There are a couple of options to pay for a Roth IRA conversion. You could pay the tax out of the conversion proceeds. That’s taking a direct hit on your retirement today, but confirming that you’ll be able to recapture the taxes paid during retirement can make it a reasonable economic transaction. And not just a marginal recapture of taxes paid, but one that includes the time value of money. If you are age 62 or older and have equity in your home, you could apply for a Home Equity Conversion Mortgage (HECM) appreciating line of credit. Unlike the traditional HELOC lines of credit, seniors can use monies from the HECM appreciating line of credit to fund anything without repayment. There are rules here in addition to being at least age 65. The house utilizing the HECM appreciating line of credit must be your prime residence and most advisers recommend staying in the home for life. If you sold your home the equity loans would be deducted from the sale of the house. Another option germane to Baby Boomers is starting a home business or small business in the community. The start-up costs of a new business with the purpose   Read more…

The following considerations should be weighed before converting qualified monies to Roth IRAs. 1) You need to determine your adjusted gross income (AGI) and, for some, your modified adjusted gross income (MAGI) after applying all your exemptions, deductions and tax credits. Once you determine your AGI or MAGI, you need to figure your top bracket of taxable earnings and investment income. As an example: A married couple has calculated that their AGI is $76,500, at the lower end of the 25% tax bracket. They should determine if they have any further deductions that can lower their AGI below the $75,900 the top of the 15% tax bracket. After reviewing every legal deduction the couple’s tax accountant found additional write offs that lowered their AGI down to 72,500. This gave them some “head room” in the 15% tax bracket to convert $4,000 a year from their traditional IRA to a Roth IRA at 15% tax. It’s estimated that it would take them about 12 years to convert their traditional IRA to a Roth IRA. But that assumes no increase in income or tax law changes. But the conversion is warranted. It makes math sense. But if they were unable to find   Read more…

For most Americans saving for retirement isn’t a tax consideration and they are not receiving a matching contribution in their 401(k) plan from their employer. So Roth IRAs more than likely to fit the financial profile of middle class Americans who are saving for retirement. If you’re saving $1,000 a year for retirement in a 401(k) plan with no employer match, your annual tax savings over your working life will not overcome the full taxation of your retirement plan distributions and your Social Security benefits. So you should consider a Roth IRA as an alternative to participating in a 401(k) plan. Roth IRAs are not deductible, but they do accumulate tax deferred and at the approved time for distributions are tax-free. Roth IRA income is not includable in the provisional test for Social Security benefit taxation. An individual’s annual contribution to a Roth IRA is $5,500. If you are age 50 or older you can contribute an additional $1,000 under the “catch up” provision. There are phase out income ranges for individuals and married couples that can affect contribution amounts, so ask your tax accountant for your modified adjusted gross income. Keep in mind that Roth IRAs are not subject   Read more…

Taxes are the largest expense in retirement. Learning the basics of income taxation should be at the top of retirement education. Tax management is not just during the retirement accumulation and distribution phase, but also the tax consideration of investments and savings vehicles. Here are some basic tactics to consider based on your effective tax bracket and if you can control your income. Keep in mind that the more tax diverse your portfolio is, the tactics can become more elaborate to reduce your tax bill. 1) Under the current tax code the standard deduction and personal exemptions can neutralize some of your taxable income during retirement. Non-qualified deferred monies like annuities can be designed to delay payments, i.e. forestalling a taxable event. Forestalling is just delaying taxes, it’s not eliminating taxes. But tax deferral has its own economic benefit during accumulation. HSA funds can pay for insurance premiums like long term care, disability and medical coverage, even Medicare Part B payments. HSA funds can also pay for legitimate medical expenses. Tax-free income can be generated from reverse mortgages, policy loans from TAMRA compliant cash value life insurance and Roth IRAs. So tax management can come in handy in retirement if   Read more…

There are a variety of financial products available to you, and I want to spend a few moments explaining their differences. Before we continue, I want to point out that many of these products present risks. The old saying goes “the higher the risk the higher the return.” This is especially true in the world of finance. A very risky strategy can yield tremendous results. It can also produce tremendous losses. Before entering into any investment strategies please check with your financial professional. Purchasing stocks makes you a shareholder in a corporation’s assets and earnings. Your ownership is based upon the amount of stock you hold. Stocks are risky. If the company makes good decisions, your investment grows. If they make poor decisions, you could lose your investment. A Bond is, in essence, a loan. You, as an investor, loan money to a company for a defined period of time at a fixed interest rate. Interest on Bonds is generally paid on a semi-annual basis. If you have a pension, you’re among the lucky ones. Pensions were popular in the past, but have waned over the last few decades. A pension is a retirement plan, usually tax exempt, where an   Read more…

To take care of your debt, and build a foundation of wealth creation you have to take control of your immediate financial situation. This starts with a budget. However, I want to dig a little bit deeper into some ideas for increasing your cash flow. One of the easiest ways to give yourself a raise is to take a look at your tax refund. If you are getting a few thousand dollars back every year you are giving the government a zero interest loan. That money could be put to much better use in your financial plan. Talk to your human resources department to learn more about adjusting your deductions. Also, take a look at your current expenses. Are there ways you can cut back on what you are spending for your cell phone, cable television, even your utilities? Every dollar you save is a dollar earned toward building your financial future. Go through your expenses, call your utility providers, and work with them to identify ways that you can save on their services. You might be surprised at how much cash you are able to free up! Now you become the master of your own destiny. It’s time to   Read more…

Let’s talk about change. The economic downturn created a new retirement reality. Many of us are going to have to work longer to meet our financial needs. For some people, that’s fine. Many baby boomers don’t see themselves retiring at all. Some prefer to transition to more of a work/life balance. However, there are still some of us who want time to go fishing. During the recession Americans experienced an unprecedented loss of wealth. It will take time to recover from losses. This means that many of us will have to work into our 70’s. The good news is that if any generation can do it, Baby Boomers can.   Our average life expectancy is roughly 80 years of age, giving us the cushion to recuperate some of our losses. That being said, we have acquired new financial obligations, which will challenge our fiscal fitness. Our children are struggling and many of us are trying to support them as they face a difficult job market. Also, we have to contend with a volatile stock market and economic aspects such as inflation. One of the more important challenges to embrace is the role Social Security plays in our future. The program has   Read more…

Whether you have a lot of money or just a little, a true measure of your financial success is the ability to meet your goals. Imagine your financial goal as a destination you could travel to by car. To reach it, you will need to make efficient use of your money as you prepare for the journey, and you will need to set aside certain resources for use along the way. You will get a tune-up, check the tires, pack some food, etc., and you will also figure out how much money is needed for gas and tolls during the trip, all before you leave the driveway. Achieving your financial goals should work much the same way, because attaining them depends on thoughtful preparation. Properly developed goals can be incredibly motivating, and, as you get into the habit of setting and achieving them, you’ll probably find that your self-confidence has increased as well. By constructing a strong goal development routine, you can measure and take pride in the achievement of the goals you’ve set, in turn helping to ensure future financial successes. Getting fiscally fit is a process. As with any process, understanding its ‘moving parts’ helps you develop a   Read more…

We all make mistakes, its part of growing. Even as we get older we are bound to make a misstep here or there. We simply can’t know it all, especially when it comes to our finances. Things change. Stock markets are cyclical, laws come and go, and each of our circumstances is subject to change. If you fail to keep on top of what’s going on, a seemingly smart financial move could prove to be a bad decision. Now, I don’t want to get into any personal detail, but by a show of hands how many people have made what you might consider to be a financial mistake? Okay, I appreciate your honesty. Avoiding financial blunders comes down to that one thing – honesty. We have to be honest with ourselves that we could do a better job with our money. We could all stand to learn more about managing our finances effectively. There are volumes of personal finance books available, and thousands of on-line resources to help us better understand our financial choices. Furthermore, we could all benefit by a conversation with a financial planner. Ultimately, we have to be honest with ourselves that it’s okay to ask for   Read more…

Business owners need to qualify themselves through a proven process to help determine the right strategy or tactic. The preamble to this is an understanding of their risk tolerance, cash liquidity, reasonable projections on earnings and whether any strategy or tactic is suitable. Probably the most important first step is collecting the right data and understanding the psychological disposition of the business owner. From that data a hypothetical, customized plan is drafted that reflects the client’s financial goals. One of the goals is a quantifiable analysis of the first year’s contributions. Then there’s a refinement of the numbers over several iterations of the plan until you land on feasible goals. Finally a detailed plan emerges and that’s when the bill is due. The fee can range from $4000-$5,000 and is deductible. Letters of engagement are crafted and agreed to. Keep in mind that a good letter of engagement cites what the actuarial firm will do as well as what the business owner will do. The strategy uses a defined benefit plan and a profit sharing plan (sometimes a 401(k) as well as additional paperwork if the plan is designed for the ultimate tax deduction and benefits. There are annual administration   Read more…