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Tag: Retirement planning

What Does the Required Minimum Distribution Mean?

You spent decades saving for retirement. A long time ago, you understood and took to heart the advice about the importance of your retirement savings. You’ve just turned 70, and you’re proud of your financial achievements.

You worked hard; you sacrificed, and now you’re retired and doing well enough so that you don’t have to take money from your retirement savings. After all, you’re still healthy and strong, and you’d prefer to let your retirement investments grow even more. And, besides, you don’t really need it right now.

The truth is, federal rules require you to begin making regular withdrawals from certain retirement savings accounts once you reach 70½. It’s called the Required Minimum Distribution, and it’s the minimum you have to withdraw per year. In other words, you don’t have a choice.

The RMD rule applies to certain plans.[i]

Once you reach 70½, you have to start making withdrawals from IRAs, SIMPLE IRAs, SEP IRAs, and other retirement accounts. Roth IRAs are exempt from the requirement until the account owner dies.

Here are two important provisions:

  • You may withdraw more than the minimum required amount.
  • Withdrawals are normally considered taxable income. Exceptions include money that was previously taxed (basis), is considered tax free (Roth distributions), and Qualified Charitable Distributions (QCDs).

Calculating the RMD.

You calculate the RMD for a year by dividing the account balance at the end of the preceding calendar year by the number from an IRS distribution table (“Uniform Lifetime Table”). For more information, go to https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets.

The link directs you to select between two options:

  • A worksheet to calculate your withdrawal if your spouse is more than 10 years younger than you.
  • A worksheet for everyone else.

Date to receive RMD.

The date to receive your first distribution varies depending on the type of retirement account.

For IRAs (including SEP and SIMPLE IRAs), it’s April 1 of the year following the year when you reached 70½. So, if you reach 70½ in 2019, you have until April 1, 2020.

For 401(k), profit-sharing, 403(b), and other defined contribution plans, it’s the same as mentioned above or when you retire, whichever is later.

Dates to receive successive RMDs.

You must make account withdrawals every year by December 31. The calendar year after you reach 70½ you may have to make two withdrawals, by April 1 and another by December 31. To avoid having to pay taxes on both those payments, you may take the first withdrawal in the year you reach 70½ before December 31. That way the income falls into two separate tax years.

Penalties for waiting to take withdrawals.

If you don’t take withdrawals or don’t take adequate amounts, you may face 50% excise taxes on the amounts that are not distributed.

The government may require you to report the excise tax by filing “Form 5329.” “Form 5329 instructions” provides additional information about the excise tax.

If you would like to discuss your current financial needs, we’re happy to talk. Please contact us (800) 929.1001.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

 

[i] https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

The Importance of Setting Financial Goals

We should understand the value of setting financial goals. Goals serve as stepping stones to achieving your dreams. Saving for retirement is a top priority for many people since some analysts suggest you may need as much as $1 million to retire comfortably.[i]

But what about those intermediate goals, the ones you set along the way to retirement? Are you setting aside adequate money to build those funds?

Here are some intermediate goals you should consider as you make your way to retirement:

Build an emergency fund.[ii]

Experts say you should accumulate three months of living expenses. If you have $4,000 in monthly expenses, for example, you should shoot for $12,000. Six months is even better. That would come to $24,000 in your emergency fund. The ideal goal is to have 12 months covered.

Eliminate debt.[iii]

This is a lofty and worthy goal, especially since many Americans are living beyond their means. The average American household debt is $137,063, while the median household income is $59,039. Analysts warn that debt, especially with credit cards, is a disaster waiting to happen. “We simply can’t keep taking on credit card debt forever without it causing major problems,” said Matt Schulz, CreditCards.com’s senior industry analyst. “This record [debt] probably won’t be a major tipping point, but it likely isn’t too far off.”[iv]

Start planning early for retirement.

That may seem similar to the goal of implementing a responsible retirement strategy. But this one instills the importance of retirement saving into your financial planning. Unanticipated circumstances may derail an otherwise well-designed retirement strategy. Financial setbacks, ill health, or family challenges may require you to put on hold budget priorities. The adage applies. It’s better to plan early and be overprepared than to let life catch you by surprise.

Examine your insurance needs.

Life happens. And insuring yourself against worst-case scenarios is very important. Here are five policies you should consider having:[v]

  1. Long-term disability insurance allows you to maintain your current lifestyle if you become disabled.
  2. Life insurance may ensure your family’s financial needs are met if you or your spouse dies. A good way to estimate your coverage levels is to determine how long you’ll work and how much you’ll make per year. Add burial costs into your calculations.
  3. Health insurance is a must as medical costs continue to rise. Hospital visits, surgeries, and other treatments can rise quickly into the 5-digit cost range.
  4. Homeowner’s insurance will help you replace your house and its contents after a disaster. Check with local builders to get estimates on square footage construction costs.
  5. Automobile insurance is required in many states. Crashes can happen quickly and unexpectedly. Costs in damage and liability can be considerable.

If you would like to discuss your current financial needs or review your current policies, we’re happy to talk. Please contact us 800.929.1001.

Click here to read more  about setting financial goals.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.cnbc.com/2018/04/11/how-to-figure-out-how-much-money-you-need-to-retire.html

[ii] https://www.thebalance.com/how-much-should-i-have-in-my-emergency-fund-2388353

[iii] https://www.usatoday.com/story/money/personalfinance/2017/11/18/a-foolish-take-heres-how-much-debt-the-average-us-household-owes/107651700/

[iv] https://www.washingtonpost.com/business/us-consumer-debt-is-at-a-record-high-havent-we-learned/2017/08/11/5c7bee6e-7e13-11e7-a669-b400c5c7e1cc_story.html?utm_term=.e0f142779450

[v] https://www.investopedia.com/insurance/insurance-policies-everyone-should-have/

Tips for Building and Protecting Your Retirement Income

Tips for Building and Protecting Your Retirement Income

The creative team for real estate developers came up with the term “the golden years” in 1959 as part of a pitch to sell homes in the nation’s first large-scale retirement community. Developers of the $2 million golf resort in the middle of an Arizona desert were hoping to sell the idea of “an active new way of life” for people approaching retirement.[i] Their idea worked.

The “golden years” refers to the years of retirement, normally after age 65. Making the golden years truly golden involves having relatively good health, adequate income, and a meaningful life.

While good health and living meaningfully depend on lifestyle choices and sometimes heredity, maintaining or generating adequate retirement income requires prudence and well-laid financial plans.

Risk Management and Growth Strategies for Your Retirement Income

Here are six ways for managing your money in retirement:[ii]

  1. Cut investment expenses and fees. You can potentially increase your income by reducing your outgo. If you have income from mutual funds, look for hidden fees. You may have fees for fund management, transactions, and loads. Get with your financial advisor to examine the lowest-cost options for your investment funds.
  2. Take a look at how your investments are taxed. You may want to consider moving your investments with the highest possible tax liability to tax-deferred accounts and those investments with the lowest taxable liability to taxable accounts. Keep in mind that this may involve transactional fees. Investors should consult with their tax advisor regarding the tax consequences of investing.
  3. Catch-up contributions are one way to build your retirement fund quickly. Annual contributions to tax-deferred accounts are limited, but once you reach the age of 50, you’re allowed to add more into your retirement account. Once you’re 55, you can also make catch-up contributions to your health savings account.
  4. Although Social Security income is only supposed to be part of your retirement income, you can boost your benefits by waiting to apply. Full retirement age, when you’re eligible to receive 100% of your designated benefit, is currently 66 or 67. You get about an 8% increase per year by waiting until you’re 70. For healthy older workers, this is an excellent way to boost your annual Social Security benefit by up to 24%.
  5. Part-time work for retirees is becoming an increasingly attractive option to boosting retirement income. Part-time employment may also improve your quality of life in retirement.[iii]
  6. Paying off your debt before you retire helps to bolster retirement income. Unfortunately, it’s becoming more commonplace for workers to enter retirement with mortgage or credit card debt. If you aren’t retired, you should consider making debt elimination a priority.

If you would like to talk more about your options, please give us a call at 800.929.1001.

Financial & Estate Planning

[i] http://rowleylegal.com/2014/08/03/the-term-golden-years-was-coined-in-1959-as-an-advertising-pitch-for-sun-city/

[ii] https://www.cnbc.com/2018/06/12/4-easy-ways-to-increase-your-retirement-income.html

[iii] https://www.fool.com/retirement/2018/02/04/boost-your-retirement-income-with-these-6-tips.aspx

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