Tax expert, Andy Panko, joins me today to discuss taxes in retirement. Andy and I know each other from his Taxes in Retirement Facebook group. I figured he would be the perfect person to have on the show to help me answer several questions about this topic. Retirement is one time in life when you can plan for taxes in the long-term, so you’ll want to do as much tax planning as you can. Listen to hear the different types of tax questions that people have about retirement.
Wouldn’t it be easier to combine a husband and wife’s assets and just take one RMD? If a husband and wife have separate 401K’s and IRA’s even though it would seem easier to take those RMD’s together, they must be taken individually. The RMD is based on your age and each IRA and 401K has its own calculator.
One way to simplify the various retirement accounts is to take a rollover whenever you leave an employer-sponsored 401K. Remember the RMD penalty is steep, 50% of the required amount. So if you can find a way to simplify your retirement accounts then do it.
The next question is actually from me. Normally I help my clients stay within the $174,000 income limit that IRMAA allows. But I recently discovered a case in which a client should go over that limit. Are there cases where people should deliberately go over the IRMAA limit?
If you already have a large pot of tax-deferred money it makes sense to pay those taxes now rather than later. We are experiencing all-time lows in tax rates and those rates are subject to change at any point. It may make sense to pay the $70 extra per month in Medicare costs rather than be stuck with a large tax bill later. Listen in to hear what the next IRMAA income cap is.
If you are already over 59.5 and the Roth account has been open more than 5 years then you are set. You can withdraw funds from that account without penalty. Any money that comes out is a qualified distribution. However, if you do not meet those requirements there could be a penalty. There are further rules and regulations surrounding Roth IRA’s and they can be very confusing. To ensure that you don’t encounter any problems with your Roth IRA, open one as soon as possible and fund it with a rollover.
When you save into your IRA you are saving into a tax-deferred account. The RMD is simply there to make sure you pay the income tax on that money. It’s important to remember that the money isn’t entirely yours, you need to split it with Uncle Sam. You want to maximize the amount that you get and minimize Uncle Sam’s portion.
You and Uncle Sam see your IRA in different ways. You see that account as an asset and Uncle Sam sees it as (untaxed) income. It won’t allow you to put it off paying those taxes indefinitely. The RMD is simply the government’s way of ensuring that you pay the taxes owed on that money.
Press play to discover the answers to all of these listener questions and help realize all the tax planning opportunities that retirement brings.
Subscribe to Retirement Starts Today on
Apple Podcasts,Stitcher,TuneIn,Podbean,Player FM,iHeart, or Spotify
Have you ever wondered what I sound like on a different podcast? Well, today you get to find out. Since I am attempting a family road trip with 6 kids under 12, I can’t personally be with you all this week. But I am excited to share with you a bit of my interview with my friend Grant Bledsoe on his podcast, Grow Money Business. Listen in to hear my thoughts on several hot retirement topics like the 4% rule, how to set up your income in retirement, and stay tuned until the end to hear people’s biggest problem people in retirement.
Most people who are deep into retirement planning are familiar with the 4% rule. The idea that if you take 4% out of your retirement portfolio each year and never run out of money is simple and easy to remember. However, I argue that you need more flexibility than the 4% rule offers. In practice, our lives are too dynamic to take such a linear approach. Your income in retirement may end up changing several times and you need to have a retirement plan that can adjust to the changes that life brings.
So how do you adjust your retirement plan to account for all those life changes? You and I aren’t the only ones with this question. Guyton is a retirement researcher who wanted to figure out another way of not running out of money in retirement. In a nutshell, Guyton’s guardrails state that you can increase your spending when the market is good and decrease your income when the market takes a downturn. Guyton’s guardrails start you off with a higher income at the beginning of retirement. This retirement model takes into account the more human side of retirement planning. Is your retirement plan flexible?
One of the biggest problems people have about retirement planning is, how do they get their money? I think it is important to stick with what you know. You probably aren’t used to getting one lump sum of money each year, so that may be hard to adjust to. I like to set up distributions once a month. These distributions come from the boring side of your portfolio. I call it the mullet distribution strategy Just like that memorable 80’s haircut your portfolio is business up front and a party in the back. I like to let the exciting stuff ride it out and party while taking from the business end of the portfolio. Listen in to hear more about the mullet distribution strategy.
The number one problem that I see people having in retirement is that they are retiring away from something rather than towards something. Retirement shouldn’t only be about telling your boss to kiss-off. It’s important to find a meaningful way to spend your time. Find something to do with your newfound time freedom. Take a class, discover a hobby, or mentor someone. Remember you are jumping into a void. You’ll need a way to find contentment outside of the things that are related to money. What will you do after you retire?
Subscribe to Retirement Starts Today on
Apple Podcasts,Stitcher,TuneIn,Podbean,Player FM,iHeart, orSpotify
It’s true, money can’t buy happiness. But does how you choose to spend your money affect your happiness? Today we’ll discuss one article that challenges that old adage. We’ll also discuss a multifaceted question from a listener who just accepted an early retirement package. We’ll help her consider whether to rollover funds into an IRA and figure out what to do with her target-date funds. Listen in to hear the answers to this question and to consider whether money could actually buy happiness.
Although money can’t purchase a deep, meaningful feeling, how we choose to spend our money matters. What we spend our money on can contribute to our happiness. The Washington Post recently published an article that reported on a study about how money affects our happiness. Having more money can make life better for those who struggle to make ends meet. Once their basics are covered they may have money to spend on things they enjoy.
People who spend their money on activities and causes that are important to them are more satisfied with their lives. Rather than worrying about how to make more money, start using your money in ways that benefit your happiness. Let’s think about how your money can buy you happiness. When you do have extra cash think about what you are trying to accomplish. What makes you happy? Don’t buy just something to buy it. Instead, ask yourself whether spending money on a certain product will actually help you lead the type of lifestyle that you want to lead.
The short answer is yes. One reason to move from a 401K to an IRA in retirement is that you will have many more investment options in an IRA than a 401K. A 401K is designed to please the general public as they accumulate their wealth. An IRA can be tailored to your individual needs and offer many more options than a 401K. A properly diversified retirement portfolio will have much more diversity than a 401K can provide.
I love target-date funds for the accumulation period of life but they don’t work as well in retirement. (If you haven’t listened to the Set It and Forget It episode about target-date funds, bookmark it for later.) Target date funds are great for keeping your savings well balanced and adjusted according to your target retirement date. But in retirement, you’ll want to be more surgical with your investing and slice away at your portfolio as needed.
Subscribe to Retirement Starts Today on
Apple Podcasts,Stitcher,TuneIn,Podbean,Player FM,iHeart, or Spotify
Would you consider adding private equity funds to your 401K? We’ll weight the pros and cons of this interesting idea as we explore the retirement headlines. No listener questions today, instead, this episode is all about the headlines. We have news about RMD’s, private equity funds, tax strategy in retirement, and a shocking Fidelity study. Make sure to listen until the end to hear the surprise twist.
You may have heard of private equity funds before but many people aren’t exactly sure what they are. So before we explore this retirement headline I want to define the term. Private equity funds are an investment class of their own which consists of capital that isn’t listed on the public exchange. Whereas public equity involves buying shares on the stock exchange, private equity funds invest directly in private companies.
Recently changes were made that opened the door to allow private equity funds into 401K plans. There are pros and cons to this idea. One positive is that they can provide added diversification to your investments. Another positive is the potential for increased returns.
However, there are 3 serious downsides you need to consider before adding private equity funds to your 401K.
Listen in to hear my opinion about private equity funds in your 401K.
The pandemic has caused many of us to reevaluate a number of things in our lives. One of those considerations was taxes. 59% of Americans surveyed said that they are more worried about taxes now than before. And 63% responded that it’s more important to develop a tax strategy in retirement. I am a proponent of long-term tax strategy in retirement in conjunction with your yearly tax planning. My takeaway from this article is that it is important to get professional tax advice early on so that the taxman doesn’t sneak up on you.
The Wall Street Journal published an article that stated that ⅓ of investors over age 65 moved their money out of stocks. But the article published inaccurate data. Although the article was corrected, it took 3 days for the correction, an eternity in this time of instant news. Mistakes in reporting will inevitably happen which is why it is important to read news surrounding statistics and investing with a grain of salt. It’s also important to be conscious of your own bias when reading news articles.
Subscribe to Retirement Starts Today on
Apple Podcasts,Stitcher,TuneIn,Podbean,Player FM,iHeart, or Spotify