Image via Wikipedia One of the provisions that is available to the individual who inherits a 401(k) or other Qualified Retirement Plan (QRP) is the ability to convert the fund to a Roth IRA. This gives the beneficiary of the original QRP the option of having all of the tax paid up front on the account, and then all growth in the account in the future is tax free, as with all Roth IRA accounts. What’s a bit different about this kind of conversion is that, since it came from an inherited account, the beneficiary must take distribution of the account over his or her lifetime, according to the single life table. This means that, in order for this maneuver to be beneficial, the heir should be relatively young, such that there will be time for a lengthy growth period for the account – making the tax-free nature of the […]
November, 2011:
Which Account to Take your RMDs From
Image via Wikipedia When you’re subject to the Required Minimum Distributions (RMDs) and you have more than one IRA account to take the distributions from, you have a choice to make. Even though you have to calculate the RMD amount from all of your IRA accounts combined, the IRS provides that you could take the total of all your RMDs from a single account if you wish. With this provision in mind, you could take all of your RMDs from the smallest account, which would provide you the opportunity to eliminate one of the accounts in your list, thereby simplifying things. By reducing the number of accounts that you have, you could simplify the calculation of RMDs, estate planning, and just general paperwork. However, it might not always work to your best interests to reduce the number of accounts that you have. You may have multiple accounts in order to […]
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Expiring Tax Provisions for 2011
Image by polapix via Flickr There are quite a few tax provisions that will be expiring at the end of 2011 – nowhere near the number of provisions that were set to expire at the end of 2010 (many of which were subsequently extended), but still there are quite a few sun-setting this year. Listed below are some of the major provisions that will expire at the end of 2011 that will affect individual taxpayers. Charitable Contributions from IRA The provision that allows an IRA owner, subject to Required Minimum Distributions (RMDs) and over age 70½ to make a Qualified Charitable Distribution (QCD) directly to a charity from his IRA will expire as of 12/31/2011. This provision allows the IRA owner to make this charitable contribution without having to recognize the income – which could have a profound effect on the taxpayer’s return. Remember, this one expired once before, at […]
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It Pays to Wait For Your Social Security Benefits
It’s usually best, for most things in the financial world, to act now rather than waiting around. The notable exception is with regard to applying for Social Security benefits. We’ve discussed it before (in fact part of this article is a re-hash of an earlier post) but it is an important point that needs more emphasis, in my opinion. As you’ll see from the table below, if you’re in the group that was born after 1943 (that’s you, Boomers!) you can increase the amount of your Social Security benefit by 8% for every year that you delay receiving benefits after your Full Retirement Age (FRA – see this article for an explanation). Delaying Receipt of Benefits to Increase the Amount If you are delaying your retirement beyond FRA, you’ll increase the amount of benefit that you are eligible to receive. Depending upon your year of birth, this amount will be […]
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Arguments in Favor of a Rollover
Image via Wikipedia If you have a 401(k), 403(b), a (gasp!) tax-sheltered annuity or other qualified retirement plan from a former employer, you may have considered if it would be beneficial to leave it where it is, or perhaps enact a rollover to an IRA. While it might be easiest to leave the account where it is, it’s possible that you are sacrificing flexibility and/or paying higher fees in exchange for the easier path. Quite often, 401(k) plans (and other qualified retirement plans, QRPs) are restricted to managed mutual fund investment options. Managed funds often carry high expense ratios, often greater than 1% and more. As you know, if you’ve read much about index funds, it is possible to reduce most of your investing expense ratios to far below .5%, in some cases as low as .1% or less. Over the course of many years, reducing these expenses can have […]
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Book Review – Freedom From Wealth
This book is an excellent resource for folks who have been accumulating wealth over their lifetimes – wealth that is more than they need to live off of. Granted this isn’t everyone, but it’s probably a lot more of you than you think. You don’t need to be a Bill Gates to have these sorts of issues in your path. When you’ve worked your entire life to build up your wealth, you likely want to leave some of it to your children and grandchildren, but is it best to just hand it all over to them at your passing? What if you also hoped to make a difference in the world with your money – perhaps with charitable activities, or to help your offspring to establish their own place in the world, or to leave a legacy, a way that your name can live on? The first part of this […]
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Using an IRA Distribution and Withholding to Reduce Estimated Taxes
A little-known fact about how withholding works for IRA distributions can work in your favor. While withholding from a paycheck and estimated tax payments are credited as paid during the quarter actually paid, it’s different for withholding from an IRA distribution. When you have taxes withheld from a distribution from an IRA, no matter when it occurs during the calendar year, it is treated by the IRS as having been withheld evenly through the tax year. This means that if you had other income in the first quarter of the year, you could take care of the tax burden with a distribution from an IRA and withholding enough tax even in late December of the same year. So – many folks find themselves in this position, especially in years when income is is not equal in each quarter, or if the tax burden was not known or misunderstood throughout the […]
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2012 Bend Points for Social Security Retirement
Image via Wikipedia For those of you who aren’t quite up to snuff on the carnage that makes up the Social Security retirement benefit calculation, there are a couple of figures that are important to the calculation process called Bend Points. Bend Points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series. They’re called bend points because they represent points on a graph of your AIME in calculating the PIA, and they actually bend. If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA. Here, however, we’ll go over how Bend Points are calculated for each year. To understand this calculation, you need to go back to 1979, the year of the Three Mile Island […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.