Roth IRAs Favored for Annual Contributions, Neglected for Rollovers from Company Plans

Roth IRAsRoth IRAs become 20 years old in January of 2018 and now hold more than $660 billion in retirement wealth, reports the Investment Company Institute (the source of the data in this article). 

Yet while Roth IRAs have become very popular among individuals who make annual contributions to IRAs, they are near totally avoided by persons who roll over big-dollar distributions from company retirement plans into their IRAs, with these funds going overwhelmingly into Traditional IRAs.

This suggests that some people are undervaluing the benefits of making a rollover into a Roth IRA. If you are an individual with funds to roll over, it may pay to re-examine the benefits of choosing a Roth IRA to be the destination of a big-dollar rollover.

IRA Snapshots

Contributions to Roth IRAs exceeded those to Traditional IRAs by $21.9 billion to $17.5 billion in 2014, even though only about one-third of IRA owners have a Roth.  Yet Traditional IRAs now hold near $7 trillion in assets, dwarfing the total in Roths. The main reason is that rollovers of large balances from employer plans flow overwhelmingly into Traditional IRAs. Rollovers totaled $423.9 billion into Traditional IRAs versus a mere $5.7 billion into Roth IRAs in 2014 – Traditional IRAs received 98% of rollovers.

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10 Things to Know About the Still-Working Exception

By Sarah Brenner, JD
IRA Analyst with Ed Slott

Still-Working Exception

Are you approaching retirement age and not looking forward to being forced to take unwanted required minimum distributions (RMDs) from your retirement account? You may be looking for a way to delay those distributions. You may have heard about the still-working exception, which can allow RMDs to be put off. Will this exception help you? Here are 10 things you need to know.

1.  The still-working exception does not apply to IRAs. It only applies to company plans. If you are still working, that can’t help you delay RMDs from your IRA.

2.  The exception will only apply to the plan of the company for which you are still working. If you have other funds in other company plans it won’t help you with those.

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The Importance of Financial Certifications

Financial certifications are a commitment to the client’s best interest

Financial certificationsYou’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™.

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Calculating Social Security Benefits

Calculating Social Security Benefits are a function
of three primary factors.

How Many Years Have You Worked?Calculating Social Security Benefits

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. 

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10 Things about Using your IRA for Educational Expenses

Using your IRA for educational expensesIt’s back to school time! This means it’s time for school supplies and additional expenses. Are you considering using your IRA to pay that large tuition bill? The rules can be complicated. Here are 10 things you will want to know about using your IRA for educational expenses.

1.  Typically, if you take a taxable distribution from your IRA before you reach age 59 ½, you are subject to a 10% early distribution penalty. The exception to the penalty allows you to take a penalty-free distribution from your IRA if you use the funds for qualified higher education expenses.

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6 Key Tips to Follow As You Juggle Your Own Retirement Planning

Juggling retirement planningContributions 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.

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To Convert or NOT To Convert – Roth IRA Conversion

What is a Roth IRA conversion?

Roth IRA ConversionA 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.

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Sometimes It Pays to Treat Your Kids Unequally

Treat Your Kids UnequallyAs the father of more than one child, I understand the desire to try and treat children as equally as possible. You certainly don’t want one child to think you love him/her any less, or more, than your other children (though children will inevitably feel that way at one time or another), and you want the best for all of your children. But while children may share the same parents, may grow up in the same house and may be raised in the same manner, they are very much like snowflakes. Each one is truly unique. However, when dividing your estate, it may be beneficial to treat your kids unequally.

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Choosing the Right Financial Advisor in 5 Easy Steps

Choosing the right financial advisorWhy do you need a financial advisor?

Today’s financial landscape is as complicated as ever.  Choosing the right financial advisor can help you navigate this complexity so that you can make educated, informed decisions on what is best for you and your family.

1.  Ask for references.  Ask your CPA or estate planning attorney.  In many cases, they already have a working relationship with a financial advisor.  You should also consider asking friends and family members for a recommendation if they are in a similar stage of life and financial situation.

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