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

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Maximize Your Money With Kiplinger and NAPFA, February 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, February 18, from 9 a.m. to 5 p.m. ET.

    Jim, if you only have 5 years left, I strongly suspect that your interest deduction isn't very big any more. At the beginning of the mortgage, interest is most of the payment but by the end, principle is most of the payment. So if you are still itemizing, it might be because your real estate taxes, charity, and other deductible items are high. I suggest that as you do (or have a professional do) your tax return, you try it with the mortgage interest and then see what it would be without the mortgage interest. That will give you a good idea of how to proceed. BTW, some will say "that is cheap money and you can make more than that over time by investing it." I say the "feel better" part of your question says it all.
    I will have about $40000 in Social Security and an RMD of about $20000 this year do I have to pay estimated qtly taxes. I think there is a heuristic of take 50% of the SS and add the RMD and if it is over $32K I must pay est taxes. Is that right?
    Dr. Peters, model this when you do your return for 2015. Remember, you can always have withholding taken from your social security OR your RMD. And you can hold onto the tax money until the end of the year if you do this. For instance, let's say you will owe a total of 5k in taxes (per the results when you model this). You can take an RMD of 15K at any time of the year without any withholding. Then you can have another RMD for 5K in Dec and have it all withheld for taxes. Withholding is treated as if it were paid throughout the year even if it is all taken in Dec. BUT DON'T FORGET THAT SECOND RMD.
    Jim - I agree with my colleagues and Bobbie especially brings up a great point! Many times the peace of mind of owning your home outright will trump a little bit of tax savings.
    Dr. Peters - I agree with Bobbie. You wan withhold enough in tax from SS and the RMD that you shouldn't have to pay estimated taxes.
    Actually, I have a question that I haven't sen addressed. I have my rollover from a previous 401(k) with a Fidelity IRA. Included in the rollover is a Dodge & Cox stock fund. I'd like ton add to this fund but Fidelity charges a transaction fee. Financial advisors recommend consolidating investments & that's what I'm trying to do, so how can I continue to consolidate my investments & still have the choices that I want in my IRA?
    Jim and Tyler, i tell clients there is a right answer a a good answer and sometimes they aren't the same. The "right" answer is all about the technical bits and pieces but the "good" answer serves what you perceive as your overall well-being.
    Good stuff Bobbie!
    HML-Dodge & Cox does charge a transaction fee at many brokerage firms, but the overall fund expenses are very low and it is a great fund company. In cases like this I would just avoid small transactions in that fund (less than $10k). While it is important to be conscious of fees, in some cases it is worth paying a small transaction fee for a great fund.
    Tyler, it is knowing stuff like that which will separate human advisors from robo advisors. Robos can certainly serve many technical functions but people are people and addressing that one issue often brings the most value to a relationship.
    HML - If the transaction fee is applied for a monthly contribution, you may want to use a similar fund without the transaction fee. Sometimes custodians will waive the fee for regular monthly contributions but apply it for one-time transactions. Check with Fidelity. The fact that you're paying attention to the fee side of the equation is very smart.
    HML, Fidelity might charge a transaction fee on a single purchase. BUT they might allow you to automatically make purchases on a monthly or quarterly basis without a transaction fee.
    HML - Balancing costs and convenience is certainly easier said than done at times. As others have mentioned, many brokerage firms offer discounts on recurring transactions of the same amount and/or mutual fund. If you're set on a particular fund or fund family, you might also consider checking to see if that fund family allows you to open an IRA directly with their firm. Another option is to shop around and check out other discount brokers to see if the fund or fund family you want is available at another firm for lower or no transaction fees.
    Should most have at least a small amount in a REIT fund for diversification?
    Jim, some of the other holdings you have may include REITS inside of them. Indeed, I can do a portfolio report for a client and even thought they don't own a REIT, they have perhaps 2-3% in real estate via another fund. For clients who have a lot of real property, we don't usually use REITS. For clients who own at most their home, we might. MAKE SURE it is a publicly traded REIT if you do decide to use one.
    I have an an old 401K that has been rolled over to an IRA account within Vanguard. My question is to weather i am aloud to contribute to the Roth portion of that as part of my $5500 a year max or start up new Roth IRA account altogether.
    Jim - There are conflicting views among advisors on whether REITs should be considered a separate asset class or not. I personally allocate a small portion of my client's portfolios to REITs, but it is just a small part of an otherwise globally diversified portfolio of various asset classes (e.g. U.S stocks, international stocks, emerging market stocks, U.S. bonds, global bonds, etc.). As Bobbie mentioned, if you do include REITs in your portfolio, make sure it's a publicly traded REIT!
    Ryan - Assuming you're otherwise eligible to contribute to a Roth IRA, then as long as you don't contribute more than the maximum allowable amount, you should be fine. Assuming your rollover account with Vanguard is a traditional IRA (e.g. pre-tax dollars), then you'll have to open up a new Roth IRA for post-tax contributions. The government won't let you stick Roth IRA contributions into a Traditional IRA. I'm also assuming you haven't contributed to a traditional IRA (outside of the rollover). If you have, then you'd have to make sure your combined total IRA contributions between the traditional and the Roth don't exceed the annual max.
    My husband and I are playing catch-up and have 10 years to retirement. I have about 6K of shares in stock that came from demutualized insurance. I'm struggling to decide whether to cash it in, pay apx. 20% tax because it has zero cost basis, or hold on to it. I'd like to put it into something more aggressive since At best the dividends have earned 3% over the past 15 years. I have 10 years til retirement and our short term goal is 70% stock, 30% bonds. We will adjust over the next ten years. Any advice?
    ps I would invest the funds in a traditional ira.
    Here's a resource you might want to check out Ryan...

    Retirement Plan Contribution Limits for 2016

    www.kiplinger.comLow inflation is keeping the contribution and income limits mostly the same as in 2015.
    jillch - If I were your advisor, I'd want to know what % of your portfolio these shares represent. In other words, don't let the tax decision impact the investment decision too much. If having the proper asset allocation and being properly diversified means getting rid of a good portion of the stock, it might be time to get rid of it.
    A financial planner recommended setting up an irrevocable trust and then have the trust buy an insurance policy to cover anticipated estate taxes anticipated taxes above the federal and state limits. He said I needed to buy a universal life policy, not term insurance. Why is this?
    Jill, do you meet the income requirements/participation at a workplace retirement plan needed to be able to deduct your contribution to a traditional IRA? If so, the deductible contribution should offset the taxable gain. Also, know that I have seen many couples save so much in those last 10 years before retirement (and worry about the ones who didn't have children until late and think they will retire with kids in college:-). Be diligent with the catch up and you should be fine. Don't take more risk that you need to with your portfolio. This would be a great time to see an advisor (many work hourly) to work through a goal funding plan. That should tell you how much you need to save and how you should invest to achieve the best probability of success.
    Jill here is a link to the IRS page re: whether or not you can deduct a traditional IRA contribution:
    L2 - It's possible your advisor sees a need for permanent insurance coverage to cover anticipated estate taxes. Does the advisor work off commission? If so, I'd encourage you to get a second opinion from a fee-only advisor, possibly on an hourly basis. This person won't accept kickbacks from third-parties like insurance or investment companies so you can rest assured if they recommend a particular product, it's in your best interests. Check out to find an advisor near you!
    Have any great links/information for mid 30's married military family pertaining to retirement? I contribute 5% to get a co match (FERS employee) then put an additional 5% in the new ROTH TSP option, both are in L2050 target funds. She contributes 5% to her 401(k) Vanguard 2045 fund and instead of opening a "civilian" ROTH IRA, we were thinking about beefing up my ROTH TSP IRA to 10% to take advantage of the extremely low TSP fees. Any and all information pertaining to unique retirement situations for military families is greatly appreciated.
    L2, I hate to sound skeptical but who were you going to buy the policy from? Big commissions may be in play. The Federal limit for a taxable estate is 5.45 MILLION per person and twice that for a couple. Most people will not have a federal estate tax due. That said, some states charge estate tax at much lower levels so you do want to check out that. I agree with Tyler than a second opinion from a fee-only advisor is a good idea. Life Insurance trusts were the hot thing WHEN estates where taxed at much lower limits (like 1 million). But now they are rarely used. If you do have about 11 million, you really need to work with a planner.
    ecD - That's not a bad strategy! The fees for TSP funds are incredibly low, plus you have a fixed income option unavailable to civilians (the G-Fund) that may prove useful down the road.
    This article is a few years old, but it has some great financial tips for military families...

    10 Financial Tips for Military Families

    www.kiplinger.comIn honor of Veterans Day, here are ten financial tips for military families to help you make the most of the special benefits and tax breaks available to servicemembers.
    ecD - P.S. Thanks for your service!!!!
    If I were looking for a bond fund, does a fund that is 50% corporate/50% gov't bonds have better upside than a total 100% gov't bond fund without too much added risk?
    ecD, a family needs to save about 15% to replace their income in retirement (this includes any employer match). This saving can be in tradtional retirement accounts (always take advantage of a match), ROTHS, or even taxable accounts (it is nice to have different buckets of money to draw from). I wonder what you expect your tax rate to be in retirement. For many it will actually be lower than in their earning years which makes the ROTH less attractive. Now understand, I think a ROTH is a great idea for people your age, and I work with a lot of young adults. But you may consider putting some of it in a taxable account. If so, place your investments that spin off very little taxable income in the taxable account (to take advantage of capital gains rates). You should also think about using ETFs/exchange traded funds rather than Mutual Funds in such an account as ETFs often have lower taxable distributions at year end. All of this is very hard to determine with just a little information. Go spend a little on an hourly planner. I suspect that would give you a fantastic return on investment.
    Hi. Can you provide a quick summary of what I should look at to determine if I should obtain a Roth account for 2015. I am 68, currently retired and probably in the 25% tax bracket, (which may be lower next year.) I would have to open a spousal account based on my wife's income.
    L3 - Risk and return are related. The higher the expected return, the higher the potential risk. Corporate vs. government doesn't mean much since "corporate" bond fund could many anything that invests in corporate bonds. For example, a corporate bond fund invested in the corporate bonds of a few select technology companies would likely be much riskier than a corporate bond fund that invests in hundreds of bonds across different sectors and different countries. The same goes for government bonds. A government bond fund covering a single country would likely be riskier than a bond fund covering multiple countries, types of bonds, and maturities.
    L3 consider splitting your investment into 2 funds, one corporate bonds and one treasuries (Vanguard has a Intermediate Treasury fund/VFITX that is good). Look at the standard deviation of the funds as that is a measure of the risk. I would avoid high yield bonds as, although they pay a lot more in interest, if rates go up, they will suffer much more than other types of bond funds.
    Seb - Will the money likely be passed along to heirs? If so, a Roth IRA might be beneficial, depending on their tax bracket when it comes time to withdrawal compared to the tax bracket when you contribute the money. If you have money in a traditional IRA, it might make sense to simply convert some of those funds next year when your tax rate is lower. Since we can't predict tax rates, that's why many advisors will recommend having some money in pre-tax, tax-free, and taxable accounts. This gives you flexibility when it comes time to make withdrawals.
    I started my IRA distributions last year. I have non-deductible IRA contribution and the last F-8606 I could find from my files was from my 1998 return and I didn't file any F-8606 in subsequent years (I might have but I'm missing my tax returns for 1999 and 2000). My question is: can I fill out my 2015 F-8606 based on my F-8606 of 1998, given that 1998 was the last year I filed a F-8606?
    Thank you Tyler and I appreciate the helpful response Bobbie. I will need a little time to dissect the information you provided a bit (I'm still very ignorant to this type of information). But I am very certain my tax bracket will stay the same (25%) and actually our take home could very realistically increase with our taxable wages decreasing (BAH, BAS is not taxable and I may assume that type of Active duty hiring status within a couple years). Thank you all for your help today and Kiplinger hosting this very informative QA forum. All the best eveyerone!
    Advisor said that the irrevocable trust buying the insurance policy will keep the policy amount outside of the federal and state exclusion limits. I was wondering why a term policy which is cheaper would not be acceptable. He said it needed to be a universal life policy.
    ecD, it is a learning process. You seem to know a lot for your age. Keep it up. Good luck!
    Nito, this is a CPA question but I feel like you could at least keep the basis as shown on the 1998 return (good for you for finding it!). One of the reasons I often avoid the occasional non-deductible contribution to a traditional IRA is that the record keeping over the years can be problematic as your case shows.
    L2 term policies often have upside age limits. If you outlived the policy then the funds would not be available. But again, I question your need for such a trust...... PLEASE get a second opinion from a fee only advisor.
    L2 - I second Bobbie's recommendation...have a fee-only advisor look at your situation. You won't be disappointed!
    I have worked for the same healthcare system in Northern Virginia for 28yrs.. Just received an email from my employer that they are cancelling my Cash Balance Retirement plan that would have provided a guaranteed annuity payment when I retire at 65 (I'm 50) ...Anticipate the check will be just over $50,000. Any advice where to put this retirement money.
    Seb, here is an IRS site with ROTH info
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