Keller Public Library Free Retirement Workshop
March 29, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
Your Retirement Savings Game Plan
Free Workshop at Keller Public Library on Tuesday, April 20 at 6:30 pm.
Designed for individuals and couples who are pre-retirement, we will cover how much you need to save for retirement and the best types of accounts to use for different situations for investment options and tax efficiency. We will also go through some worksheets to determine if you are on track with your current level of retirement savings. Space is limited and registration is encouraged to ensure your space. RSVP to tchiv@cityofkeller.com.Non-Deductible IRA Contributions: Good Idea?
March 25, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
If your income is over the limit for deductible and Roth IRA contributions, you are faced with a dilemma each year: should you contribute to a non-deductible IRA? Making a non-deductible contribution shouldn’t be an automatic decision. It could be beneficial, or investing the same amount of money in a taxable account could be a superior choice.
Like most decisions in personal finance, there’s not one right answer for everyone.
Non-Deductible IRA contribution benefits:
- Your earnings grow on a tax-deferred basis. This means that you can reinvest all of your dividends and capital gains without paying taxes on them as you go. You are also free to buy, sell, and rebalance investments in your account without tracking each investment’s cost basis, gain, or loss for income tax purposes.
- There’s a psychological benefit to putting money in a retirement account for many people – you may be less likely to tap into the funds if you know there would be penalties.
- Non-deductible contributions create Roth conversion opportunities with less tax owed than if the entire conversion were pre-tax.
Non-deductible IRA contribution drawbacks:
- Your earnings when withdrawn will be taxed at regular income tax rates rather than capital gains tax rates. Right now capital gains rates are 15% for those in the 25% and higher tax brackets and are scheduled to go to 20% next year. So if you’re instead paying 35% or higher income tax on the withdrawals, that’s a big hit.
- Loss of flexibility – if you withdrawal the funds before 59 ½, you will be subject to penalties unless you qualify for an exception.
So how do you decide if it makes sense for you?
First – Consider what your tax bracket is pre-retirement and what it will likely be in retirement.
To do this, you or your financial planner will need to consider your likely sources of income in retirement and their tax status. You also need to make some assumptions about future tax rates — of course no one has a crystal ball, so an educated guess is the best you can do with this aspect.
- If you think your tax bracket will be the same, higher, or just slightly lower in retirement, then non-deductible contributions are likely not a good move for you (unless one of the other benefits applies).
- If your tax bracket will be a lot lower in retirement – like moving from 28% to 15%, then non-deductible contributions should definitely be considered.
After you’ve answered the first question, then you should consider possible Roth IRA conversion opportunities. If you don’t have other assets in traditional or roll-over IRAs, you can make non-deductible contributions and convert them to Roth IRAs with only taxes owed on the growth between contribution and conversion. This can be a very beneficial technique to get assets into a Roth IRA even when your income exceeds the Roth contribution limits. There are very specific rules for conversions, so it’s important to consult with your financial or tax advisor to make sure you follow them correctly.
Lastly, if your decision still isn’t clear, consider the loss of flexibility. Depending on your money personality, this can be a positive or a negative. The positive is less temptation to tap into retirement funds early. The negative is the penalties for doing so. You need to know yourself and know whether the loss of flexibility is good or bad for your situation.
Bottom line, don’t put your non-deductible IRA contribution on auto-pilot. It’s important to do the analysis because your decision can affect how quickly your assets grow and how much income you have in retirement.
March 2010 Newsletter
March 9, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
The March 2010 Newsletter is now available. It includes an investment market update, Part II in my series on how to tap into your home equity in retirement, considerations in evaluating an early retirement offer, information on 2009 tax deduction for 2010 Haitian relief contributions, 2011 tax rate proposals found in the federal budget, credit card act provisions, and a reminder on the deadline to take advantage of the home buyers credit. Click here to read it.
Motley Fool Endorses Garrett Planning Network
March 3, 2010 by Jean Keener, CRPC, CFDP · 3 Comments
I’m writing to let you know about an exciting new development in my business. The Motley Fool has exclusively endorsed and is promoting the services of financial advisors affiliated with the Garrett Planning Network, the international organization of fee-only financial advisors with which I am proud to be associated.
The Motley Fool has long admired Garrett’s approach to fee-only financial advice. And we are fans of The Fool’s
approach to everything they do to educate, empower and amuse the public and their members about investing. Garrett, The Motley Fool and I share a commitment to make trustworthy financial advice accessible to everyone.
The Motley Fool is one of the most admired financial brands in the world. Each month, 4 million unique visitors visit its website at Fool.com. At the core of The Fool’s business model are hundreds of thousands of premium members—many enjoying subscriptions to multiple investment newsletters. Clearly, the company is fulfilling its quest to broaden access to winning financial advice, and I am delighted to have access to all of these resources through our partnership with The Motley Fool. (If you’re not familiar with The Motley Fool, please find some additional information below.)
While there’s no doubt that The Motley Fool’s advisory services are answering a great need among individual investors, the company came to recognize that many of its members yearn for more hands-on help managing life’s complex financial decisions—especially in light of the recent rollercoaster stock market. The Fool decided it was time to look at expanding into the direct financial advice category.
Rather than building a financial advisor network from scratch, The Fool kicked off a search for a well-established, like-minded outfit with similar values with which to partner. I am delighted that they found a new match in an old friend—the Garrett Planning Network! As we know well, when it comes to financial planning, Garrett advisors offer the same kind of trustworthy, transparent, and community-driven advice that The Fool has built its business on. The Garrett-Motley Fool relationship has the makings of a great partnership.
Thanks for reading, and thanks for your support. Please don’t hesitate to contact me with your questions.