The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

What to Do After Inheriting an IRA

Here is a nice article provided by Kimberly Lankford of Kiplinger:

 

By Kimberly Lankford, Contributing Editor   

 

September 1, 2017

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Retirement Confidence Leveled Off in 2016

Americans' confidence in their ability to retire in financial comfort has rebounded considerably since the Great Recession, but worker optimism leveled off in 2016. According to the 26th annual Retirement Confidence Survey -- the longest-running study of its kind conducted by Employee Benefit Research Institute in cooperation with Greenwald & Associates -- worker confidence stagnated in the past year due largely to subpar market performance.

The percentage of workers who reported being "very confident" about their retirement prospects hit a low of 13% between 2009 and 2013, recovered to 22% in 2015, and stabilized at 21% in 2016. However, significant improvement was reported among workers who said they were "not at all" confident about retirement, as their numbers shrank from 24% in 2015 to 19% this year. Curiously, the attitude shift away from being not at all confident came from those respondents who reported no access to a retirement plan.

It's All in the Plan

The data clearly shows a strong relationship between the level of retirement confidence among workers and retirees and participation in a retirement plan -- be it a defined contribution (DC) plan, a defined benefit (DB) pension plan, or an IRA. Workers reporting they and or their spouse have money in some type of retirement plan -- from either a current or former employer -- are more than twice as likely as those with no plan access to be very confident about retirement.

Still Not Preparing

Underlying the generally positive trend in the 2016 survey was the persistent fact that most Americans are woefully unprepared for retirement, having little or no money earmarked for retirement. For instance, among today's workers, 54% said that the total value of their savings and investments (excluding the value of their home and any defined benefit plan assets) is less than $25,000. This includes 26% who have less than $1,000 in savings.

Retirement Plan Dynamics

Not only do workers and retirees that own retirement accounts have substantially more in savings and investments than those without such accounts, on a household level, these individuals tend to have assets stored in multiple savings vehicles. For instance, according to the 2016 RCS, about two-thirds of those with money in an employer-sponsored plan also report that they or a spouse have an IRA. Further, 90% of survey respondents with access to a defined benefit pension plan either through their current or former employer also have money in a defined contribution plan.

Retirement Age

Perhaps as an antidote to their lack of savings, some workers are adjusting their expectations about when they will retire. In 2016, 17% of workers said the age at which they expect to retire has changed -- of those, more than three out of four said their expected retirement age has increased. Longer-term trends show that the percentage of workers who expect to retire past the age of 65 has consistently crept higher -- from 11% in 1991 to 37% in 2016.

For more retirement trends among workers and retirees or to review the 2016 Retirement Confidence Survey in its entirety, visit EBRI's website.


Source:

Employee Benefit Research Institute and Greenwald & Associates, 2016 Retirement Confidence Survey, March 2016.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management 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 Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Turning the Page: Five Things Baby Boomers Need to Know About RMDs

The times they are a changin' for baby boomers. The generation that lived through and influenced the revolution in the retirement industry is now poised to begin withdrawing money from their retirement-saving vehicles -- namely IRAs and/or employer-sponsored retirement plans.

If you were born in the first half of 1946 -- you are among the first baby boomers who will turn 70½ this year. That's the magic age at which the Internal Revenue Service requires individuals to begin tapping their qualified retirement savings accounts. While first-timers officially have until April 1 of the following year to take their first annual required minimum distribution (RMD), doing so means you'll have to take two distributions in 2017. And that could potentially push you into a higher tax bracket.

This is just one of the tricky details you'll have to navigate as you enter the "distribution" phase of your investing life. Here are five more RMD considerations that you may want to discuss with a qualified tax and/or financial advisor.

1.  RMD rules differ depending on the type of account. For all non-Roth IRAs, including traditional IRAs, SEP IRAs, and SIMPLE IRAs, RMDs must be taken by December 31 each year whether you have retired or not. (The exception is the first year, described above.) For defined contribution plans, including 401(k)s and 403(b)s, you can defer taking RMDs if you are still working when you reach age 70½ provided your employer's plan allows you to do so AND you do not own more than 5% of the company that sponsors the plan.

2.  You can craft your own withdrawal strategy. If you have more than one of the same type of retirement account -- such as multiple traditional IRAs -- you can either take individual RMDs from each account or aggregate your total account values and withdraw this amount from one account. As long as your total RMD value is withdrawn, you will have satisfied the IRS requirement. Note that the same rule does not apply to defined contribution plans. If you have more than one account, you must calculate separate RMDs for each then withdraw the appropriate amount from each.

3.  Taxes are still due upon withdrawal. You will probably face a full or partial tax bite for your IRA distributions, depending on whether your IRA was funded with nondeductible contributions. Note that it is up to you -- not the IRS or the IRA custodian -- to keep a record of which contributions may have been nondeductible. For defined contribution plans, which are generally funded with pretax money, you'll likely be taxed on the entire distribution at your income tax rate. Also note that the amount you are required to withdraw may bump you up into a higher tax bracket.

4.  Penalties for noncompliance can be severe. If you fail to take your full RMD by the December 31 deadline on a given year or if you miscalculate the amount of the RMD and withdraw too little, the IRS may assess an excise tax of up to 50% on the amount you should have withdrawn -- and you'll still have to take the distribution. Note that there are certain situations in which the IRS may waive this penalty. For instance, if you were involved in a natural disaster, became seriously ill at the time the RMD was due, or if you received faulty advice from a financial professional or your IRA custodian regarding your RMD, the IRS might be willing to cut you a break.

5.  Roth accounts are exempt. If you own a Roth IRA, you don't need to take an RMD. If, however, you own a Roth 401(k) the same RMD rules apply as for non-Roth 401(k)s, the difference being that distributions from the Roth account will be tax free. One way to avoid having to take RMDs from a Roth 401(k) is to roll the balance over into a Roth IRA.

For More Information

Everything you need to know about retirement account RMDs can be found in IRS Publication 590-B, including the life expectancy tables you'll need to figure out your RMD amount. Your financial and tax professionals can also help you determine your RMD.


The information in this communication is not intended to be tax advice. Each individual's tax situation is different. You should consult with your tax professional to discuss your personal situation.
 
Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management 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 Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Brush Up on Your IRA Facts

If you are opening an IRA for the first time or need a refresher course on the specifics of IRA ownership, here are some facts for your consideration.

 

IRAs in America

 

IRAs continue to play an increasingly prominent role in the retirement saving strategies of Americans. According to the Investment Company Institute (ICI), the U.S. retirement market had $24.7 trillion in assets at the end of 2014, with $7.3 trillion of that sum attributable to IRAs.1 Today, some 41 million -- or 34% -- of U.S. households report owning IRAs.2

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Case Study: How to Save Money Through a Financial Crisis - Defined Benefit Plan

Scenario: 

Six years before retirement, a couple, one of which was a corporate executive and the spouse, a self-employed entrepreneur, came to me because they wanted to save the maximum before they retired. When a client says they want to save the maximum that can range from up to the company match in their 401k (4% of salary) to 100k plus per year. 

 

Challenge: 

It was the mid 2008 the financial crisis was just gaining momentum, only we didn’t know it yet. 

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Prepare for Retirement…Consolidate!

If you are preparing for retirement and have multiple investments spread among a number of accounts and institutions, you may want to consider making your life easier and possibly saving yourself money by consolidating your accounts. Here’s why:

 

1.  Managing multiple accounts that are similar such as Joint accounts, IRAs, and 401(k)s can become pretty confusing and very time consuming. If, in addition, you own individual or company stock, tracking cost basis can be a nightmare. Do you really want to spend so much of your time managing all these investments once you retire? 

 

2.  Having 401(k)s from current or former employers and individual retirement accounts (IRAs)  in a number of financial institutions makes it difficult to track portfolio performance, asset allocation, and diversification. You’ll at least need to rebalance your portfolio periodically.  This would be much easier if your retirement funds were all in one place.

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Bequest or Beneficiary: In Estate Planning, the Difference Is Crucial

The scenario plays out over and over again in attorneys' offices: A family brings a parent's will to be probated. The will is complete, well-thought-out, and takes into consideration current tax law. But under closer examination, the attorney discovers that the deceased's estate plan doesn't work. Why? Because a substantial portion of the parent's assets pass by beneficiary designation and are not controlled by a will.

 

Increasingly, investors have the opportunity to name beneficiaries directly on a wide range of financial accounts, including employer-sponsored retirement savings plans, IRAs, brokerage and bank accounts, insurance policies, U.S. savings bonds, mutual funds, and individual stocks and bonds.

 

The upside of these arrangements is that when the account holder dies, the monies go directly to the beneficiary named on the account, bypassing the sometimes lengthy and costly probate process. The "fatal flaw" of beneficiary-designated assets is that because they are not considered probate assets, they pass "under the radar screen" and trump the directions spelled out in a will. This all too often leads to unintended consequences -- individuals who you no longer wish to inherit property do, some individuals receive more than you intended, some receive less, and ultimately, there may not be enough money available to fund the bequests you laid out in your will.

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I Received an Inheritance. How Is This Money Taxed?

How your inheritance is taxed will depend on your relationship to the deceased and other factors.

 

The amount of federal estate tax typically is determined by the amount of assets within the estate and your relationship to the deceased.

 

Spouses typically may inherit an unlimited amount of assets free of federal estate taxes. Estates bequeathed to non-spouses, in contrast, may be subject to federal estate taxes and state inheritance taxes depending on the level of assets within the estate.

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Survey: Retirement Confidence Recovers for Those With Retirement Plans

EBRI's annual Retirement Confidence Survey found a marked increase in confidence among workers who participate in retirement plans.

 

The Employee Benefit Research Institute's (EBRI) annual Retirement Confidence Survey found a marked increase in retirement confidence among workers with higher household incomes who also participate in one or more retirement plans -- including defined contribution plans, defined benefit plans, and/or IRAs.

 

Specifically, more than half (55%) of survey respondents are now very or somewhat confident about having enough money to live comfortably in retirement. The number of workers who are "very confident" rose from 13% in 2013 to 18% this year, while 37% said they were "somewhat confident." The number of workers who are "not at all confident" stayed statistically unchanged from last year at 28%.

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Tax Day for 2012 is over – but the work starts now for 2013!

With the April 15th deadline behind us, many of us want to forget about Tax Day until next April. This would be a disservice to you. Take the time now to do some planning for the 2013 tax year to capture any potential benefits – or miss out on potential harms to your tax situation.

Of course, if you took advantage of an extension for your 2012 returns, the sooner you file your return, the better so you can start planning for your 2013 tax year.

Here are some things you should be thinking about now – before next April:

1)      Make Your Estimated Tax Payments.
If you are self-employed, have a job that does not withhold tax from your paycheck, or have income from other sources (such as certain investments) then you likely have a need to make estimated tax payments. If you anticipate a shortfall in your tax withholding for the year, you need to be making estimated tax payments. One quick check to avoid the underpayment penalty is to ensure by the end of 2013, the smaller of: 90% of the tax you owe for the current year or 100% of the tax shown on the return for last year (2012) is being withheld. If you don’t anticipate this amount to be withheld, then you probably need to make estimated tax payments.  Check with your accountant to see if they recommended making estimated payments for the 2013 tax year. Estimated tax payments are due quarterly: April 15, June 15, September 15, and January 15.

2)     Fund Your IRA or Roth IRA Account.
Consider making current year (2013) contributions to your retirement accounts now instead of waiting until the filing deadline to contribute. The contribution limits for 2013 are $5,500 to an IRA or Roth IRA and $6,500 if you are over 50. There are certain income limits for contributions that you need to be aware of. Consult with your accountant or other financial professional to see what if an IRA or Roth IRA contribution is appropriate for your 2013 tax situation.

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Still Time to contribute to an IRA or Roth IRA for 2012…If You Qualify

Can You Make an IRA Contribution?

As long as you have income, you can contribute to an IRA; even if you are participating in an employer retirement plan. The only question is whether or not your IRA contribution is deductible from your taxes.

Even if your contribution is not deductible, the money in the IRA will still grow tax free until you take it out (after age 59½) at which point you only pay tax on the gains. If your spouse is not working, you can contribute to an IRA on their behalf as well, provided you have earned income.

Check with your accountant on the deductibility of an IRA contribution for your situation.

Can You Make a Roth IRA Contribution?

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