Retirement

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Retirement and Required Minimum Distributions

retirement and required minimum distributions Certified Financial Planner practitioner Mike Larriva talks about your retirement and required minimum distributions (RMDs). In this short video, he offers a quick planning tip that’s worth your time. Taking his suggestion could help make settling your affairs less complicated for your loved ones when you pass away.

For a more in-depth explanation of your retirement and required minimum distributions, read our article, “Understanding RMDs,” below the video. You can also click here to visit IRS.gov for more details on RMDs.

 

Understanding RMDs

By |March 21st, 2019|Retirement, Video Blog|

Save More for Retirement in 2019

Save More for Retirement in 2019The U.S. Treasury Department recently announced inflation-adjusted figures for retirement account savings. That means you can now save more for retirement in 2019.

Individual Retirement Account (IRA) contributions up to $6,000 are allowed in 2019. That’s a bump of $500, after six years stuck at $5,500. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is now $19,000 for 2019. For people 50 years or older, the “catch-up” annual limit is $25,000 for workplace plans and $7,000 for IRAs.

Pre-tax contributions to your 401(k) plan lower your taxable income in the year of the contribution. For example, if you earn $60,000 this year and contribute $15,000 to your 401(k), your taxable income will be reduced to $45,000. This allows tax-deferred growth on your investment; any pre-tax contributions you make, plus any gains from that investment, will not be taxed until you start taking distributions in retirement.

Save More for Retirement in 2019: Remember, too, you can make changes to your 401(k) election at any time during the year, not just during your company’s open enrollment. Talk with your financial planner if you have questions, want to open a new account, or are considering making changes to the amount you have been saving.

By |February 18th, 2019|Financial Planning, Retirement|

Consistent Saving is a Vital Habit

About 58 percent of Americans have less than $1,000 in personal savings, according to a recent survey by gobankingrates.com. If we think about all the federal employees impacted by the current government shutdown, that means six out of 10 will likely experience financial difficulty due to this interruption in their incomes and lack of savings. A government shutdown is rare. Still, it is a powerful reminder to us all to be prepared for unexpected loss of income or large expenses. Consistent saving is a vital habit.

Having an emergency savings account (for things like a broken water heater, automobile repairs or unplanned medical bills) can save you a lot of anxiety. It can save you hundreds of dollars, as well, since late fees for credit cards, car loans or utility bills often run $30 or so per month. Having an emergency reserve will also help you maintain a good credit score during challenging financial times.

When speaking to young adults, I often recommend they keep $1,000 to $1,500 as a minimum target for a checking account. Adults with children or additional financial responsibilities should set a higher reserve target. The savings not only helps in an emergency, it helps you avoid monthly bank fees that can add up quickly. If you can set aside $20 per week (only about $3 a day), you will have accumulated $1,000 by the end of the year.

Once you have your emergency fund in place, you can focus on your retirement savings. Setting up an automatic deposit from your paycheck into a retirement account is one of the easiest ways to save money. That money never reaches your checking account, so it is less likely to be spent. For 401k contributions, start with 5 percent of your salary or enough to receive any company-matching contributions. After a few months, you will hardly miss the smaller amount going into your checking account.

Consistent saving is a vital habit that lasts a lifetime. Taking that first step is important. According to US Census data, the median household income was $60,336 in 2017. For a typical 40-hour work week at that income, $5 is equivalent to about 10 minutes. Wouldn’t investing just 10 minutes (or $5) a day be a worthwhile investment in yourself?

By |February 4th, 2019|Current Affairs, Financial Planning, Retirement|

Understanding RMDs

Patrick Eng writes about the importance of understanding RMDs.When investors with retirement accounts turn 70 ½ years old, they should be aware of the required minimum distribution (RMD) rules regarding the type of retirement accounts they possess. Understanding RMDs will help you avoid high penalties from the IRS. Here are some things to keep in mind.

The IRS requires that account holders of traditional IRA, SEP IRA, Simple IRA and company-defined contribution plans [401(k), 403(b) and 457] withdraw a certain minimum amount from their accounts each year. (Roth IRAs do not have an RMD.) If you continue working past 70 ½ years, many defined contribution plans will allow you to put off taking the RMD until you retire; but for all non-Roth IRAs, you have to start taking RMDs by April 1 of the year following the year in which you turn 70 ½, even if you are still working.

This is an annual requirement until the account is drawn to zero or until the account holder dies, in which case the assets can be placed into an Inherited IRA for a beneficiary or distributed to heirs in another way. A penalty of 50 percent is levied by the IRS on the amount not withdrawn. For example, if your RMD is $10,000 and you do not make your withdrawal, you will owe the IRS $5,000 in penalties and must still take your required distribution.

The IRS does not allow tax-deferred accounts to grow indefinitely without having to pay taxes on the money. Investments in a tax-deferred retirement account have been sheltered from taxes since their initial contribution and throughout the accumulation and investment period. Thus, the IRS places a time limit on this tax deferral and mandates withdrawals through the RMD.

Most financial institutions have a process to help their clients take care of their RMDs, but ultimately the responsibility lies with the account holder. It can be an expensive oversight if not taken care of in a timely manner. If you are approaching the age for RMDs, talk with your advisor.

By |February 27th, 2018|Current Affairs, Retirement|