Kansas and Missouri Estate Planning

How can I Tame Taxes in Retirement?

Taxes are an unpleasant reality in retirement.

In retirement, you rely on the money you saved to become your income.

These sources could take a serious tax hit.

According to a recent Forbes article titled “Want To Cut The Taxes In Your Retirement Money?,” this can be minimized.

How so?

First, you need to understand different investments and how they are taxed.

Interest on CDs is taxed at your marginal tax rate.

This rate could be as high as 39.6 percent.

You could also use a tax deferred account to save for retirement.

A 401(k) or traditional IRA would fall into this category.

How are these taxes handled?

The savings will be not be taxed when deposited.

Instead, they will grow tax-free until you make withdrawals.

They will be taxed at your ordinary income tax rate at the time of the withdrawals.

How much can you contribute to these accounts?

For an employee sponsored account, you could save up to $18,500 each year.

Are you older than 50?

If so, you can contribute an additional $6,000 each year.

The amount you can save in a traditional IRA is far less.

These are capped at $5,500 per year with just a $1,000 catch-up contribution for those over age 50.

Not surprisingly, there are several rules specific to retirement accounts.

Withdrawals from these before age 59½ with incur a 10 percent penalty.

On the other hand, you will be penalized if you do not take your full Required Minimum Distributions (RMDs) after age 70½.

The penalty, you ask?

The penalty is 50 percent of the RMD you should have withdrawn, plus the income taxes on same.

Yikes!

Are there other options?

Possibly.

You may be eligible to save in a Roth IRA or a Roth 401(k) account.

If you make above a certain amount annually, you will be ineligible for one of these accounts.

With Roth IRAs or Roth 401(k)s, your deposits will be made after taxes.

This means your earnings and your withdrawals will not be taxed when withdrawn, unless you trigger a penalty.

You may still receive a penalty if you make withdrawals before age 59½.

However, this will only happen if you remove more than you contributed.

As you can see, there are several tools at your disposal for retirement planning.

Working with an experienced estate planning attorney and financial advisor can help you create a plan to best meet your tax-efficient retirement objectives.

Reference: Forbes (August 10, 2018) “Want To Cut The Taxes In Your Retirement Money?”

Can you Help Answer a Few 401(k) Questions?

Retirement planning can be overwhelming if you do not know where to start.

You are planning for your future retirement and estate.

Good work!

Taking these steps puts you far ahead of most of your American peers.

Let us take a look at a recent Kiplinger article titled “6 Answers to Your 401(k) Questions.”

401(k)s are a great retirement asset.

Still, you are not alone if you have questions.

What are some of the top questions asked?

How do I enroll?

This will depend on a few factors.

Does your employer have a retirement plan?

If so, does it include a 401(k) or a 403(b)?

Chances are your Human Resources department would have discussed your enrollment when you were hired.

Did you get hired before the retirement plan was in place?

You will likely have been called into a group meeting to explain the plan.

Be sure you work with HR to enroll.

Does your employer have a match?

Take full advantage of this.

If it does not have a match, you may want to go the personal route and set up your own traditional IRA or Roth IRA.

Should I choose a Roth or Traditional IRA?

Not all employers offer Roth plan options.

If you do have a choice, you will want to make the best decision for your unique circumstances.

With a traditional IRA, your taxes for the account are deferred until you withdraw money in retirement.

At that time you will be taxed on the contributions and on the gains.

With a Roth you are taxed before the money goes into the account.

When you withdraw funds you will not owe taxes on the contributions or the gains.

In short, you pay taxes now with the Roth and later with the traditional IRA.

A Roth is smart if you are eligible.

Why?

Because you will not pay taxes on the money in retirement.

If your income tax rate increases, the money in the account will not be subject to them.

How much do I contribute?

There will be IRS contribution limits and additional contribution limits for your company plan.

Be sure you are comply with these.

You should also contribute at least up to the company match.

This way you are maximizing the funding of your retirement savings.

Look at it as "free" money from your employer.

Considering contributing more?

Look at your budget and cash flow.

If you can afford to give more ... then, by all means, give more.

How should I invest?

Investments are not the same for every person or every stage of life.

You should consider a few primary factors:

1. Age,
2. Investment timeline,
3. Risk tolerance,
4. Fees,
5. Taxes,
6. Other available retirement assets, and
7. The amount you can contribute.

When do I change my investments?

Many people do not adjust their investment choices.

Although you may be able to get by with this, you should not neglect your account until your retire.

This would be unwise.

Available investments, life events and goals may change.

You will want to address your investment strategy to meet these changes.

Reviewing your investments annually is a good practice.

With a few of these main questions answered, the key is to get started.

Work with an experienced financial planner and estate planning attorney to make wise choices for your retirement future.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Kiplinger (June 2017) “6 Answers to Your 401(k) Questions”

Do You Need a Roth IRA for 2015?

It is common sense. One of the best things you can do in 2015 to set yourself up for financial success in the future is to be strategic with your savings.

Perhaps you should save as much money as you can in a Roth IRA?

According to a recent article at gobankingrates.com, titled “Why You Need a Roth IRA in 2015,” in the event of an emergency make sure you are able to withdraw your contributions at any time without incurring penalties or fees. This is also a terrific way to save for retirement, because you might be in a higher or lower tax bracket when you are in your 60s.

Who knows?

With a Roth IRA, typically you can withdraw money tax-free after age 59½. If you qualify for a Roth, you could save up to $5,500 in 2015, or $6,500 if you’re 50 or older.

Remember, you have until April 15th to make your contributions for 2014.

Another type of Roth account for retirement savings is a Roth 401(k). This version has no income limits. If your job has this type of retirement plan (many large employers are expected to offer a Roth 401(k) option in 2015), you can contribute up to $18,000 next year (or $23,000 if you are 50 or older).

Unlike a traditional IRA or 401(k), while Roth contributions will not reduce your taxable income, your overall tax savings (tax-free withdrawals) are likely to be much greater when you retire.

And that is not such a bad thing, yes?

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: gobankingrates.com (December 6, 2014) “Why You Need a Roth IRA in 2015”