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Retirement Planning

Over the course of time we come across articles that we feel like would benefit our clients. Below are some recent articles that we would like to share with you. Click on the articles below to help you increase your financial literacy in the world of Retirement Planning. Enjoy!

Have a 401(k) Plan at a Former Employer?

Here are some options for getting the most out of multiple retirement accounts

You may have had multiple jobs over your career, and left behind retirement account balances of critical building blocks for your retirement. Here is a short guide to your options of what to do with a retirement account left with a former employer:

Roll it over to an IRA

  • A rollover IRA allows you to continue any tax-deferred growth.
  • A direct rollover IRA helps you avoid current taxes and early withdrawal penalties.
  • You retain flexibility to select investments that fit your specific needs.
  • A rollover IRA allows you to consolidate your retirement assets in one convenient place when you change jobs or decide to retire.

Leave it in your plan

  • Leaving your account in your former plan lets you continue any tax-deferred growth.
  • As long as you don’t take money out before age 59½, you avoid federal income taxes and a 10% early withdrawal penalty.
  • You always have the option to move your savings to another retirement plan later.
  • You have continued access to your plan and its investment options, which may be perfectly suitable for your needs.
  • You may be protected from creditors.
  • You may benefit from lower fees than you would pay in other options.

Transfer it to your current qualified plan (401k, 403b)

  • Transferring your account to your current plan lets you avoid current taxes, early withdrawal penalties, and continues any tax-deferred growth.
  • Depending on your plan, you may be able to consolidate other retirement assets in one account.
  • Your current plan may allow you to borrow from your account (although this generally is not recommended).
  • You may be protected from creditors.
  • You may benefit from lower fees than you would pay in other options.

You also have the option to take a withdrawal from your qualified plan account. Taking money now means you will have money right now, but it could come at a price of an early withdrawal penalty and taxes due.

Have more questions? Consult your benefits administrator or advisor for guidance on the option that’s most appropriate for your individual circumstances.

 

 

Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

 

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

 

© 2018 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.

 

Americans are living longer, healthier lives, and this trend is affecting how they think about and plan for retirement. For instance, according to the Employee Benefit Research Institute, the age at which workers expect to retire has been rising slowly over the past couple of decades. In 1991, just 11% of workers expected to retire after age 65. Fast forward to 2017, and that percentage has tripled to 38%.1

Working later in life can offer a number of advantages. Many people welcome the opportunity to extend an enjoyable career, maintain professional contacts, and continue to learn new skills.

A Financial Boost

In addition to personal rewards, the financial benefits can go a long way toward helping you live in comfort during your later years. For starters, staying on the job provides the opportunity to continue contributing to your employer-sponsored retirement plan. And if your employer allows you to make catch-up contributions, just a few extra years of saving through your workplace plan could give your retirement nest egg a considerable boost, as the table below indicates.

A Few Extra Years Could Add Up

Year

Maximum Annual Contribution

Catch-Up Contribution for Workers Age 50 and Older

Total Annual
Contributions

2018

$18,500

$6,000

$24,500

Delaying Distributions

In addition to enabling you to continue making contributions to your employer’s plan, delaying retirement may allow you to put off taking distributions until you do hang up your hat. Typically, required minimum distributions (RMDs) are mandated when you reach age 70½, but your employer may permit you to delay withdrawals if you work past that age.

Keep in mind that if you have a traditional IRA, you are required to begin RMDs by age 70½, while a Roth IRA has no distribution requirements during the account holder’s lifetime — a feature that can prove very attractive to individuals who want to keep their IRA intact for a few added years of tax-deferred investment growth or for those who intend to pass the Roth IRA on to beneficiaries.

A Look at Social Security

Your retirement age also has a significant bearing on your Social Security benefit. Although most individuals are eligible for Social Security at age 62, taking benefits at this age permanently reduces your payout by 20% to 30% or more. Waiting until your full retirement age — between 66 and 67 — would allow you to claim your full unreduced benefit. And for each year past your full retirement age you wait to claim benefits, you earn a delayed retirement credit worth 8% annually up until age 70.2 Consider researching your options to continue working past the traditional retirement age. By remaining on the job, your later years may be more secure financially and more rewarding personally.

 

Source/Disclaimer:

1Employee Benefit Research Institute, 2014 Retirement Confidence Survey, March 21, 2017.

2Social Security Administration. The benefit increase no longer applies when you reach age 70, even if you continue to delay taking benefits.




The Roth 401(k) resembles the Roth IRA in that contributions are made with after-tax dollars and qualified withdrawals can be made tax free. But, as the name implies, it also is subject to many of the rules affecting traditional 401(k) plans.

If your employer offers a Roth 401(k), there are rules concerning this retirement saving vehicle that you should be aware of. In particular, if you anticipate making a job change or retiring in the near future, you’ll want to pay close attention to the rules governing distributions from Roth 401(k)s — how they differ from regular 401(k)s and how they are the same.

Does Your Roth Distribution Qualify for Tax-Free Treatment?

Like the Roth IRA, distributions from a Roth 401(k) are tax free and penalty free if the owner meets the requirements for a qualified distribution. Specifically, qualified distributions must be made:

·         After the participant reaches age 59½ or in the event of the participant’s death or disability, AND

·         After the participant has held the account for at least five tax years.

Distributions that do not meet these requirements are nonqualified distributions and are subject to income taxes and possibly penalties.

What Are Your Roth Rollover Options?

For employees who leave a job where they had been contributing to a Roth 401(k), the IRS provides two choices for managing those assets: roll the account balance into another employer-sponsored retirement plan that accepts such rollovers or roll the account into a Roth IRA. Both options generally have no tax consequences. Alternatively, if you cash in your Roth 401(k) and you fail to meet the requirements for a qualified distribution, you will have to pay taxes on the portion of the distribution that represents earnings and possibly a 10% additional federal tax.

What About Minimum Distributions?

Roth 401(k)s have the same minimum distribution requirements as traditional 401(k)s: participants generally must begin taking minimum distributions after they reach age 70½. However, because Roth IRAs do not require account holders to take distributions during their lifetime, you may choose to avoid the minimum distribution requirements by rolling your Roth 401(k) over into a Roth IRA. In addition, individuals can continue to make contributions to a Roth IRA beyond age 70½ as long as they have sufficient earned income.

Other Tax Considerations

Because contributions to a Roth 401(k) are taxed at the time of the contribution, such an account might be attractive to individuals who believe that tax rates may go up in the future or who expect their own income to increase significantly over time (e.g., younger workers). By locking in today’s tax rates, these workers can create a hedge against potential future tax increases.

In addition, depending on their tax bracket and number of years until retirement, highly compensated workers may benefit from going the Roth 401(k) route, particularly if they have been shut out of contributing to a Roth IRA due to its income limitations. For 2018, eligibility to make Roth IRA contributions begins to phase out at modified adjusted gross income (MAGI) of $120,000 for single taxpayers and $189,000 for married individuals filing jointly.

 

 Disclaimer

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

 Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

 

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

The Social Security Administration (SSA) has had, since 2014, an online option (called my Social Security) for receiving annual benefit statements — however, if you do not wish to open an account, you may still estimate your Social Security benefits. Until 2011, the SSA had sent all working Americans a printed annual statement roughly three months before their birthday. The statement included one’s lifetime earnings record, as well as estimates of retirement, disability, and family survivor benefits. It also reported earned credits, which indicated if one would qualify for Medicare at age 65.

You may estimate your Social Security benefits by using one of the following tools on SSA.gov:

  • The Retirement Estimator gives estimates of your retirement monthly benefit, based on your actual Social Security earnings record. The calculator shows early (age 62), full (ages 65-67 depending upon your year of birth), and delayed (age 70). The Retirement Estimator also lets you create additional “what if” retirement scenarios based on current law.
  • If you do not have an earnings record with Social Security or cannot access it, there are also other benefit calculators that do not tie into your earnings record. The calculators will show your retirement benefits as well as disability and survivor benefit amounts if you should become disabled or die.

If Social Security is a part of your retirement income planning, make a point of checking your estimated benefits at least annually so you know how much to expect — and how much you’ll need to provide from your own savings.

Also, remember that Social Security benefits don’t automatically increase every year. They typically are raised to reflect an increase in inflation.

Required Attribution
Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

 

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

As more Americans shoulder the responsibility of funding their own retirement, many rely increasingly on their 401(k) retirement plans to provide the means to pursue their investment goals. That’s because 401(k) plans offer a variety of attractive features that make investing for the future easy and potentially profitable.

What Is a 401(k) Plan?

A 401(k) plan is an employee-funded savings plan for retirement. For 2018, you may contribute up to $18,500 of your salary to a special account set up by your company, although individual plans may have lower limits on the amount you can contribute. Individuals aged 50 and older can contribute an additional $6,000 in 2018, so-called “catch-up” contributions.

How Are 401(k) Plans Taxed?

401(k) plans come in two varieties: traditional and Roth-style plans.

With a traditional 401(k) plan, you may defer taxes on the portion of your salary contributed to the plan until the funds are withdrawn in retirement, at which point contributions and earnings are taxed as ordinary income. In addition, because the amount of your pretax contribution is deducted directly from your paycheck, your taxable income is reduced, which in turn lowers your tax burden.

A Roth 401(k) plan features after-tax contributions but tax-free withdrawals in retirement. Under a Roth plan, there is no immediate tax benefit. However, plan balances have the potential to grow tax free; you pay no taxes on qualified distributions.

Matching Contributions

One of the biggest advantages of a 401(k) plan is that employers may match part or all of the contributions you make to your plan. Typically, an employer will match a portion of your contributions, for example, 50% of your first 6%. Under a Roth plan, matching contributions are maintained in a separate tax-deferred account, which, like a traditional 401(k) plan, is taxable when withdrawn. Total contributions, including employee and employer portions, cannot exceed $55,000 in 2018. Note that employer contributions may require a “vesting” period before you have full claim to the money and their investment earnings.

Distributions

Both traditional and Roth plans require that distributions be taken after 59½ (or age 55 if you are separating from service with the employer from whose plan the distributions are withdrawn), although there are certain exceptions for hardship withdrawals. If a distribution is not qualified, a 10% IRS additional federal tax will apply in addition to ordinary income taxes on all pretax contributions and earnings.

When You Change Jobs

When you change jobs or retire, you generally have four different options for your plan balance:

  1. Keep your account in your former employer’s plan, if permitted;
  2. Transfer balances to your new employer’s plan;
  3. Roll over the balance into an IRA;
  4. Take a cash distribution.

The first three options generally entail no immediate tax consequences; however, taking a cash distribution will usually trigger 20% withholding, a 10% additional federal tax if taken before age 59½, and ordinary income tax on pretax contributions and earnings.

Borrowing From Your Plan

One potential advantage of many 401(k) plans is that you may borrow as much as 50% of your vested account balance, up to $50,000. In most cases, if you systematically pay back the loan with interest within five years, there are no penalties assessed to you. If you leave the company, however, you may have to pay back the loan in full immediately, depending on your plan’s rules. In addition, loans not repaid to the plan within the stated time period are considered withdrawals and will be taxed and penalized accordingly.

Choosing Investments

Most plans provide you with several options in which to invest your contributions. Such options may include stocks for growth, bonds for income, or cash equivalents for protection of principal. This flexibility allows you to spread out your contributions, or diversify, among different types of investments, which can help keep your retirement portfolio from being overly susceptible to different events that could affect the markets.

 

401(k) Advantages

  • Pretax contributions and tax-deferred earnings on traditional plans
  • Tax-free withdrawals for qualified distributions from Roth-style plans
  • Choice among different asset classes and investment vehicles
  • Potential for employer matching contributions
  • Ability to borrow from your plan under certain circumstances

A 401(k) plan can become the cornerstone of your personal retirement savings program, providing the foundation for your financial future. Consult with your plan administrator or financial advisor to help you determine how your employer’s 401(k) plan could help make your financial future more confident.

Source/Disclaimer: Stock investing involves risk, including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise, and bonds are subject to availability and change in price. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund may seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Diversification and asset allocation do not ensure a profit or protect against a loss.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Required Attribution Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Should you convert all or a portion of your traditional IRA assets to a Roth account? The answer may depend on the amount of time you plan to leave the assets invested, your estate planning strategies, and your willingness to pay the federal income tax bill that a conversion is likely to trigger.

Two Types of IRAs

Each type of IRA has its own specific rules and potential benefits. These differences are summarized in the table below.

 

Traditional IRA

Roth IRA

Maximum Annual Contribution

The lesser of 100% of earned income or $5,500 for single taxpayers and $11,000 for couples filing jointly for 2017. An additional $1,000 “catch-up” contribution is permitted for each investor aged 50 and older who has already made the maximum annual contribution.

Same as traditional IRA

Income Thresholds for Annual Contributions

None, as long as the account holder has taxable compensation and is younger than age 70½ by the end of the year.

Single taxpayers with MAGI in excess of $133,000 and married couples filing jointly with MAGI in excess of $196,000 are not eligible in 2017. Income thresholds are indexed annually.

Deductibility of Contribution

Yes, if account holder meets requirements established by IRS.

No. Contributions are made with after-tax dollars.

Contributions After Age 70½

No contributions allowed after age 70½.

Contributions allowed after age 70½ if owner has earned income.

Required Minimum Distributions (RMDs) After Age 70½

Lifetime RMDs are required.

Not required during the original IRA owner’s lifetime.

Taxes on Distributions

Distributions are taxed as ordinary income to the extent taxable. Withdrawals before age 59½ may also be subject to a 10% additional federal tax.1

Qualified distributions are tax free. Withdrawals from accounts held less than five years and before age 59½ may be subject to taxes and a 10% additional federal tax.1

Conversion: Potential Benefits . . .

Potential benefits of converting from a traditional IRA to a Roth IRA include:

  • A larger sum to bequeath to heirs. Since lifetime RMDs are not required for Roth IRAs, investors who do not need to take withdrawals may leave the money invested as long as they choose which may result in a larger balance for heirs. After an account owner’s death, beneficiaries must take required minimum distributions, although different rules apply to spouses and nonspouses.
  • Tax-free withdrawals. Even if retirees need withdrawals for living expenses, withdrawals are tax free for those who are age 59½ or older and who have had the money invested for five years or more.

. . . As Well as a Potential Drawback

  • Taxes upon conversion. Investors who convert proceeds from a traditional IRA to a Roth IRA are required to pay income taxes at the time of conversion on investment earnings and any contributions that qualified for a tax deduction. If you have a nondeductible traditional IRA (i.e., your contributions did not qualify for a tax deduction because your income was not within the parameters established by the IRS), investment earnings will be taxed, but the amount of your contributions will not. The conversion will not trigger the 10% additional tax for early withdrawals.

Which Is Right for You?

If you have a traditional IRA and are considering converting to a Roth IRA, here are a few factors to consider:

  • A conversion may be more attractive the further you are from retirement. The longer your earnings can remain invested, the more time you have to help compensate for the associated tax bill.
  • Your current and future tax brackets will affect which IRA is best for you. If you expect to be in a lower tax bracket during retirement, sticking with a traditional IRA could be the best option because your RMDs during retirement will be taxed at a correspondingly lower rate than amounts converted today. On the other hand, if you anticipate being in a higher tax bracket, the ability to take tax-free distributions from a Roth IRA could be an attractive benefit.

There is no easy answer to the question “Should I convert my traditional IRA assets to a Roth IRA?” As with any major financial consideration, careful consultation with a financial professional is a good idea before you make your choice.

Source/Disclaimer: 1IRA account holders (both traditional and Roth) may avoid the 10% additional federal tax on withdrawals before age 59½ only if they meet specific criteria established by the IRS. See Publication 590-A for more information.

 

Required Attribution Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

 

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.