Joe Lucey

Investing in a traditional IRA while earning a paycheck is a good way to defer income taxes on the money you contribute. Currently, taxpayers who aren’t covered by a retirement plan at work may deduct the full amount of their annual contributions to a traditional IRA.

Those who do participate in a work plan may be able to deduct partial contributions, subject to the following income limits:

Filing Status	Modified AGI	Deduction Status
Single, Head of household, or Married filing separately and did not live with spouse at any time during year	$61,000 or less	Full deduction up to contribution limit
	$61,000 to $70,999	Partial deduction
	$71,000 or more	No deduction
Married filing jointly or Qualifying widow(er)	$98,000 or less	Full deduction up to contribution limit
	$98,000 to $117,999	Partial deduction
	$118,000 or more	No deduction
Married filing separately	Less than $10,000	Partial deduction
	$10,000 or more	No deduction

 

So, after years of contributing to a traditional IRA, why would anyone convert it to a Roth IRA before retiring? First of all, if you anticipate that income tax rates will increase in the future, you can avoid that bill on your retirement income by paying at a lower rate now. Second, some individuals make the conversion when they’re already retired and in a lower tax bracket. This could benefit their eventual beneficiaries who are in a higher tax bracket. However, converting may not be a good move if individuals or their beneficiaries expect to be in a lower tax bracket when the funds are distributed in the future.

The issue at hand is that contributions in a traditional IRA grow tax-deferred until distributed. Contributions to a Roth are taxed up front, grow tax-free and then are distributed tax free. So the decision to convert depends on when the individual expects to receive the funds and what tax bracket they expect to be in when that happens.

There are a few strategies a traditional IRA investor can use to help mitigate future tax bills. One is to make the conversion gradually, moving over just enough money each year to stay within the current tax bracket. Also, it may be worth considering converting before the investor turns 70 ½ to avoid having to take a taxable required minimum distribution (RMD) first.

And finally, be aware that while traditional IRA RMDs begin at age 70 ½, an individual can convert the funds to a Roth IRA at any age thereafter. A Roth IRA does not require minimum annual distributions.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

If you own an IRA, SIMPLE IRA, SEP IRA or retirement plan account, you must begin taking a required minimum distribution (RMD) each year once you reach age 70 ½. If you have multiple IRA accounts, you must calculate the distribution required for each IRA separately, but you are permitted to withdraw the combined amount from just one of your accounts.

However, this provision does not apply to multiple defined contribution plans. If you own more than one, your annual RMD must be distributed from each account. To learn more, view the IRS RMD Comparison Chart. 

We frequently resolve to reinvent ourselves in the new year — exercise more, eat healthier, read more or save more.

An alternative method of reinvention is simply a “rebranding”.  Sometimes companies rebrand to reflect changes, other times it’s just a new update to their look. The same can be true when it comes to reinventing our own situation. Sometimes we just rebrand ourselves, informing friends and family that we’ve joined a gym or started shopping at Whole Foods.

At a certain age, it’s common for people to put their materialistic desires behind them and focus on a more personal lifestyle. We grow up learning to want things, but after our income level reaches a comfortable level, we reflect on whether we have what we really want. At that point, our perspective can change.  If we can help you refocus your financial situation to match the type of lifestyle you want to lead going forward, we’re here for you.

Truly reinventing ourselves requires commitment and discipline. We can’t just say we’ve made a change, we have to take the often painstaking steps to get there. If any of your reinvention plans involve your financial situation, remember that we’re here to help you develop a strategy and stick to it.

Stocks may have a reputation for being riskier than bonds, but you should also consider the risk that investing only in bonds may not accumulate enough money to finance all your aspirations in retirement.

It is true that stocks are more volatile than bonds, and there is no guarantee they will yield income, but they do provide the opportunity for growth. So, would you rather have a more reliable option with less income, or higher growth potential without a guaranteed return? If you’re like many people, you invest in a little of both, hoping that a diversified mix will smooth out periods of volatility but still provide a reliable return on investment. Keep in mind investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

One of the keys to investing is knowing what risks you’re willing to take and what’s absolutely off the table. Once you establish these parameters, it’s a good idea to put your strategy down in writing. This helps both you and your financial advisor stay on track, even when the markets hit a rough spot. Knowing what kind of strategy fits within the context of your own goals, risk tolerance and investment timeline can help you stay focused on long-term results, not temporary swings in the market.

Part of knowing yourself is knowing what your limit is for adjustments to your investment portfolio. Investors who enjoy making trades in reaction to market activity may use just a portion of their assets to do so. As a general rule, diversifying across an appropriate blend of assets based on your timeline, financial goals and tolerance for risk is a good way to work toward your long-term goals without constantly wondering if you’ve made a wrong move.

How much would you pay to get $100 more a month in retirement income for the rest of your life? On the flip side, how large of a lump sum would it take for you to give up $100 a month in retirement?

In theory, those two numbers should be the same. However, a 2015 study found that participants, on average, were willing to spend only $3,000 to buy the extra $100 benefit, but would sell it for no less than $13,750.

The responses to this survey demonstrate how difficult it may be to grasp the value of a fixed annuity. In essence, you purchase an annuity contract with up-front cash, known as the initial premium, in exchange for guaranteed income for a set period of time or for the remainder of your life. Some people may believe relinquishing a portion of their retirement assets for a future benefit is too big of a price to pay. However, you might also consider the risk of not having enough income in retirement, or running out of money too soon.

For this reason, it may be helpful to sum up a few of the benefits that a fixed annuity is designed to provide:

• Retirees must gauge how much income to withdraw from savings sources each year so they don’t ultimately run out of money. Even with careful planning, unexpected expenses can throw this measured strategy off course. Another problem, too, is that some retirees do not live as full a retirement lifestyle as they would like — even if they can afford it — for fear of outliving their income. A fixed annuity can help provide more certainty with a guaranteed (by the insurance company) retirement income stream.

• A fixed annuity provides reliable income regardless of what is going on in the stock and bond market, so a portion of a person’s retirement assets are not subject to market volatility.

• A fixed annuity is a guaranteed source of income, which can be particularly appealing to retirees who do not have a pension. Annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

• Fixed deferred annuities can be held until a later age in retirement, when a person may be more likely to encounter higher medical and assisted care bills. About the time many retirees start running low on funds, a deferred annuity can provide a new stream of income.

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs.