to have fund the ROTH until 4-15 of the following year. That way, you can have your taxes done (or do them yourself) and see how much capital gain you could realize and still stay in the 15% bracket. This is important as the capital gains rate IS -0- if you are in the 15% bracket (income includes the gain but there is no tax on it). You don't have to guess and can be very exact.
  • My wife and I are in our 70s. Only debt is credit card balances. Am considering cashing in my Univ. Life policy as this year (71yo) the cost of insurance will begin exceeding interest (5.0%) and premiums ($83.00/mo). This would allow us to eliminate credit card debt with about $14000 left over (minus taxes if any). Also have <$10M in IRA monies available. Your thoughts on whether policy should be liquidated. Thanks.
  • After maximizing my Roth IRA and 401k contributions, what vehicle do you recommend investing with? Is there another tax-advantage way to invest?
  • Larry, how long have you had the policy? Is there still a surrender fee if you cash it in? Do you still need the life insurance component? How much tax will you have to pay on the gain if you cash it in? These are questions I would consider. If you have had it long enough that you won't have to pay a surrender charge, you don't need the life insurance, and the taxable gain won't be that large (if it is a big lump sum beware of tax consequences...check with your tax preparer), then I would move forward with this and pay off those credit cards. Then don't close the credit card accounts (that can hurt your credit) but don't use them unless you VOW to pay them in full monthly. If that may be a problem.......Sometimes I actually ask clients to put them in a container, cover it with water and freeze it. This makes it a very deliberate decision should you thaw them out to use them.
  • Ted, if you're eligible for a health savings account, then that is definitely worth exploring. Some advisors call it the "secret IRA" since you can max out that account during your working years and, assuming you don't need the funds, use that money for healthcare expenses in retirement. Many HSAs have an investing option available for money you don't plan on using anytime soon. There are a several other ways to minimize or defer taxes when investing for retirement depending on your situation, so it'd be worth talking with a fee-only advisor to get a second opinion.
  • Planning on retiring in a few years at 59 with 2 million in my retirement account, scared of the stock market. Looking for a safe place to make 3 or 4 %
  • I am 69 married and semi-retired. We have approx $700K invested in retrement accounts ($200k) and brokerage account $475k). We currnetly have income ss, pension and part time work income, installment sale income of approx 225k. My home is valued at approx 800K with a mortgage of 275k at 1.75% with 15 years remainining. I will need to go into my savings and retirement funds to replace installment income etc in about 6 years.
    Should I keep the mortgage which cost me about $22000 a year in P & I payments
  • Ted, consider a taxable investment account. In your future, it might be very advantageous to be able to access the money before age 59.5 without paying a penalty. Put most of your equity investments in the taxable account as any gains or qualified dividends will be taxed at lower rates. Keep most of your fixed income or REIT investments in your retirement accounts. That money is going to be taxed as ordinary income regardless of where it comes from.
  • Can the $14,000 gift be to anyone, or just family?
  • Don, risk and return are directly related. The less risk you take, the less you should expect for your investment return. A good advisor should be able to help you find a conservative, globally diversified mix of stocks and bonds that matches your risk tolerance and time horizon. Another option that might make sense depending on your situation would be to take a portion of your savings to purchase a single premium immediate annuity with a cost of living adjustment, but only consider that after talking with a fee-only financial advisor since there are many pitfalls to avoid with annuities and the people who usually sell them. Also keep in mind that risk isn't just the ups and downs of the market. One of the biggest risks to a retiree is outliving your money so your investments need to keep up with your cost of living.
  • Hello I am a 22 year old college student and am majoring in financial consulting and planning at Iowa State University and I am wanting to start a portfolio. How would you recommend I start? I've been reading on types of investments such as REITs, TIPS, index funds etc, would you recommend starting with one over the other? As a full time college student I only have about $2000 to start investing.
  • Lynn, You can make a non-taxable charitable contribution from an IRA after age 70 1/2. I am not aware of being able to make it from a 457 or 403b. However, you could roll your 403b or 457 to a IRA rollover and make the contribution then. You have to make it from the IRA, directly to the charity, and you must receive a confirmation letter. 

    Regarding your daughter making contributions to a Roth while living and working overseas, she has to show earned income, in other words, she can't exclude it for income or foreign housing. See
  • George, you are going to have to start taking distributions from those retirement accounts in a year...age 70.5. Why not use all those funds to pay off the mortgage faster. I can't know your tax situation but it seems like a big lump sum withdrawal to pay off the mortgage might create a big tax bill. You might check with your accountant and see how much you could take out (even starting now and even more than the RMD amount when that starts) without moving into the next tax bracket. Take distributions up to that amount to use to pay off the mortgage. This assumes that all of your investments are in retirement accounts. BTW, 1.75% interest for 15 more years? Where did you find that great deal? :-)
  • George I should have added that as you have to take the distributions before year end, you need to do tax projections with your CPA in December to figure out how much to take to maximize your current bracket. Those with taxable accounts need to be careful to figure out what the taxable year end distributions from their mutual funds/etfs will be before they do the projections as this could change the numbers significantly.
  • Jamie, do you have any student loans or other debt? If so, I'd use any extra money to pay those down as quickly as possible. Once any high interest rate debt is paid off, then you can look into investing. When you're at that step, make sure your portfolio should include a globally diversified mix of stocks and bonds. Typically, for a smaller amount, you can find a low-cost asset allocation mutual fund that matches your risk tolerance and time horizon for when you'll need the funds. Hope that helps! Go Cyclones!
  • I have an old 403b account that my former employer put money into.. I already moved the other part that I put into... I am 44 and no longer work there. They are telling me I can't move that old part because its in an annuity?? Do I have any choice in this matter?? I would like to move it into an account where I get to choose the funds... Help
  • I am 48 and I looked at my 401k a few months ago...and went holy cow! About 400k was accumulated...with that being said I just recently brought my 80/20 stock bond allocation to 60/40 for 2 reasons. # 1, I think this market is high for the most part, # 2, the pot of money saved now looks to be something I really do not to risk aggessively anymore. Do you think this is sound thinking...and obviously my maxed out current contributions will take care of the risk taking. I feel like, why take market risk if you do not have to? Thanks Dennis
  • Jamie, check out Vanguard's target date funds. There is only a $1K minimum and the expenses are very low. Great way to get diversity with small dollars.
  • I'm 72, widowed, retired, have only Social Security as income. I also have $9000 in IRA and $70,000 in stocks. I have a $58,000 mortgage on home with about $250,000 equity. I'm looking for a way to pay off $28,000 in high interest credit card debt. Reverse mortgage, refinance, personal loan? My FICO is 720.
  • Kristy - I have ran across some annuities such as TIAA that do NOT allow you to move funds out except 10% over 10yrs. I'd check with the HR and custodian or annuity company and verify. But because of how the investments are made in the account, it might be true that you cannot move them out. Good luck.
  • Dennis you are RIGHT...why take the risk if you don't need to. Typically your allocations should get more conservative as you get nearer to retirement. If you are maxing out your retirement plan, it is likely you are saving at least 15% of your income. If so, 60/40 sounds fine to me.....a generic answer and you could get a specific one by working with a financial planner.
  • I have gifted $ 70,000 to my son recently as a down payment to purchase a condo. By way of background, I was the executor for my late wife's estate and in that capacity, I made arrangements to file a Form 706, electing the DUSE- Deceased Unused Surviving Spouse's Election since the final estate tax was under the lifetime exemption amount. Query, when I file the Federal Form 709 Gift tax return next April 15th, and claim a portion of my late wife's DUSE, will the IRS select the aforementioned Form 706 for audit? What are your thoughts?
  • Dennis, unfortunately, it's incredibly difficult (impossible?) to consistently know when the stock market is "too high" and it makes sense to sell some or "too low" and it makes sense to buy more. With that in mind, make sure your allocation to stocks matches your time horizon (i.e. when you'll need the money) and your risk tolerance. And you're spot on...don't take the extra risk if you don't need to do so in order to reach your goals.
  • whenever i have a meeting with a possible broker, they tell me that i need at least 10k to start an investment account. I am a working security guard that has 500-1000$ to start an account with. And i would prefer to start my own online account with some of the suggestions that this wonderful magazine has made in the past, or do you suggest that i save up the 10k needed?
  • Sheri, I assume you cannot live off the social security amount and that is why you have high credit card debt. Is the interest rate high? If so, it may make sense to liquidate some of the taxable investment account to pay it off. Work with an accountant to do some projections but even if you have a capital gain, it is unlikely there would be much of a tax bill if your only other taxable income is social security. Hopefully, after that is paid off, your social security income will cover your expense which are then lower as you don't have credit card payments. At some point you may want to consider a reverse mortgage. The terms on those haven't been great in the past but are getting better as boomers age. The older you are when you take the reverse mortgage, the more you will get. If you go this route, I encourage you to use an option that offers a ongoing monthly payment instead of a lump sum. Once a lump sum is spent, it is gone so that option can be dangerous. HUD has a good site where you can get more information on reverse mortgages /program_offices/housing/sfh/hecm/hecmhome
  • Morgan, forget the broker. As they are paid on commission it takes that much to make it marginally worth their time to deal with you. Go to a lost cost brokerage like Vanguard. You can invest in a target date fund with as little as $1K. There may be some annual fees if your account is below a certain balance but at Vanguard any fees are as low as you would see anywhere.
  • @BobbieMunroe Length of time for policy: >30yrs; Do not need the LI portion at this time; Surrender fee - not sure; Cash Value >$21000. Will there tax on any gain?
  • @BobbieMunroe answer is appreciated and makes sense
  • @BobbieMunroe - to pay off the mortgage I would take it from the non- retrement accounts. I refinanced the mortgage recently and got low rates - but I think it is 15 years fixed for just under 3% ( not the 1.75 that I said). Im not sure if better to keep mortgage and hope to make more in the market than the mortgage interest.
  • My pleasure George. So talk to your CPA to get those projections done as it could save you money and shouldn't take much time.
  • Morgan, you can certainly start an account with less than $10,000. Many mutual fund companies offer low minimums and allow you to automatically purchase new shares each month through automatic transfers from your checking or savings account.
  • Barney - I don't believe you will have a problem using form 706 and also showing 709 as a gift to your son. For future reference, I believe you could disclaim $70,000 of the inheritance from your wife and it might go to your son, but you'd probably want to check with an estate planning attorney first. 
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