19 Dec 11 A rollover may circumvent this problem.
Heads up: Let’s say the IRA owner is a widow age 80. 2. This rule does not apply to Roth IRAs, which have rules of their own. For traditional IRAs, SEPs, SIMPLEs, this is Aril 1st of the year after turning 70 1/2. The wrong decision can cost money and likely cause the distribution of your IRA to be different than you would want. If the IRA owner dies after the required beginning date, the distributions must be made over the longer of the remaining life expectancies of the owner or beneficiary. 1. If the IRA owner dies before the required beginning date, the spouse is the only beneficiary and the election made, the required distributions don’t have to begin until the IRA owner would have turned 70 1/2. Her desire to help her sister causes the IRA to be distributed over the remaining life expectancy of an 82 year old—probably much quicker than desired. Let’s make sure you know the rules of the game. If there is more than one beneficiary, the oldest is used. 1. If death occurs after the required distribution date, distributions simply continue over the remaining life expectancy of the IRA owner. 2. Did the IRA owner die before or after the “required beginning date”? The point here is that the spouse needs to make a comparison every year to obtain the longest pay out.
When the spouse dies, the distributions continue using the remaining life expectancy of the spouse. Distributions are required over the remaining life expectancy of the beneficiary if the IRA owner dies before the required beginning date. Then each year you subtract one. If the spouse elects not to be treated as the owner, the required minimum distributions (RMD) start right away and are based on the remaining life expectancy of the spouse. A non- spouse beneficiary. Heads up: This election choice is unavailable if a trust is the beneficiary of the IRA, even if the spouse is the only beneficiary of the trust. When you combine this with the complexities of the IRA distribution rules, it makes good sense to sit down with your financial planner, tax attorney and accountant and make sure your IRA, SEP or SIMPLE IRA is coordinated with your estate plan and the most probable distribution pattern coincides with your desires. I think you can see there are a number of scenarios possible. The first element is the required beginning date. No beneficiary. Let’s take each of these beneficiary elections and see how distributions are treated, depending on whether the IRA owner dies before or after the required beginning date. The spouse would probably elect to apply this rule if the IRA owner was younger. If the spouse is the only beneficiary, he or she can make an election that has a bearing on when the distributions must begin. If you do not know the rules as they pertain to your choices, you are shooting in the dark. If the IRA owner dies after the required distribution date and the spouse does not make the election, the distribution must be made over the life expectancy of the spouse; however, the life expectancy of the IRA owner can be used any year it is greater. She names her sister, age 82, and her children, ages 55, 58 and 60 as beneficiaries.
Who is the beneficiary? The best choice will depend on how old the IRA owner is when they die, the age of the spouse, health status and whether or not there are children or grandchildren to provide for in a distribution. Taking the attained age of the IRA owner at death and looking in a table determines the life expectancy.
Tags: IRA
18 Dec 11 A 401k account is an investment vehicle for your retirement.
Your employer will usually have a number of different plans for you to choose from that lay out how your money will be invested, in a variety of stocks, bonds, mutual funds, money market accounts, etc. These usually vary from higher risk investments (with higher return rates) to safer bet plans that will offer lower returns. There is obviously more you’ll want to know about these types of retirement plans over the years but now you have a basic understanding of what a 401k account is that will get you started saving for your retirement today.
Most employers will match your contributions up to a certain percentage point. Withdrawing money from the account before you reach retirement, however, is not advised. You’ll want to read more about this later, but basically there are penalties and you’ll lose out on a lot of your savings if you withdraw early-this is really for the best, however, because by leaving the money in this protected account you’ll be prepared for retirement. Even if you’re not planning on staying with the same company until you reach retirement age (59 years and 6 months old) that’s fine, you’ll be able to transfer your 401k account to one with your new employer as you move from company to company over the years.
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This is a unique form of income you won’t be getting anywhere else so if you don’t take advantage of that match, you’re missing out. This is a personal preference, and one you can choose to change over the years. They’re a unique type of account that has a lot of options to pick from to build a plan that will work for you.
So, for instance, if you invest two percent of your paycheck into this retirement account then your employer will also contribute that same amount. It’s almost always done with your employer, which has it’s own list of benefits, and the accounts also have a small list of tax benefits.
Tags: 401k plan
15 Dec 11 A non- spouse beneficiary.
When the spouse dies, the distributions continue using the remaining life expectancy of the spouse. Who is the beneficiary? 2. If the spouse is the only beneficiary, he or she can make an election that has a bearing on when the distributions must begin. The “takeaway” from this is that knowledge allows for good decisions. The best choice will depend on how old the IRA owner is when they die, the age of the spouse, health status and whether or not there are children or grandchildren to provide for in a distribution. This rule does not apply to Roth IRAs, which have rules of their own. The spouse. Heads up: Let’s say the IRA owner is a widow age 80. 1.
If there is more than one beneficiary, the oldest is used. A rollover may circumvent this problem. Then each year you subtract one. For traditional IRAs, SEPs, SIMPLEs, this is Aril 1st of the year after turning 70 1/2.
Important choices occur when the IRA owner makes his beneficiary election and, if married, by the spouse after the death of the IRA owner. If death occurs after the required distribution date, distributions simply continue over the remaining life expectancy of the IRA owner. If you do not know the rules as they pertain to your choices, you are shooting in the dark. The wrong decision can cost money and likely cause the distribution of your IRA to be different than you would want. If the IRA owner dies before the required beginning date, the entire IRA account must be paid out over five years. I think you can see there are a number of scenarios possible. Let’s make sure you know the rules of the game. If the spouse elects not to be treated as the owner, the required minimum distributions (RMD) start right away and are based on the remaining life expectancy of the spouse.
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Heads up: This election choice is unavailable if a trust is the beneficiary of the IRA, even if the spouse is the only beneficiary of the trust. 2. Her desire to help her sister causes the IRA to be distributed over the remaining life expectancy of an 82 year old—probably much quicker than desired. The spouse would probably elect to apply this rule if the IRA owner was younger. In order to carry out the wishes of the IRA owner, evaluating both practical and estate planning implications of various decisions during the IRA owner’s life is essential. 3. Taking the attained age of the IRA owner at death and looking in a table determines the life expectancy. Distributions are required over the remaining life expectancy of the beneficiary if the IRA owner dies before the required beginning date. 1.
If the IRA owner dies after the required distribution date and the spouse does not make the election, the distribution must be made over the life expectancy of the spouse; however, the life expectancy of the IRA owner can be used any year it is greater. The election is to treat the owner’s IRA as if it were their own. No beneficiary. If the IRA owner dies after the required beginning date, the distributions must be made over the longer of the remaining life expectancies of the owner or beneficiary. Let’s take each of these beneficiary elections and see how distributions are treated, depending on whether the IRA owner dies before or after the required beginning date.
Tags: IRA
10 Dec 11 Here are a few tips for choosing the right advisor.
In most cases you should probably do a Direct Rollover. Offers full disclosure on all fee and commission payments they receive. (Withdrawals before age 59 and a half are usually subject to a 10 percent penalty.) With a Roth IRA, withdrawals may be taken at any time without penalty and there is no mandatory distribution age. Consolidating your retirement assets can be a particularly good idea if you are interested in working with a Financial Advisor who can holistically assess your retirement situation and allocate your assets to your best advantage. Make sure that the advisor you choose: Has a holistic approach to planning – that they look at your goals and create a plan that maximizes the potential of all of your various assets. Continue here for a complete comparison of IRAs and Roth IRAs as well as information about other types of IRAs. Provide Adequate Insurance: The second most important issue with retirement is having adequate insurance. Rollover Choice Four: Decide How Much Rollover Advice and Service You Need and Understand Fees and Minimum Balances When opening an IRA at retirement, there are two buckets of fees and costs that you will want to consider: IRA and Account Maintenance Fees: There can be fees associated with opening and maintaining an IRA. While there is no requirement to rollover your retirement funds, most believe it to be a good idea. Given the myriad investment choices available to you and the complications implicit in retirement planning, professional advice can be a good idea. This can be a particularly good strategy if you also purchase a lifetime annuity that would start when you finish drawing down your assets – guaranteeing your income even if your longevity is longer than you expect. While you may automatically think that you would like a “no fee IRA,” you are actually likely to find significant costs associated with them when you read the fine print. Many retirees have 401ks at various companies. The final step when conducting a Rollover is to respect the Distribution rules. Security against your employer going out of business, merging with another company or other event that could potentially impact your 401k funds. A Step by Step Guide to Your 401k Rollover or Retirement Consolidation – Understand Your Rollover Choices Rolling over your retirement assets into an IRA at retirement involves a lot more than paperwork! Withdrawals on a Traditional IRA (also known as distributions) can begin at age 59 1/2 and are mandatory by 70 1/2. If you are unsure whether or not you have adequate assets for retirement, use theNewRetirement Retirement Planning Calculator to find out, or consult with a Financial Advisor.
Financial Planning Fees: There are two main routes to opening an IRA. These options include: CDs Bonds and Bond Ladders Stocks Dividend Yielding Stocks Exchange Traded Funds (ETFs) Money Market Accounts Mutual Funds Annuities Insurance Managed Accounts Hybrid Products – offering benefits of many of the above products Many advisors are pointing people toward hybrid products. Rollover Choice Two – Decide to Rollover or Keep Funds in Company Plan or with Existing Institution Once you have a better idea of how you need to use your savings for retirement, you can better decide if you require a rollover. Depending on the distribution rules for your account, you could also open a Health Savings Account which can provide favorable tax status for your funds. Systematic Drawdowns: Taking scheduled withdrawals from your IRA and the interest earned on your IRA is probably the most common retirement income strategy. Before opening a Rollover IRA, be sure you understand any setup fees, maintenance fees, trading commissions and minimum balance requirements. Maximize Estate Planning: If you have managed to guarantee adequate lifetime income and have sufficient insurance, then you will want to consider rolling over your 401k into an IRA with a firm that provides financial tools and services for efficient estate planning. Purchase an Annuity: A lifetime annuity can guarantee lifetime income and many annuities are available with favorable tax treatment for 401k rollovers. The trick is in choosing the right financial products and strategies to achieve your retirement financial needs. While many people do choose to conduct their retirement rollovers on their own, you should at least consider working with a qualified financial advisor. Fund Your Desired Retirement Lifestyle: While you must be diligently responsible with your retirement planning, most retirees also have a few fun ideas about how they would like to spend their time away from work. There are at least three common ways to insure lifetime income with your 401k rollover: Earn Interest and/or Dividends: If you have sizable savings to rollover, you will want to carefully consider how lifetime income might be achieved with interest and dividends earned from your capital. Rolling Over from Existing Financial Institution: If you have already transferred your funds out of your company plan or if you have various accounts with different institutions, you may want to consolidate with a single financial institution that offers the type of investment vehicles and financial advice that you really need in retirement. In retirement, you need to use your assets not add to them. The good news is that you have an ever growing number of tax friendly – “qualified” options. However, you will want to carefully consider your investment options so as not to put your principal at risk.
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However, if there is a shortfall between this income and your actual expenses, then you will probably want to choose to roll over your funds into an IRA that offers a financial product that will guarantee adequate income to make up that shortfall. Many retirees find that the additional advice and service a financial planner can provide will more than cover the fees. The IRA is also sometimes referred to as a traditional IRA. Even if you like your current 401k plan, there are no guarantees that your employer will stick with that platform. Ideally your advisor can sell financial products from any provider. However, if your retirement funds are in a company plan, most financial planners advise that you rollover. Guaranteed lifetime income can come from Social Security, a pension, interest or dividends, a lifetime annuity or a combination of these sources. Combination of Goals and Strategies: Like anyone in any situation, most retirees will want and even need it all – guaranteed lifetime income, adequate insurance, an estate to leave behind and a satisfying life without work. Others do not. The advantages of rolling over your 401k into an IRA at retirement include: Rollovers provide more flexibility in how you can allocate and use the money. Whether reading with grandchildren, an African Safari or a vacation home – your retirement interests should also be considered when allocating your retirement funds. More control over when and how you can withdraw money and manage your account. This is the preferred way to conduct a rollover since there is no chance of there being tax consequences as is possible with an Indirect Rollover. Puts you in charge of your account. Financial advising fees will be dependent on the complexity of your finances. You can develop an investment strategy for your rollover IRAs funds to help cover Long Term Care and other medical costs. You can be self directed or you can work with a Financial Advisor. There are innumerable criteria and strategies to consider. With a Direct Rollover, a check for your retirement funds is made payable to the new IRA custodian or financial institution. When deciding what to do with your 401k, the most important consideration is your retirement plan and how it may need bolstering. The main differences between the two accounts are related to taxes and the rules surrounding withdrawals. Rollover Choice Three – Choose Between an IRA and a Roth IRA There are two main types of 401k rollover accounts — IRA and Roth IRA. This money will be easier to manage in retirement if you consolidate it in one place – even if it is invested in different types of financial products. And you must forward the money yourself within the allotted time period.
Find the Best Rollover IRA for You Let NewRetirement help you find an institution offering a Rollover IRA that suits your retirement.Continue here to Find the Best Rollover IRA for you. It is very important that your advisor has this type of experience and can address everything from guaranteeing lifetime income to estate planning. Respect the Plan’s Distribution Rules for Withdrawals: This is particularly important if you rollover your funds into a Traditional IRA. It is a budgeting process for the rest of your life for which you must account for many unknowns like inflation, stock fluctuations, changes in real estate prices, personal health costs, taxes and your own longevity. These prepackaged combinations of annuities, insurance and investments are an interesting way to cover your retirement plan bases. Rollover Choice Five — Find a Financial Institution that Offers Qualified Investments that Suit Your Retirement Goals Depending on your retirement goal – guaranteed income, adequate insurance, estate planning or a combination of these objectives – you will want to choose an investment strategy for your 401k rollover. Respect Distribution Rules with Rollover: When rolling over 401k funds or consolidating IRAs, it is very important that you follow the distribution rules. Rolling Over from a Company Plan: Some 401k plans require that you rollover the funds at retirement. Your Social Security and most pension benefits are guaranteed for life. Here we take you step by step through the various choices you will need to make when allocating your retirement assets. Depending on your situation, you may wish to rollover your 401k into a financial vehicle that will enable you to: Guarantee Lifetime Income: Most financial experts agree that guaranteeing adequate income for the rest of your life is probably the most important criteria when considering retirement and how to invest your retirement funds. Rollover Choice One – Figure Out Your Retirement Needs and How You Should Use Your Retirement Funds Retirement planning is not easy. (Employer sponsored 401ks often have limits on when you can do this.) Ability to consolidate all of your 401k accounts into one IRA. Their expertise could help you navigate these important decisions. Rollover Choice Six – Respect the Distribution Rules!
Tags: 401k rollover options
04 Dec 11 Paying off Debt with a 401k Loan
When you make a withdrawal before reaching retirement age you have to pay taxes on your withdrawal plus a ten percent early withdrawal penalty, which can easily total up to thirty percent or more of your retirement savings. Obviously there are some upsides to taking this option, or so many people wouldn’t be doing it. For something like paying off debt, which you could do through normal payments, it’s not worth the risk.
This is a lot of money to lose and means you’ll have a much smaller nest egg. If you decide to take a 401k loan then you have five years to repay the money you’ve borrowed, and if you fail to repay it in time the balance is treated as though you cashed out, meaning you owe the taxes and the ten percent withdrawal penalty. Yes, you could have a lower interest rate, which you would be paying into your account, however that interest rate could rise dramatically if something unexpected occurs and you have to treat your 401k loan as though you cashed out and you lose a great deal of your money to taxes and that ten percent penalty. If you’ve considered paying off debt with a 401k loan I urge you to think again.
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The best of the upsides are that you have a very low interest rate, and that the interest you do pay goes back into your retirement savings account. Because of these high risks for something like paying off debt it’s not recommended that you take a 401k loan.
If you lose your job, or quit your job, during the time you are making your payments the balance becomes due and you have a short period of time, approximately a month, to repay the balance in full or it is treated as though you cashed out in the first place. When you have no other source of funding this is also definitely preferable to making an early withdrawal from your account. Despite the many advantages this option offers, there are some heavy downsides that need to be carefully considered.
Tags: 401k withdrawal
