Tag: IRA

Pre-Retirement Spring Cleaning Checklist

Written by Minich MacGregor Wealth Management on April 4, 2024. Posted in Uncategorized.

Spring is in the air, and that means it’s time for spring cleaning. But wait! Before you pick up that dustpan, give a thought to your financial spring cleaning first.

What do finances and spring cleaning have to do with each other? If you’re preparing for retirement, the answer is “A lot!”

These days, the term spring cleaning is often used as a metaphor for getting your affairs in order. As you can imagine, getting your retirement affairs in order is critical if you intend to actually retire when and how you want. There are many things to keep track of, many tasks that need doing, and many decisions to make.

So, how do you begin? Well, when many people do their actual spring cleaning, they make a checklist. What supplies they’ll need, what rooms to organize, what needs to be mopped, vacuumed, dusted…it’s the most efficient way to clean. We suggest doing the same for your finances. So, without further ado, here is a sample Spring Cleaning Checklist to help you better prepare for retirement.

Pre-Retirement Spring Cleaning Checklist

Contribute the maximum amount to your IRA if you have one. Remember, an IRA is a valuable way to save for retirement in a simple, tax-advantaged way. For 2024, the annual IRA contribution limit is $7,000 up to age 49, and $8,000 for those 50 and older.¹
Review your 401(k) and increase your contributions if necessary. How has your 401(k) been performing? Do you understand how your money is being invested and why? Are you contributing enough to take advantage of any employer matching?
Start looking at your existing expenses. Which are likely to continue after retirement? What expenses can you remove right now? This is a good way to find extra ways to save for retirement, and it will make your life a lot simpler once retirement comes.
Make sure you know where all your estate planning documents are. You should have a copy of your will, power of attorney, advance medical directives, letter of instructions, and other documents in a secure but easily accessible place. Make sure your spouse (or other loved ones) knows where these documents are kept.
Review your current insurance policies. Are there any potential gaps you see? (For example, Critical Illness and Long-Term Care insurance are two types of policies many people don’t have but are often extremely valuable for retirees.)

But most of all …

Make a list of your top retirement concerns. Is there anything you are confused or nervous about? If so, start getting the answers you need now instead of waiting till you’re already retired. Remember, you want to enjoy your golden years, not stress over them.
Similarly, make a list of any new goals or dreams you have for retirement. What will it take to achieve or afford them? Are you on track? If you’re not sure, it’s time to start planning.

Spring cleaning is never the most fun thing in the world, but it’s often one of the most beneficial. Just as you probably enjoy living in a clean, organized home, you’ll enjoy the peace of mind that comes with getting your finances in order. Trust us: if there’s one thing we’ve learned in all our years of helping people plan for retirement, it’s that a little organization today can make for a much happier retirement tomorrow.

Of course, if you need help with any of the items on this checklist, please let us know. For example, if you aren’t sure how your 401(k) is doing, we’d be happy to help you analyze it. If there’s a valuable estate planning document you don’t have, we can point you in the right direction. And if you have any questions or concerns about retirement, the chances are good that we have the answers.

In the meantime, we wish you a happy spring—and a happy spring cleaning!

¹ “401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000” Internal Revenue Service, accessed November 9, 2023. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

There’s still time to contribute to your IRA!

Written by Minich MacGregor Wealth Management on February 22, 2021. Posted in Minich MacGregor Missive, News.

If you haven’t already contributed to an IRA (Individual Retirement Account), there’s still time to do so. Many people don’t know that the 2020 contribution deadline is actually April 15, 2021.¹ However, if you do decide to contribute, you must designate the year you are contributing for. (In this case, 2020.) Your tax preparer should be able to help you fill out the necessary forms, but please feel free to contact us if you have any questions or need help.

For 2020, the maximum amount you can contribute is $6,000, or $7,000 if you’re over the age of 50.² This applies to both traditional and Roth IRAs. If you’re unsure whether to contribute, remember:

Contributions to traditional IRAs are often tax-deductible. And while distributions from IRAs are taxed as income, your tax-rate after retirement could possibly be lower than it is now, lessening the impact.
Contributions to a Roth IRA, on the other hand, are made with after-tax assets. However, the advantage of a Roth IRA is that withdrawals are usually tax-free.
Whichever type you use, IRAs provide a great, tax-advantaged way to save for retirement.

If you have yet to set up an IRA for 2020, you can still do that. The deadline to establish an IRA is also April 15^th. In other words, if you want to take advantage of the benefits an IRA has to offer, there’s still time to do so, either by contributing to an existing account or by establishing a new one.

If you have any questions about IRAs – whether one is right for you, how it should be managed, or anything else – please give us a call at Minich MacGregor Wealth Managment. We’d be happy to help you.

¹ “IRA Year-End Reminders,” IRS, https://www.irs.gov/retirement-plans/ira-year-end-reminders

² “IRA Contribution Limits,” IRS, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

P.S. Speaking of taxes, a number of clients have asked us about the delivery of their 1099’s. They are generated by Schwab and their deadline was extended to Friday, February 19th. This means the 1099’s should be in the mail within the next day or so. Be sure to factor in several days (at least) for delivery by the USPS.

P.P.S. Please remember, you will only receive a 1099 if you have a taxable account or if you took a distribution from an IRA. If you do NOT have Schwab accounts, please disregard as it does not apply.

Breaking Down the Secure Act

Written by Minich MacGregor Wealth Management on December 30, 2019. Posted in Minich MacGregor Missive, News, Uncategorized.

Important Provisions of the SECURE Act

Before we dive in, understand, that the SECURE Act is over 20,000 words long. (And in fact, the Senate had to tuck it away in a much, much larger appropriations bill to pass it.) That means there isn’t room to cover every provision of the new law, and many won’t apply to you anyway. So, what follows is a brief overview of the major changes that could affect your finances.

Are you ready? Then take a deep breath as we go over…

Changes to the IRA “stretch” provisions²

For years, one of the most popular estate planning strategies was the use of Stretch IRAs. When a parent or grandparent dies, they can leave their IRA to their children, grandchildren, or other heirs. Under the old rules, these beneficiaries could take distributions from their inherited IRA based on their official life expectancy. This allowed them to “stretch out” the value of the IRA – and the tax advantages that come with it – for a longer period. For example, if a 50-year old with a life expectancy of 85 inherited her mother’s IRA, she could stretch out her distributions over the next 35 years.

Now, non-spousal beneficiaries who inherit an IRA in 2020 or beyond can no longer do this. Instead, inherited IRAs fall under the new “10-Year Rule”. This means that all the money in the IRA must be withdrawn by the end of the 10^th year following the year of inheritance. At that point, the beneficiary must pay taxes on that money.

Note that the rule does not require the beneficiary to take withdrawals during the 10-year period if he or she doesn’t want to. That’s important! Deciding when to take withdrawals should be based on several factors, including the beneficiary’s current financial situation, how close they are to retirement, and when they plan on taking Social Security benefits.

Something else to note: The new 10-Year Rule does not apply to spouses, disabled and chronically ill beneficiaries, and minors. For the last group, the exception lasts until the child reaches the “age of majority”, which is 18 to 21 depending on the state. Once they reach that age, the 10-Year Rule kicks in.

Make no mistake: This new rule will have a profound impact on beneficiaries, especially those who are younger and could otherwise have waited decades before making withdrawals (and paying taxes on those withdrawals). For this reason, if you are either planning to bequeath an IRA to your beneficiaries, or are expecting to inherit one yourself, we should have a conversation about your options. We want to do everything we can to help you and your heirs maximize your retirement savings while minimizing your tax burden.

Changes to Required Minimum Distributions for IRAs²

Speaking of maximizing your retirement savings…

Another change the bill makes is to lengthen the time people can contribute to their IRAs. Currently, retirees can only contribute to an IRA up to age 70½. Once they hit this milestone, they are required to begin making withdrawals. (These are called required minimum distributions, or RMDs.) Under the SECURE Act, that age would increase to 72. That means retirees have an additional 18 months to benefit from the tax advantages that come with IRAs.

Note: This change only applies to those who turn 70½ in 2020 or later. Even people who turned 70½ in December of 2019 would still have to take an RMD for 2020.

That’s it for this provision. See? We told you some of the changes were simple.

Other IRA Changes²

Here’s another simple change. Under the old rules, contributions to a traditional IRA were prohibited once a person reached the year they turned 70½. No longer. Now, anyone, even those older than 70½, can keep contributing to their IRA so long as they continue to work.

Here’s an example. Jane turns 70½ in 2020 but decides she wants to continue working. So rather than withdraw money from her IRA, she decides to make a tax-deductible contribution to it instead. While Jane must still take RMDs once she turns 72, she decides to keep making contributions every year until she actually retires, as the math still works in her favor.

Obviously, this change only benefits those who continue working into their seventies. And even then, it may not always make sense to keep contributing to your IRA. But it’s always nice to have options!

Another change is for new parents. Under current law, a person must be 59½ years old to make withdrawals from a traditional IRA. If they withdraw money earlier than that, they must pay a penalty of 10% on the amount you took out. There are a few exceptions, such as if they need the money to pay large medical bills, buy a home, or manage a disability. But, generally speaking, the government wants the money inside a retirement account to be saved for retirement.

Under the SECURE Act, new parents can now withdraw funds penalty-free to help cover birth and adoption expenses. This is especially helpful for younger parents who have high deductible insurance plans. There is a $5,000 cap on withdrawals, though, and they need to be made within one year of the birth or adoption.

Changes to 401(k)s²

The SECURE Act brings many changes to 401(k)s, but most are for businesses to worry about. There is one change you should know about, though, and it involves annuities.

A type of insurance product, many annuities offer a monthly stream of income, sometimes for life. This can make them attractive for retirees. Historically, few 401(k)s contained annuities. The SECURE Act makes it easier for employers to offer this as an option.

The reason we mention this is because you should talk to us before putting your money in an annuity. Choosing the right annuity can be difficult, as there are many types and features, and some annuities come with high costs. So, while an annuity may be right for some people, that doesn’t necessarily mean it’s right for you.

If you have questions about this, let’s chat!

Changes 529 Plans²

For many Americans, paying off student loans is a difficult financial burden.

To help pay for their loved ones’ higher education, some parents and grandparents use 529 plans. Any funds invested in a 529 plan can be used to help pay for college expenses, like room and board or tuition. The best part is that the funds are exempt from federal taxes, and often state taxes, too, so long as they’re used solely for education expenses.

Under the SECURE Act, parents with 529 plans can make a tax-free withdrawal of up to $10,000 to help pay off their child’s student loans. This $10,000 limit is per person, not per plan, which means another $10,000 can be withdrawn to help pay the student debt for each of a 529 plan beneficiary’s siblings.

If you have invested in a 529 plan for a child or grandchild with lots of student debt to pay off, let’s talk to see if it makes sense to take advantage of this.

Conclusion

As you can see, the SECURE Act is loaded with changes and provisions for those saving for retirement. So, again, if you have any questions or concerns, please don’t hesitate to contact us!

In the meantime, remember that we’re here to help you work toward your financial goals. Please let us know if there’s ever anything we can do – in 2020 and beyond.

Happy New Year!

Sources

¹ Anne Tergesen, “Congress Passes Sweeping Overhaul of Retirement System,” The Wall Street Journal, December 19, 2019. https://www.wsj.com/articles/senate-spending-bill-includes-significant-changes-to-u-s-retirement-system-11576780736

² Text of “SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT” (page 1532), Senate Appropriations Committee, December 16, 2019. https://www.appropriations.senate.gov/imo/media/doc/H1865PLT_44.PDF

Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor

401k Rollover for Orphaned Accounts – Is it Worth It?

Written by Minich MacGregor Wealth Management on March 3, 2014. Posted in Archives.

Orphaned Accounts – Is a 401k Rollover Worth It?

On average, Americans change jobs every five years. Over the course of a 35- to 40-year career, that’s a fair number of business cards and, more than likely, a lot of straggling retirement accounts left behind in the wake. Commonly referred to as “orphan accounts,” these accounts tend to garner a couple of typical responses from their owners. Often it comes down to a choice of leaving it at your previous employer, bringing it over to your new employer or putting it in an IRA account – commonly called a 401k rollover.

The first one I refer to as the “Hannigan” approach. Like the character in Annie, this approach involves doing nothing to change the state of affairs for the orphan. The other, and polar opposite approach, is the “Warbucks.” This involves finding a new and, presumably, good home for it as fast possible. But unlike adorable, musically gifted orphans, orphan retirement accounts may not always need saving.

Here’s why:

THE HANNIGAN

While this leave-it-be approach may seem a bit cold, neglectful, it may not actually be so bad. If the company you worked for offered a very competitive plan it could be a good idea just to leave it as is. Competitive plans typically offer a wide assortment of fund choices, some sort of investment advice, and, a total cost of ownership less than 1 percent. You may also want to look at things like how much education is provided and what tools are available to assist you in saving for retirement. If your old job was with a very large corporation there is a good chance they’ve negotiated lower fees than smaller companies might be able to offer.

THE WARBUCKS

A common approach, but one I strongly discourage, is to take all the money out of your retirement account. While some might perceive this approach as ‘saving’ their account, it does come with consequence. By taking the money out before retirement there is usually a 10 percent penalty imposed by the IRS. In addition, the money gets included and taxed as ordinary income which can take another 30 percent plus. Add it all up and the 40 percent or so you lose is near impossible to be made up and what was supposed to be savings for retirement is long gone before you get close to that magical age.

A variation on the Warbucks, is to move your retirement account into the plan your new employer is offering. This is a great option if your new plan is more competitive (i.e. lower fees, more options, investment advice). The benefit is even greater if consolidating your old accounts into one leads you to actively monitoring and managing your account(s) more frequently.

Alternatively, you might look to roll your money into an IRA account. This option will most likely give you the most investment options and control over how to direct the money, which investments to make, and the option to work with or without an advisor.

Regardless of which approach you choose, the most important thing is really the fact that you’re making a choice. Simply ignoring your money with no regard to the consequences is more likely to lead to a hard-knock lesson than it is a happy ending.

Plan for the worst, hope for the best

Written by Minich MacGregor Wealth Management on January 24, 2014. Posted in Archives.

By any historical standard, 2013 was a great year for the U.S. stock markets. The Dow Jones Industrial Average and S&P 500 each rose more than 25 percent and the majority of investors enjoyed a profitable year. In addition to great gains, 2013 was marked by historically low volatility. In most years, the markets experience a decline of 10 percent or more at some point. But not in 2013 when the single biggest dip was a relatively minor 7 percent drawdown.

And as if that wasn’t enough to get investors feeling good, there’s a historical precedent for one positive year to be followed by another. Data from the independent investment research group BCA Research shows that since 1870, there have been 30 years in which the U.S. stock markets increased by at least 25 percent. Out of those 30 years, 23 were followed by another year of positive return. That’s a 77 percent success ratio.

But before you get too excited and carefree with your money, there’s another bit of research to consider.

According to the Stock Trader’s Almanac, 35 of the past 41 Januaries in which positive gains were experienced during the first five days of trading were followed by full-year gains. Unfortunately, the first five trading days of 2014 saw a small cumulative loss.

So what’s an investor to do with contradicting indicators?

My advice: plan for the worst, hope for the best.

Now, while all is well, is the time to review your risk tolerance and financial objectives and to develop a sell-discipline. That is, determine now what will be the triggers or specific points at which you will sell your investment(s). Establishing those points now, rather than when things are looking bleak, will make it easier to follow through with your decision. A well-thought out plan for the worst will actually help you get through the worst.

And because every storm eventually passes, you also need to develop a plan for how and when you’ll respond to positive market changes. Like your plan for the worst, establish what it will take to get you back in the game. Do it now while you’re not feeling gun shy from a few losses.

While nobody knows for certain if the markets will soar or suffer in 2014, disciplined buy and sell strategies that plan for the worst and hope for the best will help you brave the year with confidence. And in a world of volatile investing, that very often is the best for which you can hope.