Don’t let the government dictate how you manage your retirement money.
Let an income specialist show you how to manage your required minimum distributions (RMDs)
to minimize tax loss, maximize ease and maintain a healthy, growing portfolio.
Presented by SAFE (Scranton Academy For Financial Education)
A non-profit dedicated to providing no-cost education to consumers
about principles of finance, investing and personal portfolio management.
Approved Educator – John McCartin
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. McCartin and Associates and Sound Income Strategies, LLC are not associated entities.
The IRA is a handy place to consolidate all of your retirement funds. It can help you stay in control by not having to keep track of several company plans and IRAs and the beneficiary and withdrawal options with each plan. You won’t have to worry about required distributions from both your company plan and your IRAs once all the funds have been rolled to an IRA.
1) The best case for an IRA rollover is the ability to keep the money growing tax-deferred for your beneficiaries. Many company retirement plans do not allow this stretch option even though the IRA rules permit it. The custodian of your company plan does not want to get involved in the administrative nightmare of keeping track of your beneficiaries for 30,40, or 50 years as they take required distributions after you die. So instead, your former company plan could pay your beneficiaries the entire dollar amount of your account in one year or five years at best. It’s this simple!
Do you want your retirement account to last 50 years or 5 years for your children and grandchildren? If you want your kids to have the choice to withdraw the minimum amounts over their lifetime, you must rollover your company plan to an IRA. Otherwise, your beneficiaries will be receiving the entire dollar amount of your company plan in one to five years and owe taxes on the entire amount.
2) IRA’s provide the ability to have you name many different beneficiaries and the option for those beneficiaries to split the account up after you die. Funds in your company plan are subject to Federal Law requiring participants to name their spouse as the primary beneficiary.
3) Your old company plan typically does not offer a wide variety of investment options to choose from. You can instantly make changes to the investment options in your IRA without going through the red tape of your company plan, where you are now considered an ex-employee. Why speak with an inexperienced phone rep at the company plan, when you can receive better service and more personal attention from your financial advisor?
4) Once you have rolled over your company plan funds to a traditional IRA, you can convert those funds to a Roth IRA (as long as your adjusted gross income is under the $100k income eligibility limit). You cannot directly convert company plan dollars to a Roth IRA. First, you must convert to a traditional IRA.
5) Company plans may have restrictions on withdrawals. In an IRA, you may have immediate access to your funds, regardless of age. Even if you are under the age of 59 1/2, you can withdraw from your IRA. You’ll pay tax and the 10% penalty, but you still have the ability to withdraw quickly. The company plan may have restrictions on withdrawals before the age 59 1/2. If you are no longer working for the company and leave the money in the company plan, it still may take some time to access your cash. If you need it right away, that will put unnecessary pressure on you at a time when the last thing you need is more problems.
The Roth IRA offers a number of advantages over its traditional counterpart. These include:
Tax-free distributions at retirement
Ability to continue making contributions beyond age 70-1/2
No required minimum distributions beginning in the year you turn 70-1/2
Leaving assets to survivors that are free from income taxes
Details on eligibility to convert a traditional IRA to a Roth IRA.
For years before 2010, if your filing status is married filing separately, you don’t qualify unless you lived apart from your spouse for the entire year.
For years before 2010, if your modified adjusted gross income is greater than $100,000, you can’t convert a traditional IRA to a Roth IRA.
For years before 2008, direct conversions from an employer plan to a Roth IRA were not permitted. You can do that now, but in some situations it may be preferable to roll to a traditional IRA and then convert to a Roth IRA.
If you inherited a traditional IRA from a person other than your spouse, you can’t convert it to a Roth IRA.
You can convert a traditional IRA to a Roth IRA even if you made a rollover within the previous 12 months.
If you’re otherwise eligible, you can convert part of a traditional IRA to a Roth IRA. But you can’t convert only the nontaxable part.
Assets converted to a Roth IRA must remain in the account for at least five years before any distributions are taken. Otherwise, a significant tax penalty may apply.
You’ll maximize the potential for tax-free income later if you pay conversion taxes out of pocket, rather than withdrawal them from your IRA. If you can’t pay conversion taxes without using part of your IRA funds, you probably shouldn’t convert unless you are certain you will be in a high tax bracket during retirement.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. Source: Financial Visions, Inc.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation
Making sure your IRAs are allocated properly for required minimum distributions
(RMDs) once you reach the age at which you must take them is as simple as following a bit of
advice your parents probably used to tell you: live off your interest, don’t touch your principal.
That may sound simple enough, but there are many factors to consider in order to ensure the
interest and dividends you’re generating from your savings and investments is sufficient to cover
your RMDs and satisfy your other income needs throughout retirement.
Again, RMDs are distributions the IRS requires you to make on your retirement savings
each year after you’ve reached age 70-and-a-half. The amount changes each year in conjunction
with your estimated life expectancy and the balance of your IRAs and other qualified plans as of
December 31st the preceding year.
Ideally, an asset allocation right for taking RMDs should be able to generate at least 3.7%
dividend or interest. If your interest and dividend income isn’t sufficient to cover RMDs, then
the distributions will most likely have to come from principal. Why is that so bad? Well, with
average life expectancy rates today higher than they’ve ever been, most people need to plan for
30 years of retirement. That being the case, spending any principal at all, especially during the
early years of retirement, can be a slippery and dangerous slope….
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