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iras

The Designation Everybody Should Be Aware Of

At some point in your life you have probably started a new job, applied for life insurance, started an IRA or retirement account, or opened a bank account. You may remember when filling out the paperwork that the form asked for a beneficiary – both primary and contingent. This is simply telling the account’s custodian to whom you want your account to go to should you pass away. Your primary beneficiary is the first (hence the name primary) that receives account balance or death benefit. The contingent is who receives the account balance in the event your primary beneficiary predeceases you. When choosing beneficiaries you had the choice of allocating a certain percentage to the primary and some to the contingent if needed. You may have even had two or more primary beneficiaries that you allocated a certain percent of your account to totaling 100% Then you may have forgotten […]

Types of Rollovers Not Subject to the Once-Per-Year Rule

In a previous article we discussed the changes to the IRA One-Rollover-Per-Year rule.  There are certain types of rollovers that are not included in that restriction, detailed below. As mentioned in the earlier article, trustee-to-trustee transfers are not considered “rollovers” by the IRS regarding this rule.  So you are allowed to make as many trustee-to-trustee transfers in a year as you like – no restrictions on these kinds of transfers at all.  This includes trustee-to-trustee transfers from or to IRAs, 401(k)s, 403(b)s, or any eligible plan. In addition, a rollover from an IRA into a 401(k) or other Qualified Retirement Plan (QRP) is not impacted by this rule.  This means that you can roll funds out of your IRA and into your employer’s 401(k) plan with no restriction – regardless of whether or not you have already made an IRA-to-IRA rollover in the previous 12 months. Similarly, a rollover from […]

Market Returns Aren’t Savings

In 2013 the market and those invested in it experienced a nice return on their investments. The S&P 500 rose an amazing 29.6% while the Dow rose 26.5%. Needless to say 2013 was an amazing year for investors – but try not to make the following mistake: Don’t confuse investment returns with savings. While it is true that the more of a return an investor receives on his or her investments the less they have to save it still does not mean that your returns should take the place of systematic saving for retirement, college or the proverbial rainy day. And by no means should you reduce the amount you’re saving thinking that the returns from 2013 and other bull years will repeat and continue their upward bounty. Investment returns are the returns that an investor receives in a particular time frame. For 2013, if an investor was invested in […]

Book Review: A Random Walk Down Wall Street

Right from the start this book will be an excellent read for both financial advisors as well as their clients. Dr. Malkiel provides academic insight on the reasons why passive management works and some great commentary on the use of index funds as part of someone’s overall portfolio. This was the second time I read this book and certainly not the last. It’s great reinforcement on why we invest our clients’ money the way we do and provides solid academic evidence that doing anything to the contrary is counterproductive, more expensive and simply playing a loser’s game. Some of the bigger takeaways from the book are Dr. Malkiel’s thoughts and research on the different part of the Efficient Market Hypothesis or EMH. The EMH consists of three parts – the strong form, the semi-strong form and the weak form. The EMH essential admits that markets are efficient – meaning that current […]

Determining Your MAGI

There are income limits for contributing to an IRA (traditional and Roth), and below are links by filing status to illustrate the income limits in the situation where you are or are not covered by an employer-provided retirement plan, given your filing status.  This, along with your filing status and your Modified Adjusted Gross Income (MAGI) is an important factor in setting the limits for TIRAs, as there is the issue of deductibility at stake. In order to fully understand the limitations, you also need to understand what makes up your Modified AGI (MAGI).  The MAGI is calculated as follows: 1.    Start with your Adjusted Gross Income (line 22, Form 1040A, or line 38, Form 1040). 2.    Add back in your IRA deduction amount (line 17 on Form 1040A or line 32 on Form 1040) 3.    Add back in your student loan interest (line 18 on Form 1040A or line […]

UBTI in an IRA

Image via Wikipedia I’ve mentioned before about various types of transactions that are not allowed in your IRA, but we’ve not actually covered the topic of Unrelated Business Taxable Income (UBTI) in your IRA.  UBTI isn’t prohibited within an IRA, but it does pose problems and adds a great deal of complexity to your account. Unrelated Business Taxable Income So, what is UBTI anyway?  The concept of UBTI pre-dates IRAs – it was originally developed in relation to charitable organizations, trusts, and other tax-exempt entities.  The IRS developed this concept to ensure that tax-exempt organizations didn’t have a competitive advantage over taxable organizations, such as for-profit corporations.  The way that income is determined to be “unrelated” is by checking these two tests: Is the income from a trade or business that is regularly carried on? Is the trade or business unrelated to the tax-exempt entity’s exercise of the entity’s tax-exempt […]

Required Minimum Distributions for IRAs and 401(k)s

This is one of those subjects that can be a bit confusing – and it’s based on the rules that apply to the different kinds of plans.  You are aware that you’re required* to begin taking Required Minimum Distributions (RMDs) once you reach age 70½ – but did you know that specifically which account you take the RMD from has some flexibility?  Well – not just flexibility, also some rigidity… Image by -RejiK via Flickr There is a Difference Between IRA and 401(k) Starting off, we need to understand that, in the IRS’s eyes, there is a big difference between an IRA and a 401(k).  For brevity, we’re referring to all sorts of Qualified Retirement Plans, such as 403(b) or 457 plans, as 401(k) plans. You may consider the two things to be more or less equal, but if you think about it, there are considerable differences between the two […]

Should You Take or Postpone Your First RMD?

In the first year that you’re required to start taking Required Minimum Distributions (RMDs) from your IRAs and other retirement plans, you have a decision to make:  Should you take the RMD during the first year, or should you delay it to the following year? The Rule This decision comes about because of the special rule regarding your first RMD:  In the year that you achieve age 70½, you don’t have to take the first distribution until April 1 of the following year.  For each subsequent year thereafter, you’re required to take your RMD by December 31 of the year… so this first year provides you with the opportunity to plan the income just a bit. Generally it’s a better idea to take the distribution in the first year, with just a few reasons that you might reconsider: if your income is considerably higher in the first year than it […]

Linksharing 7/12/2009

Once again, I’ve found several interesting blog posts among my colleagues that I feel compelled to share with you. To start things off, Jeff “don’t call me Jan” Rose over at the “Good Financial Cents” blog wrote about the changes coming for Roth IRAs next year in the post Gone Daddy Gone – AGI Restriction For Roth IRA Conversion.  This is a good run-down of the specifics of this important change in the landscape – plus you’ve gotta appreciate a guy who can relate the Violent Femmes to the Roth IRA… The next article for this week is from Jean Keener at Keener Financial Planning.  Jean wrote a very good article about your 401(k) options when you change jobs – a timely article, given the upheaval many folks are facing nowadays in the job market. Aron Levin, on the “Gen Y – Retire Rich!” blog, brings us another timely article called […]