Category: Roth IRA

Bonehead Mistakes Retirees Need to Avoid

With the excitement of retirement, money can be the last thing you would have on your mind. However, if you have a careless approach to your money, you can be headed for financial pain. 10-25-16

Starts at 60 recently published an article, “Three silly money mistakes retirees can make,” that identifies three big mistakes you could be making with your money as a retiree.

  1. Spending too much, too soon. It can be difficult to fight the urge to spend money when you’ve retired, but spending too much early on in your retirement has severe consequences. Not only does it make your wallet lighter, it also means you don’t get the returns the money could have made for you in the next five, ten or twenty years.

If you’re planning on retiring, plan well in advance. Review your superannuation, pension and savings to create a budget for your retirement. If you’re already retired and spending too much in the early days, see a professional and modify your budget and investments.

  1. Heeding the investment advice of family and friends. While they may only be trying to help, these folks may not be the best people to ask for financial and investment advice. Seek advice from a financial planner or investment advisor.
  2. Failing to plan your estate. Who wants to think about and plan for their death when they are busy enjoying retired life? However, failing to plan your estate could have consequences for your loved ones after you pass away. Without an estate plan, you might not be able to transfer your wealth to your family when you die. Plus, it can create a huge tax bill, meaning less for your spouse and family. Talk with an experienced estate planning attorney and take care of this ASAP.

Reference: Starts at 60 (September 6, 2016) “Three silly money mistakes retirees can make”

Create Your IRA Exit Plan


IRAs, 401(k)s, 403(b)s and other qualified accounts are popular tools for building a retirement nest egg. But after investing and saving with one of these plans for the last 30 years, as retirement nears you may ask yourself, "What should I do with my retirement account?"

The most common advice given is to withdraw as little out of your IRA as possible while taking your Required Minimum Distributions (RMDs). MarketWatch, in its recent article, “IRAs are for retirement planning, not for retirement,” suggests that we should think a bit outside the box before simply following the masses, with regards to your IRA and its RMDs.

If your money manager is advising you to let your IRA sit and only withdraw the RMDs, remember that typically, money managers are making 1-2% in fees on the total amount of money under their management. As such, the money manager has a vested interest in you keeping most of your money under his or her care.

Here are few ideas:

If tax rates increase, qualified accounts don’t give you any protection from future tax liability. If you’re like most Americans who think that taxes will increase in the next decade, do you want to wait for your retirement savings to be taxed at a higher rate? If you're between the ages of 59 and 70½, you are at the perfect spot to start an IRA Exit Plan.

Another consideration is the way in which you’ve titled your IRA and the beneficiary designations. Talk with a qualified estate planning attorney when designating your primary, contingent, and tertiary beneficiaries, as well as when titling an IRA.

Remember that when you set up a trust, your IRA cannot be retitled to your trust. This inability to change ownership of your IRA can lead to gaps in planning for Medicaid and Veteran Benefits. The quick solution is to overcome this by simply changing the IRA's beneficiary to their trust. But beware—there can be dire consequences if your beneficiaries of your IRA are not done properly.

Talk with an estate planning attorney to be certain that the IRA's beneficiary is a trust that qualifies as "See Through Trust,” or else it can cost your families thousands of dollars in taxes by making it instantly taxable upon your death.

There’s no better time to start preparing yourself, as well as your investments, for retirement. Create your IRA Exit plan so that when you enter retirement your assets will be as ready for retirement as you are.

Reference: MarketWatch (August 17, 2016) “IRAs are for retirement planning, not for retirement”

Old School Traditional IRA versus New School Roth

Money Magazine says that the generation gap has a new frontier: IRAs. The article, “Why Older Americans Should Get Hip to the Roth IRA,” says that the older you are, the more likely you are to favor a traditional IRA over a Roth IRA. However, older investors might want to look at what the youngsters are doing.

About a third of Roth IRA investors are younger than 40, compared to just 15% of traditional IRA investors, says research from the Investment Company Institute. At the same time, just 24% of Roth IRA investors are older than 60, compared to 39% of traditional IRA investors, according to IRA account data from 2007-2014. 9-23-2016

These skewed results developed naturally—as Roth IRAs have income eligibility limits for contributions, and traditional IRAs don’t (but there are limits on deductibility). Roth IRAs have appealed to younger, typically lower-paid workers for some time. Traditional IRAs, which have been around longer, see retirees rolling assets from their 401(k) plans into a traditional IRA. It is the rollover money that is the largest share of IRA growth.

A Roth IRA is funded with after-tax dollars, and that money grows tax-free. Plus, qualified distributions after age 59½ are also tax-free. With a traditional IRA, the investment is funded with pre-tax dollars. Typically, you receive an immediate tax deduction, and the money grows tax-deferred; however, distributions after age 59½ are taxable as ordinary income.

You’re not eligible to contribute to a Roth as a couple if your household income is more than $194,000—for singles, it’s $132,000. Also, contributions will phase out at slightly lower income levels. Nonetheless, even high earners can start a Roth by converting assets from a traditional IRA because—beginning in 2010—there’s no income limit on who’s eligible to convert to a Roth.

Uncle Sam says that you’ll owe ordinary income tax on any amount you convert. It’s generally not recommended to convert if you have to use converted funds to pay the tax. It would be a good time to consider a conversion when your income is down and you can convert at a lower tax rate—or when your investments have lost money, which would reduce your tax bill.

The reason for converting is—even though it’s not a given that your tax rate will go down in retirement—by saving with a Roth, there are fewer worries. A Roth conversion is also a great estate planning tool.

Speak with a qualified estate planning attorney about how a Roth IRA can fit into your estate strategy.

Reference: Money (August 8, 2016) “Why Older Americans Should Get Hip to the Roth IRA”