Financial certifications are a commitment to the client’s best interest
You’ve decided to get serious about your financial future and want to find a financial advisor to guide your decisions. There’s a lot to consider in creating a comprehensive financial plan.
Pulling all the pieces of your financial life together—budgeting, retirement planning, saving for education, insurance, taxes, and investing—is a challenging endeavor.
Finding credentialed professionals is essential. Many professionals call themselves financial planners and most people think all financial advisors are “certified,” but this isn’t true. Only those that have fulfilled and maintained the requirements of the CFP Board can display the CFP® trademark and call themselves a CERTIFIED FINANCIAL PLANNER™.
What is a Roth IRA recharacterization?
In the simplest of terms, a Roth IRA recharacterization is an “undo.” It erases a Roth IRA conversion, and the conversion is treated as if it never occurred.
1. Meet the deadline. A Roth IRA conversion can be recharacterized until October 15 of the year after the calendar year of conversion. That means that either a January 1, 2017 or a December 31, 2017 conversion can be recharacterized through October 15, 2018. If you miss the October 15 deadline, the only way to get an extension is to go for a private letter ruling from the IRS.
Calculating Social Security Benefits are a function
of three primary factors.
How Many Years Have You Worked?
The Social Security Administration uses 35 years of earning history
▶ If you worked more than 35 years – it uses the highest 35 years of salary
▶ If you worked less than 35 years – it still uses 35 years of salary (the years you didn’t work count as $0) This rule impacts far more women than men.
Why? Many women took significant time away from work to raise one or more of their children.
IRA owners often want to invest in assets other than the usual stocks, bonds, cash, and mutual funds. The tax code does allow for IRAs to invest in most anything except for collectibles, life insurance, and S-corporation stock. So what do those “other assets” make your IRA worth?
If you invest $1,000 in a publicly traded stock it’s simple to determine the value of the investment at any time. You can look it up on your computer, smart phone, or tablet. But investing in real estate, promissory notes, a start-up business, a master limited partnership, an LLC, or any other investment option, it’s not easy to determine its investment value. Typically, the IRA custodian carries the investment on its books as the amount you originally invested. The value doesn’t change from year to year.
➤ Contributions for Retirement Planning: If you are working, have an employer plan available, and there is an employer match, make sure you are contributing enough to the plan to reach that maximum match level. Don’t forget to make your own IRA or Roth IRA contributions as well. Your participation in the employer plan has no effect on your ability to make those contributions. It could, however, affect the deductibility of your IRA contributions.
➤ Roth IRA Planning: You really want to contribute to a Roth IRA, but (and it’s a big BUT) you exceed the income limits to qualify. You can utilize a strategy called the Back-Door Roth IRA to move funds into a Roth IRA, where they can grow tax-free into retirement.
Don’t forget about Roth conversions for yourself. You can use a strategy called “filling the brackets.” You convert smaller amounts each year to keep yourself from going into a higher tax bracket. When it comes time to do the tax return, maybe some numbers have changed and you converted too much. No problem! You have until October 15 to recharacterize all or part of your Roth conversion. You “undo” it and do not owe income tax on the amount you recharacterize.
The internet is a great place to do research on most any topic. You have to be cautious that the information you find is current and accurate. Here are five things to consider when researching retirement questions.
Check the Date
The tax code and rules change often. Check the date of the article to see when it was written. What was true three years or five years ago may not still be relevant. Often, brackets or income limits are adjusted for inflation each year. Those numbers need to be checked to see if they are the most recent limits.
Check out the Website
Is the website reputable? Who controls the content on the website? Are they creditable? Are they unbiased or are they selling a product or strategy? Do a search on the company to see if you come up with reviews. Look for unbiased information.
Are you considering a Roth conversion, but you’re unsure whether or not it’s the right move for you? A Roth IRA provides a great way to help reduce the taxes you’ll pay during retirement, but it can also increase your income during the year that you convert, which could bump you into a higher tax bracket.
When you convert funds to a Roth IRA, your pre-tax funds will be included in your income in the year of the conversion. This will increase your income for the year of the conversion, which may impact deductions, credits, exemptions, phase-outs AMT (alternative minimum tax), the taxation of your Social Security benefits and more.
Know all options available for your company retirement plan funds.
Accepting a new job or transitioning into retirement can be both exciting and overwhelming. Figuring out how to handle your current employer’s retirement plan funds may not be at the top of your priority list, but with several options to consider, it’s crucial that you take the time to think through your next financial move.
6 Options for a distribution from a company plan
- Rollover to an IRA
- Convert to a Roth IRA
- Direct Transfer to an Inherited IRA or Inherited Roth IRA (Only for employer plan beneficiaries)
- Lump sum distribution
- Leave it in the current plan
- Convert from plan assets to a plan Roth account (in-plan Roth conversion)
What is a Roth IRA conversion?
A Roth IRA conversion is the process of moving IRA or employer plan assets to a Roth IRA.
1. When will you need the money? If you have an immediate need for the funds or need them to continue your current standard of living, then a Roth IRA conversion is probably not for you. However, if you have no immediate need for the funds, a Roth IRA conversion is potentially a great way for the funds to grow tax-free over your lifetime.
Retirement planning mistakes can be costly. Seek the help of a financial planner or tax attorney to achieve the goals for a comfortable and stress free retirement.
1. Not Having a Plan
Do you know how to achieve the retirement lifestyle you want? Consider these three things.
- When do you want to retire?
- How much income will you need?
- What steps can you take not to help you achieve your goals?
When you have defined your goals, we can develop a financial plan to reach them.