We’ve Moved! 6121 Excelsior Blvd. St. Louis Park, MN 55416

Archives for January 2017

RMDs and Charitable Contributions

by

A qualified charitable distribution is one that is not taxable. For 2017 and going forward, these distributions are an option for IRA owners age 70 ½ and up. If an individual instructs his or her IRA to make a distribution directly to a qualified charity, that amount can be deducted from the required minimum distribution (RMD) for the year.

For example, if your RMD is $10,000, and you direct $7,000 to be paid out to a qualified charity, you need only withdraw (and pay taxes on) an additional $3,000 to meet your RMD quota for the year. Note, too, that the amount you contribute to a charity from an RMD cannot be claimed as a charitable deduction on your tax return.

This hypothetical example is for illustrative purposes only. This information is not intended to provide tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial strategy.

Helping Make Your Retirement Money Last

by

For every five years longer a retiree lives, he or she spends about 15 percent less on average. This means that people in their 70s spend about half of what they do in their 50s. Even with the ramp-up in medical expenses that often comes later in life, retirees still tend to spend less as they progress through what is termed the three phases of retirement.

One study found that nearly 40 percent of retirees spend an above average amount on food and beverages (“foodies”), 30 percent tend to spend more on home-related expenses (“homebodies”) and 5 percent are travel enthusiasts (“globetrotters”).

These are some categories by which to measure your own spending objectives in retirement, as they can help you establish a retirement income withdrawal level that can help meet your lifestyle goals, but note that they may also curb downward and change as you get older.

While identifying the typical spending behaviors of retirees can be helpful when considering your own retirement income, every person’s situation is different. For example, someone who experiences a health care issue early on may find that their lifestyle spending decreases faster than a retiree who is a foodie or homebody.

Retirement should be a time to take a long-needed break — from working, from worrying and, hopefully, from scrimping and saving. You hope to be in a place in which you can spend for what you need, plus a little more now and then for your passions, whether that’s golf, the grandkids or the Grand Caymans.

As you build a financial strategy, consider each component. It may be effective to diversify your income sources among an array of sources, such as Social Security, pension and an annuity, along with options that may provide growth potential to generate cash flow to help pay for discretionary living expenses.

This calls for reviewing a number of factors, such as when to begin drawing Social Security. Recognize that each spouse may benefit from a separate strategy. If you have an employer-sponsored retirement plan, review plan rules on partial distributions once you’ve retired, as some can be quite restrictive and may require repositioning of those assets.

Before you finalize any distribution strategy, carefully review the tax status of each account you own to determine when to withdraw money so that you don’t tip yourself into a higher tax bracket in any one year. You should talk to a financial advisor and tax professional about how to create a tax-efficient retirement income distribution strategy. 

 

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.

Why Convert a Roth IRA?

by

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.

When Are You Most Productive?

by

Studies show some people simply are wired to wake up early in the morning while others are night owls. The difference has to do with what time of day you have the most energy, focus and creativity.

One researcher aimed to change his night owl ways by waking up early and forcing himself to work out and get a dozen things done by 8 a.m. In the end, he determined early risers aren’t necessarily more productive, they just get stuff done earlier in the day.

There are a couple of tips that could help your productivity, whether you’re an early bird or night owl. First of all, don’t work against the grain; try to create a work schedule that accentuates your most productive hours during the day. For example, night owls may be more productive if they plan their daily workload the night before.

Second, “time block” what you want to get done and at what time of day. This means responding to emails and making calls during your least productive time of day and scheduling projects that need more time and concentration during your most focused time of day — even if it’s late at night.

And finally, if you employ a to-do list, break it up into two columns: “now” and “later.” The now column is for things you must absolutely get done today, and later is for tasks to complete at some point during the week. This saves you from having to rewrite the same tasks (that never get done) every day and helps ensure they get done by the end of the week.

RMD Aggregation Rules

by

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. 

New Year a Good Time for New Approach

by

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.