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.

  • Heard of alternate way of making withdrawls in retirement from IRA mutual funds. Instead of withdrawing 4% or so every year, a person withdraws all positive gains and puts the earnings into an FDIC insured account. Example: a person has several diversified funds, one makes 7%, another 3%, etc. The gains for each fund are withdrawn after a year and put into the safe account for expenses. Is this a viable option for maximum return, especially over the traditional bucket approach?
  • Ah George, it does make a difference that you can take the money from taxable accounts and can manage the taxable amount to some extent (and not pay ordinary income tax rates but better capital gains rates). As I said in an earlier answer, there are usually two ways to look at it. There is a technical answer that would say it is very likely you would make more in an investment account, even a conservative one, than the mortgage is costing you (3% is still a delicious rate). But the good answer might be that you would rest easier and be more resilient in market downturns if the mortgage was paid off. In my experience most people want to go with the good answer in their hearts. When you work with your accountant, see how much gain (or IRA distribution ) you could take without going into a higher bracket. Then pay it off over a few years if needed.
  • Bruce, that is one way you could do it; however, what if there are no gains? Do you live off previous year's gains? Or do you add money back if you had a negative return? The important thing is to have a plan and stick to it. In bad times, you may have to make adjustments. 
  • I have an IRA of $26,000 inherited from my Mom and have 5 years to withdraw (2017 being the 5th year). Question 1: Instead of taking out the money can I roll it over to another type of account?
    Question 2: If i do have to take it out and last years adjusted gross income was $51,000 how much should i take out this year and next year?
    Thank you for your assistance.
  • Bruce, you have to remember the tax consequences (larger gains could mean bigger withdrawals in good years..and perhaps a higher tax bracket under your plan). You also have to remember RMDs as you will have to take that much out whether you have gains or not once you are 70.5.
  • Hello, I have hopefully a simple question. I have a small solo side business and considering setting up a SEP IRA for tax and investing purposes. If I recall correctly, I can put up to 25% of my income into this account. Where I am struggling right now is how to handle the 25%? I want to take full advantage but dont want to break any rules. I am not bring in more than $15 - $20k a year before any expenses. Any assistance would be greatly appreciated.
  • Lief, You void the tax. You can roll it to another inherited account, but that doesn't avoid the distribution requirements. If you're single, you can have up to $37,650 taxable income before you jump to the 25% bracket. If you're married, it's $50,400. Whatever the left over distributions are try to keep yourself from jumping brackets. You can also make a distribution AND contribution to a traditional IRA, assuming you have earned income. This and extra 401k contributions could lower your taxes as well. But I don't know all your situation.
  • Is there a way to transfer some tax-deductible IRA funds into a 529 plan for my grandchildren with out taking a distribution (and owing tax on them)?
  • I know you commonly hear that it is a mistake if you can fund all your living expenses without taking early retirement and that you should wait to take it. I contend that because social security clearly says that if you work with average incomes, average life expectancies,etc that you will receive the same amount of benefit over your lifetime whether you start at 62 or wait until 70. What sense does it make to wait other the. The effects on spousal benefits should I die. In that case I have life insurance to cover the shortfall.
  • Best ETFs or MFs for investing idle cash from an HSA account? Our HSA account at HSA Bank can be linked to TD Ameritrade as long we keep a minimum of $5k in cash in the account. The balance can be invested. I was thinking about a highly rated low risk fund like VEIPX or VBINX. Is it a good LT strategy?
  • A suggestion for Jamie: you have everything working in your favor. You have your entire life in front of you so, after putting 6 to 12-month worth of cash aside in an MMA for emergencies, only think long term investments. You are smart: read "The Warren Buffet Way" and learn from the best. Invest in dividend paying stocks and in FB. Reinvest your dividends and they will compound. And pick one industry with the brighest possible future and learn everything you can, pick a few winners and hold them LT.
  • Matt, if you are only making 15-20K why not just use a regular IRA? You don't have to do all the calculations as needed with a SEP and could contribute up to $5500 (6500 for age 50 or older) which is already more than 25% of your earned income. You may be thinking that you could deduct some of the SEP contribution from your business income for the purpose of self employment tax but that kind of advantage is very limited for a small business owner (and the 25% isn't really 25%...more like 20% when you run it through a contribution calculator). Also, do you have other earned income and already participate in a retirement place at the other job? If so there is a limit on your total contributions in ALL plans. It would be worth it to check with your CPA/accountant on this before you move forward. As you are a new business owner, they could provide great general business advice as well. Once the personal extensions are over on 10-15-16, they will have more time until year end to work with people on things like this. Good luck.
  • Matt beware of the deductibility of traditional IRA contributions if you do have another job with a retirement plan. In that case you might consider a ROTH IF you earn less that the income limits on Roth contributions.
  • Rick, unfortunately, no, the IRS considers that a distribution and the amount will be included in ordinary income and you'll incur a 10% penalty if you're under age 59 1/2. That shouldn't stop you from opening the 529 plan though! It's still a great way to save for college if it makes sense for your situation. Just don't count on the IRS letting you move money from your IRA to the 529 without Uncle Sam taking his piece of the pie.
  • kcbrewmeistef - the main difference between taking early and waiting is the 8 credit, equivalent to 8% increase you wait each year. It's guaranteed as long as you think SSA is safe. Those returns are not being made year in and year out in the market, and as you mentioned, spousal benefits are HUGE. Having said that I've seen clients take early and wish they had another $300/mo to pay for a new car. Plus, it's not the same no matter when you take it. There is a breakeven point, usually around age 77 or 78 for waiting. So you benefit if you have longevity. Now, a good financial plan will show you specifically if it's best for you to take at 62, 66, or 70. You might also look at maximizemysocialsecurity.com/
  • @ Cristophe: Bobbie is having some connectivity issues, but here is her answer to your question: Both are great funds but very different. One is all equities and one isn’t. I would make the decision part of your overall investment allocation…a part of one big picture. If you want it as a stand alone then I like the balanced fund or a Vanguard target date fund.
  • Danielle and Timothy, thank you for the information. This was a really nice service.
  • @BobbieMunroe Thanks again I may reach out to you by email at some point - does tthat work
  • And, that's a wrap! Thank you to everyone who asked questions today and all of the advisers on hand to answer.
  • Join us December 15 for our next Maximize Your Money chat!
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