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Posts Tagged ‘IRA’

Q: I am retiring and want to roll over my deferred account to an IRA. Which is the best IRA account? And how old do I have to be to withdraw without getting penalized? And what will the tax rate be?”

A: Under current IRS guidelines, you must be at least 59 1/2 years old in order to make a withdrawal from a traditional IRA without being hit with a 10% penalty.

Continue reading “What are the Age Rules Regarding an IRA Withdrawal?” »

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Q: I’m 57 Years Old With Serious Arthritis. I Work With Severely Emotionally Disturbed Boys. I am Considering Resigning from This Position, Taking Money Out of my 401(k) Plan and Rolling it Over, Minus a Small Deduction for my Use and to Pay Off Debt. First I will Apply to Work in Education as a Teacher Assistant Making Less Money But Not As Difficult As My Current Job. I Have No Savings and am Struggling. What Should I Do?

A: Well, only you know whether or not it’s time for a major career shift. But based on what you said, you seem to be a bit overwhelmed in dealing with such an emotionally demanding job. You said you’ve worked there since 1997 and have been in the special education field since 1990, so the good news is that it’s not too much of a stretch to take the skills and experiences you’ve amassed over 20 years and apply them in the general education arena. From a financial standpoint, however, since you have no savings and described yourself as struggling to make ends meet, I would advise you to be cautious about taking money out of your 401(k) plan. You said you planned to roll it over. But into what? Your message didn’t indicate specifics. Into an IRA or something else? Read this post about Roth IRAs and this one as well about the benefits of having a 401(k).

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Q: I Have Never Qualified for a Tax Deductible IRA Due to High Income and 401(k) Access Through Employers. Neither Have I Qualified for the Roth. I Understand Beginning This Year There is No Income Limit on a Roth Conversion. Am I Correct in Thinking I Can Open a Couple of Non-Deductible IRAs (One For ’09 and One For ’10) and Then Convert All the Money to a Roth? No Restrictions on Income, No Taxes Due Since the IRA Would Be Non-Deductible to Begin With, No Penalties? It Sounds Too Good to Be True. Am I Missing Something?

A: You are correct in your assumptions. Yes, you can open two IRAs (one for 2009 and one for 2010), and safely convert them into a Roth this year because of the removal of the income limits on Roth conversions. I double-checked with an expert on this, David Mendels, who is a Certified Financial Planner and the President-Elect of the New York Chapter of the Financial Planning Association. David is also an adjust faculty member at New York University, as well as the head of the fee-based financial planning firm, Creative Financial Concepts, LLC. So he is very well-credentialed and I’m confident in his knowledge ane expertise. He told me to offer you two caveats, just to make sure your efforts go smoothly.

First, if you have any existing IRAs that are traditional IRAs or IRAs other than the new ones you plan to open, be aware that your basis will be calculated over the combined IRAs that you have, not just the ones you are opening now. Second, to make sure you don’t experience any future issues if any questions ever arise, keep very clean records about this for the future. Here’s how: wait a brief period after you open the non-deductible IRA before you do the conversion. David suggested that you wait a week or so – or as long as it takes until the IRA custodian has a record that your original contribution was a non-deductible IRA. After that’s done and you have written confirmation, then go ahead and do the conversion.

A final tip: you can open two IRAs if you want, but you certainly don’t have to. If you prefer to keep things simpler (again, from a paperwork and record-keeping standpoint), you can just open a single non-deductible IRA. Put in your contribution for 2009 — you have to do it by April 15, 2010 — and make sure that the contribution is specifically designated for 2009. Then you can make another, separate contribution that is specifically earmarked as a 2010 contribution. Either way (one or two IRAs) accomplishes your goal and allows you to ultimately convert two years’ worth of IRA contributions into a Roth. Good luck!

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Q: I am Almost 63 Years of Age and Thinking of Retirement. What Should I Do at the Present Time to Make this a Reality in 2 or 3 Years? I am a Registered Nurse Working Full Time in a Hospital.

A: Retiring in two to three short years from now means you’ve got to ensure that your financial affairs are in good shape, and that you will have enough money on hand to last you another two or three decades. Many financial planners create plans for their clients on the assumption that the client will live until 90 or 100 years old. So you have to consider whether, if you retired at age 65 or 66, you would have enough money to last for potentially another 30 years.

Max Out that Retirement Plan at Work

Start by looking at what you’ve saved in your retirement plan at work. If you haven’t been aggressively saving in a 401(k) or 403(b) plan, by all means start doing so. Perhaps your employer offers a match to boost your retirement plan. Under federal law, most employees can put up to $16,500 into a qualified retirement plan in 2010. However, since you are over 50 years of age, you can also put into another $5,500 in “catch up” payments if you’ve been a late starter, in terms of saving. You can also sock money away into an IRA, or Individual Retirement Account. The 2010 limit for regular IRAs and Roth IRAs is $5,000, plus another $1,000 in allowable contributions for those 50 and above. Assess also any pension income or retirement benefits that will be provided directly by your employer. Then find out how much money you will be entitled to from Social Security. You can find out your expected Social Security payments by visiting the Social Security Administration’s website (http://www.ssa.gov).

Two Steps To Assessing Your Retirement Readiness

In summary, to make sure you are on track to retire when you want, you should follow these two steps:

Step 1: Calculate Your Retirement Needs
Think about what how much money you’ll need in retirement, on a monthly and annual basis. Take into account your projected monthly expenses, any debts you’ll have, along with the possibility of healthcare or medical costs, travel, as well as inflation. A good tool to use is the “Ballpark Estimate” retirement calculator from the American Savings Education Council at: http://www.icief.org/retirement/illustrations/ill_ballpark.html

Step 2: Estimate Future Benefits
After consulting your Human Resources Department or taking a look at any employer-provided pension income you may be expecting, go get an estimate of your Social Security benefits at http://www.ssa.gov./estimator.

If you don’t like what you see in the results, all is not lost. You have the option of working a bit longer, perhaps investing slightly more aggressively if you are comfortable doing so, or even using products like annuities that can offer you a steady income stream or make up for any financial shortfalls you may face.

Related articles

• Making the Most of Your Social Security Benefits (askamoneyexpert.com)

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