It’s possible to separate the cream from the coffee – making a tax-free Roth conversion from mixed contribution IRA.
ira account
Avoid the Overweight Retirement Plan
While it’s generally a good idea to defer as much income as possible into your available IRAs, 401(k)s and Roth accounts, as with everything else in life, too much of a good thing can be a problem as well. When you have the bulk of your financial assets in retirement plans, you might accidentally expose yourself to some risks that you haven’t thought about… since retirement plan assets are much more likely to be impacted by changes to legislation – as we have seen in the past. In these days when Congress is looking for money just about everywhere, it’s not a stretch to imagine new legislation coming down the pike to tax retirement plan assets (like the excess plan accumulation tax that has been proposed). Other possibilities include accelerating required minimum distributions to achieve a faster payout taxation of the plan and eliminating the “stretch” provisions (this has already […]
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Contingent Beneficiary Designation
Designating a contingent beneficiary can be an important part of your overall wealth distribution plan. Learn more here.
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Roth Conversion and the Pro-Rata Rule
I received the following question from a reader. It’s a unique situation that you may find interesting, so I thought I’d share the interaction with you: Here’s my situation, this year I started with the following: (A) Rollover IRA (from rollover funds several years ago with no new funds added since. $157K was rolled over in 2020, but account is now valued at ~$146K). (B) Roth IRA (that was opened years ago with minimal amount, but no new funds added in the past decade due to income limitation). (C) Non-deductible (separate) traditional IRA account opened in 2016 with contributions deposited in each year, but have only been depositing NON-DEDUCTIBLE dollars (a total of $23K invested). However, the account was only worth ~$17K/$18K at the time I went to convert). In early 2022, after making the 2022 contributions, I converted the entire value of the non-deductible traditional IRA account to a […]
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IRA or 529?
After my post last week (Higher Education Expenses Paid From an IRA) I received a question from a reader: “If it’s possible to pay QHEE from an IRA then why would it be beneficial to contribute to a 529 specifically?” In today’s post I’ll cover the reasons you might choose an IRA or 529 plan. These two types of account will help you prepare for the twin future requirements of retirement and college expenses. As covered in the prior post, an IRA plan can be used in part to pay for college expenses. This is allowed in the Internal Revenue code, §72(t)(2)(E). So why would you choose to place funds in an IRA or 529 plan? Specifically, why would the 529 plan ever be superior to an IRA for this saving activity? Segregation One reason a 529 plan might make sense is to specifically segregate your education saving activities from […]
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Qualified Plan Rollovers
Combining and rolling over various retirement accounts is a decision that many individuals will face during their working career and in retirement. For individuals that are already retired, they may consider combining accounts to make required minimum distributions a bit easier (less paperwork, companies to deal with, etc.). Individuals that are still working may consider combining accounts as they switch jobs in an effort to consolidate plans from various employers to their IRA, Roth IRA or current employer plan. What follows are some considerations as well as a handy guide form the IRS regarding what rollovers and consolidations are allowed and specifics for each plan type. Be sure to check the fees of the plan you’re coming from to the plan you’re considering moving to. While consolidation may make sense, it may be a bad idea if the expenses of the plan and funds are higher in the plan you’re […]
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Traditional or Roth IRA?
If you’re thinking on starting and contributing to an IRA, you may be wondering which IRA is right for you. Generally, an individual has two IRAs to choose from – the traditional IRA and Roth IRA. This post provides some guidelines and information to help you make your decision. In some cases, based on your income, the decision is already made. In all cases, to contribute to an IRA an individual must have earned income. This is generally W2 wages, Schedule C income, and even alimony received. Let’s start with the traditional IRA. For 2016, the maximum annual contribution amounts is $5,500 for individuals under age 50 and those 50 and over are allowed an additional $1,000 catch-up for a total of $6,500 annually. This is also true for Roth IRAs. Also, the annual maximums are the total among all IRAs. That is, if an individual is under age 50, […]
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De-stress Your Investing
Over your working career is possible you’ll accumulate multiple retirement accounts if you switch jobs frequently and there’s also the possibility that you’ll have multiple IRAs depending on if you’ve moved switched advisers, or wanted to give a fledgling adviser their first sale. Eventually, annual statements start pouring in from all of these accounts and it can be difficult and stressful to keep track of all of the accounts and where your money is being held. For example, you may have to 401(k) plans from two previous employers in addition to the plan you have with your current employer. You may also have two or three IRAs that you’ve opened over the years and whether or not their traditional or Roth can complicate things even more. Here’s a way to organize your retirement account and reduce your stress when it’s time to receive statements. Consider combining your old 401(k) plans […]
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What is a QLAC?
In July of 2014 the IRS issued final regulations regarding the allowance of qualified longevity annuity contracts in employer sponsored plans such as 401ks, 403bs and 457b plans as well as IRAs. What it Means and What it Means to You QLAC stands for qualified longevity annuity contract. This means that a person is allowed to take up to 25% of their overall account balance but not more than $125,000 in their retirement plan and use that money as premium to fund a longevity annuity contract. Additionally, the annuitant must start the annuity by no later than the first day of the month following the attainment of age 85. They can however, start earlier. In a 401k, 403b or 457b plan a QLAC can be purchased up to the maximum of $125,000 across all accounts (IRAs included), but not more than 25% of the account balance per plan.
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Happy 40th Anniversary, IRA!
This year marks the 40th anniversary of the Individual Retirement Arrangement (IRA). In 1974 via the ERISA law, Congress made this new type of retirement plan available for employees whose employers who could not provide them with the traditional type of retirement plan. In 1981, the plans were made generally available to all taxpayers. The Tax Reform Act of 1986 limited the deductibility of IRAs by income. 1997 saw the launch of the Roth IRA, as a part of the Taxpayer Relief Act of 1997. This type of IRA came with no deductibility, but earnings (and contributions) would be tax free upon distribution, following the rules associated with the accounts. With the exception of changes to limits of contributions, income limits, and catch-up provisions, little has changed for these accounts since 1997, with the exception of the introduction of the Roth-IRA-like myRA account that was established in 2014 for the […]
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The Cost of Waiting
Procrastination is a silent and slow killer. Everyone, including yours truly, is guilty of putting things off, waiting until the last minute and then scurrying around frantically to get done what we could have easily gotten finished weeks or months ago if we would have either planned ahead or simply started. Let me give you an example. Last year my wife and I were debating whether or not to have a tree removed from our back yard. The culprit is the much loathed sweet gum tree that is common in this area of the country. Readers familiar with this pariah of the deciduous family of trees recognize it with annoying “gumballs” that are far from being smooth but rather are the sharp and pointy fruits that fall relentlessly from the tree mainly in the fall and work wonders on mower blades and bare feet. Needless to say they are a […]
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How Much Do I Need to Save: Part II
Last week I gave some general indications on how much someone needed to save. We used general percents and some basic numbers but this week I want to actually put those numbers to work. For example – let’s say we have a 30 year old couple that says they would like to have $3,000,000 saved at retirement (assume their both the same age and will both retire at 65). We’ll also assume that they have not started saving yet. Using a 5% compounded annual rate of return this couple would need to save about $2,640 per month for 35 years in order to hit their goal. If we assume they’ve amassed $50,000 by age 30, then they only need to save $2,388 per month. If we use the $2,388 as our savings made at 10% that means our annual income for the couple is about $286,560. Using the same amount […]
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The One-Rollover-Per-Year Rule: Revised
In a surprising decision, US Tax Court has ruled that the One-Rollover-Per-Year rule applies to all IRAs, rather than to each IRA separately as was previously thought. IRS Publication 590, Individual Retirement Arrangements (IRAs), has the following information in regard to the one-rollover-per-year rule: Waiting period between rollovers. Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. The use of the term “that same IRA” has always been taken to mean that the rule applies […]
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Annuities – Fees, Expenses, and Taxes
Last week we covered some of the differences in annuities and the various types of annuities someone can purchase. In our final annuity installment (no pun intended) I want to explain some of the fees and expenses that some annuities and annuity providers employ. As mentioned in my first annuity article annuities are an insurance product – insuring against living too long. Most companies that offer annuities will charge for this insurance by means of what are called mortality and expense charges. M&E charges can be as low as .25% to as high as over 2%. These charges are the expenses the annuity company charges to the entire risk pool of policyholders in order to pay for the few that will outlive their life expectancy. Most policyholders and annuitant will not outlive their life expectancy and thus pay for those that do. M&E charges will also help the annuity company […]
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IRA Options Between Ages 60 and 70
There are lots of articles around that speak to what you can and cannot do with your IRA before you reach age 59½, and more that address what you must or must not do with your IRA after you’ve reached age 70½. But what can you do in the interim period? Surprisingly, you have all the control you may wish for. After you’ve reached age 59½, you are free to take withdrawals from your traditional IRA with no penalties. You will have to pay tax on any withdrawal from the IRA, but otherwise there’s no downside to taking money out of the account. For a Roth IRA, of course there’s no tax on the withdrawal. You’re free to take as much as you like (or as little) at any time. Of course, these withdrawals from either type of account, Roth or traditional, will forever remove the funds from the tax-protected […]
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 
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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”.