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IRA

Spousal IRAs for Stay at Home Parents

Many parents make the decision that after their child is born one parent will stay at home to be with the child. Some of the reasons include saving on daycare expenses, and wanting at least one parent to bond and be with the child during those precious first few years of development. Whatever the reason, the stay at home parent may leave a job and lose access to certain benefits – mainly their employer sponsored retirement savings plan. Although the stay at home parent has lost this benefit, it doesn’t mean that they have to stop saving for retirement. One benefit the stay at home parent can take advantage of is the spousal IRA. Spousal IRAs aren’t a specifically titled IRA. In other words, the IRA needn’t be titled “Spousal IRA”. It’s simply an IRA in the stay at home parent’s name – no different than if they had an […]

Advice to the Masses May Not Apply to Individuals

Last week on my ride home from a meeting I had the opportunity to tune into a nationally syndicated talk show regarding personal finance. The host is very popular among listeners and has written several best sellers. Many churches and schools follow the financial program designed to educate individuals on how to set a budget, get out of debt and save for retirement. Generally, the advice given is applicable to many individuals. Sometimes it’s not. A listener called into the show and explained that she had approximately $100,000 in an annuity in an IRA. The annuity paid an interest rate of 2% and had a current surrender charge of 4% – just over $4,000. The caller was asking the host whether or not she should surrender the annuity and roll it over to a non-annuity IRA invested in mutual funds. In a matter of seconds the recommendation was to surrender […]

Everything But The Retirement Plan!

Conventional wisdom says that when you leave a job, whether you’ve been “downsized” or you’ve just decided to take the leap, you should always move your retirement plan to a self-directed IRA. (Note: when referring to retirement plans in this article, this could be a 401(k) plan, a 403(b), a 457, or any other qualified savings deferral-type plan). But there are a few instances when it makes sense to leave the money in the former employer’s plan.  You have several options of what to do with the money in your former employer’s plan, such as leaving it, rolling it over into a new employer’s plan, rolling it over to an IRA, or just taking the cash. The last option is usually the worst. If you’re under age 55 you’ll automatically lose 10% via penalty from the IRS (unless you meet one of the exceptions, including first home purchase, healthcare costs, […]

401(k) Mistakes (also applies to other Retirement Plans!)

These days you’re pretty much on your own when it comes to planning for your retirement. Granted, many state and local governments have a pension plan, but beyond that, precious few employers provide a pension these days. Typically retirement benefits only include a 401(k) or other deferred retirement plan, which means it’s up to you! For the purpose of brevity, I’ll refer to 401(k) plans throughout this article; please understand that most of the information applies to 403(b) plans, 401(a) plans, and 457 plans as well as Keogh, SIMPLE, and SEP IRA plans. For most of us, the 401(k) is the default account that must take on the role that the pension plan did for previous generations. Paying attention to and avoiding the following mistakes can help you to ensure that you have a financially-secure future. #1 – Choosing Not to Participate It’s amazing how many folks, young or old, don’t participate in their […]

IRAs: Roth or Traditional?

The question comes up pretty often: when contributing to an IRA, should you choose the Roth or Traditional? I often approach this question in general with my recommended “Order of Contributions”: Contribute enough to your employer-provided retirement plan to get the company matching funds. So if your employer matches, for example, 50% of your first 5% of contributions to the plan, you should at least contribute 5% of your income to the plan in order to receive the matching funds. Maximize your contribution to a Roth IRA. For 2015 that is $5,500, or $6,500 if you are age 50 or older. Continue increasing your contribution to your employer-provided plan up to the annual maximum. So if you have more capacity to save after you’ve put 5% into your employer plan to get the matching dollars, and you’ve also contributed $5,500 (or $6,500) to your Roth IRA, you should increase the amount going into […]

The SEP IRA

One of the more unique types of retirement accounts is the Simplified Employee Pension IRA, or SEP IRA for short.  This plan is designed for self-employed folks, as well as for small businesses of any tax organization, whether a corporation (S corp or C corp), sole proprietorship, LLC, LLP, or partnership. The primary benefit of this plan is that it’s simplified (as the name implies) and very little expense or paperwork is involved in the setup and administration of the plan.  The SEP becomes less beneficial when more employees are added. There are additional options available in other plans (such as a 401(k)) that may be more desirable to the business owner with more employees. SEP IRAs have a completely different set of contribution limits from the other kinds of IRAs and retirement plans.  For example, in 2015, you can contribute up to $53,000 to a SEP IRA. That amount […]

Mandatory Retirement Plans

A few weeks ago I finished a paper arguing for mandatory retirement contributions from both employers and employees. Though arguably the paper will not come close to changing public policy on retirement plans, it did raise some arguments in favor of the United States adopting a mandatory savings plan. In the paper I explained that research has shown that individuals risk not having enough saved for retirement. This could be due to employees not having a retirement plan through work or because employees face an abundance of mutual fund options in the plan that they don’t know where to begin. Some of these employees choose the default option or simply go with what a colleague recommends. Another problem the paper addresses is the declination of defined benefit pensions. Such pensions are employer sponsored and funded, thus removing funding an investment risk from the employee. At retirement the employee receives a […]

How to Easily Maximize Your IRA

Recently I had a chance to have some fun with some of my undergraduate students. Polling my entire class I asked them to make a list of wants (not needs) that they frequently spent money on. Answers varied from smartphones (and the respective bill), cable and satellite TV, dining out, coffee shops, beverages (you know which ones), and appearance (spending extra to dye hair, pedicures, etc.). Here’s a list of how each expense was broken down as told by the students. In other words, it was their numbers not mine.

What Plans Can I Rollover My Retirement Plan To?

When you have a retirement plan, or many different types of retirement plan, you may be faced with decision-points when it would be helpful to rollover one plan into another plan. But do you know which type of plan I can rollover my retirement plan into? What follows is a description of the types of accounts that you can rollover each particular source account into, along with the restrictions for some of those accounts. The IRS also has a handy rollover chart which describes these rollovers in a matrix.  

Illinois’ Automatic Roth IRAs for Employees

Recently Illinois’ Governor Pat Quinn signed into law the Illinois Secure Choice Savings Plan. This plan provides an automatic Roth IRA via payroll-deduction for some employees who do not have an employer-sponsored retirement savings plan. Essentially this law will require employers with 25 or more employees to establish a payroll deduction program permitting the workers to defer earnings into a Roth IRA, beginning in June 2017.  Employees will be automatically enrolled (hence an automatic Roth IRA), but the workers will have the opportunity to opt out of the program. The automatic enrollment includes a 3% salary deferral, but the employee can increase the deferral amount, up to the legal limitations (in 2015 it’s $5,500, $6,500 for folks over age 50). There is no company matching with this program.  

Where to Start With Retirement Savings

Today, we have so many choices for our retirement savings that it can be difficult to choose which sort of account to contribute to. If you are fortunate enough (as many are) to have more than one type of retirement plan available to you, in what order should you contribute to the accounts? Right now, at the beginning of a new year, is an excellent time to start with retirement savings. Qualified Retirement Plans First of all, many folks who are employed by a company have some sort of tax-deferred, qualified, retirement savings account available. These accounts go by many names – 401(k), 403(b), 457, and deferred compensation. These accounts are collectively referred to as qualified retirement plans, or QRPs. QRPs do not include IRAs – this is another type if retirement savings account with some different rules. A QRP account is a good place to start when contributing to […]

2015 IRA MAGI Limits – Married Filing Separately

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility. For a Traditional IRA (Filing Status Married Filing Separately): If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at your job and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 55% for every dollar (or 65% if over age 50), and rounded up to the nearest $10.  If the amount works out to less than $200, you are allowed to contribute at least $200. If you are covered by a retirement […]

2015 MAGI Limits for IRAs – Married Filing Jointly or Qualifying Widow(er)

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility. For a Traditional IRA (Filing Status Married Filing Jointly or Qualifying Widow(er)): If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at work, and your MAGI is $98,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $98,000 but less than $118,000, you are entitled to a partial deduction, reduced by 27.5% for every dollar […]

2015 MAGI Limits – Single or Head of Household

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately who did not live with his or her spouse during the tax year, is considered Single and will use the information on this page to determine eligibility. For a Traditional IRA (Filing Status Single or Head of Household): If you are not covered by a retirement plan at your job, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at work, if your MAGI is $61,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $61,000 but less than $71,000, you are entitled to a partial deduction, reduced by 55% for every dollar over the lower limit (or 65% if over age 50), and […]

Five Things You Need to Know About Retirement Plans

Listen to this post: Most of you have one or more types of defined contribution retirement plans, such as a 401(k), 403(b), 457, IRA, SEP-IRA, or any of a number of other plans. Each type of plan has certain characteristics that are a little different from other plans, but most of them have the common characteristic of deductibility from current income and deferred taxation on growth. 1. Each dollar you defer is worth more than a dollar. It’s true. As you defer money into your retirement account, each dollar that you defer could be worth as much as $1.66. How, you might ask? Since you are not taxed on the dollar that has been deferred into the retirement account, your “take home” pay only reduces by the amount that is left over after taxation. For example, if you’re in the 25% bracket, generally your income will only reduce by 75¢ […]

An Exception to the RMD Rule

For many folks, attaining age 70 ½ means the beginning of required minimum distributions (RMDs) from their 401k, 403b as well as traditional IRAs. There are however, some individuals that will continue to work because they want to or (unfortunately) have to and still want to save some of their income. At age 70 ½ individuals can no longer make traditional IRA contributions. They are allowed to make contributions to a Roth IRA as long as they still have earned income. Earned income is generally W2 wages or self-employment income. It is not pension income, annuity income or RMD income.

An IRA Owner’s Manual 2nd Edition Published

Introduction of the 2nd Edition of An IRA Owner’s Manual, published November, 2014. Resources: Blog – www.FinancialDucksInARow.com Book – www.IRAOwnersManual.com Buy the book – paperback or Kindle http://traffic.libsyn.com/financialducksinarow/pod3b.mp3 Podcast: Play in new window | Download

A new way to fund your Roth IRA

As you plan and save for your retirement, it’s nice to have multiple types of taxation for your income sources. You may have a pension, Social Security, and a traditional IRA, all of which are taxed to some degree or another.  Adding to this list you might have a Roth IRA which generally will provide you with tax-free income in retirement. The problem with the Roth IRA is that you have some strict limits on the amounts that you can contribute, and typical Roth Conversion strategies are costly and complicated. With the recent pronouncement from the IRS in Notice 2014-54, there is a brand new, sanctioned method, to fund your Roth IRA.