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Instant Trouble with Your IRA

 

1-minute video: How to Avoid an IRA Rollover Mistake?

 

Instant trouble with your IRA

When you reach retirement, you may not need you IRA money, but it may be smart to combine it with other retirement assets. Here we will assume combining the assets is the smart move, but you can create instant stress if you do it incorrectly.

A rollover to an IRA postpones current tax on the funds you transfer and keeps the money growing tax-deferred when properly executed.

Note: for this discussion the term “new IRA” refers to the IRA that is getting the money. It may actually be an IRA you have had for many years, but it seems less confusing to describe it as the new IRA.

Mistakes you need to avoid.

  1. Not meeting the transfer deadlines. When moving money from one IRA to another, you actually have 60 days within which to make the transfer. Some people see the IRA as a source of ready cash, spend some, and then forget to get the whole amount back into the new IRA. Now they have a problem because instead of moving the money without any tax consequences, they now may owe taxes on the whole amount and all in one year. Yikes. This could really bump you into a higher tax bracket and needlessly incur higher taxes. Procrastination is not a good practice when it comes to transferring IRAs.
  2. Failing to transfer into the new IRA what you took from the original IRA or retirement plan at work. From work retirement plans, if you take possession of the proceeds, the firm for whom you worked will deduct federal and perhaps state taxes. This means when it comes time to get your old IRA balance into your new IRA, you will need to add in the amount they withheld. Failure to do so means the shortfall is taxable income and there may be penalties too.
  3. All or none. The law allows partial transfers. So, if you do not want to move all of it for some reason, you have that choice with IRAs. With retirement plans at work they may have special limitation on partial transfers, so you need to check with them on the precise rules.Moving part of the money may facilitate cash flow or tax planning.
  4. Moving the money to the wrong IRA. Transfers can only be made you accounts you own individually. You can not move the money to a spouse’s or child’s account. Again, this transfer is a taxable transfer when it does not go to your own account.
  5. One per year. You can only take possession in the process once in a year. After the first one, the others are taxable distributions.

Let us help you make a safe, tax-free rollover or transfer to an IRA.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

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Reasons not to combine IRAs

Link to 1-minute video about: How to Avoid an IRA Rollover Mistake? 

 

Reasons not to combine IRAs

 

You can not directly combine unlike kinds of IRAs. That is a big no-no.

Yes, there are means to convert a Traditional IRAs to ROTH IRAs, but that is not the same as lumping them together in one step. To ultimately get the Traditional IRA assets into a ROTH IRA requires using a process called ROTH IRA Conversion. Before trying this, though, recognize there may be tax consequences that out way the benefits of the ROTH IRA.

 

Except in a limited circumstance, you can not combine the IRAs of the same type with that of another individual. To legally combine IRAs from another person, unfortunately, a spouse must die and the surviving spouse must make arrangements by a deadline to move the proceeds into the surviving spouses IRA. There are some complicated issues on whether to combine the IRAs or not and most involve taxes.

 

Another reason not to combine retirement assets from work, 401(k) or 403(b), is the special protection afforded these accounts from creditors. Once the money is moved from the work plan to an IRA, the protection may disappear or be lessened.

For estate planning reasons you may wish to keep the accounts separate. If you have both the Traditional and ROTH IRAs, you have flexibility that is lost if not retained separately. You may want one type to go to certain beneficiaries and another type to other beneficiaries, but this flexibility is lost when an owner combines their IRAs or a Traditional IRA is converted to a ROTH IRA.

 

For cash flow reasons, you may wish to not to covert Traditional IRAs into ROTH IRAs. You see, withdrawals from Traditional IRA’s may create, and usually do, create a tax liability. In contrast, the ROTH IRA will not have a tax liability no matter how much you take out. So, in some tax years you may need the money, but not the tax liability, so drawing from the ROTH is the answer. Each person’s case is unique and strict calculations must be done before drawing money to decide which account source is best. Only someone competent in these issues can give you a good answer.

 

Another reason not to take possession of your work retirement money to later place the assets into an IRA is finding money to match the withholding. The workplace administrator will withhold 20% before you get your check, but to avoid taxes you will need to reinvest in the new IRA the original amount before withholding which means you need to add your own assets so the amount deposited in the IRA matches the amount your received plus the amount withheld.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

 

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Good Reasons to Consolidate your IRAs

 

Link to When Does a Roth Conversion Make Sense?

 

Good Reasons to Consolidate your IRAs.

 

Generally, merging together like-type IRAs, Traditional IRAs with Traditional IRAs or ROTH IRAs with ROTH IRA is a common practice to reduce the burden of tracking multiple accounts. It surely cuts down on the paperwork and accounting problems multiple accounts create.

 

Another reason to combine like-IRAs is to more easily execute an investment plan.

 

Also, sometimes accounts might be too small to invest to support your holistic strategy. But by combining it with another or others, it can get working in your favor. It some cases you can reduce the total amount of fees levied against your multiple accounts – who does not want to save on fees.

 

The last benefit I’ll mention is that when you ultimately must draw money from your Traditional IRA, and some special ROTH IRAs, the calculation, administration of the withdrawals can be cumbersome and prone to mistakes with multiple accounts. The penalty is 50% of the error amount not drawn – Ouch. In consultation with your advisor, generally combining account normally makes good sense. Make life simpler consider combining like-type IRAs.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

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How to prepare for higher interest rates

Link to 1-minute video: How Do You Create a Simple Retirement Income Plan?

 

Rising Interest Rates

Lately, you may have noticed more articles in print, online, or tv about the quick rise in key rates in the last 18-months. No one knows whether they will continue appreciably further up, level off for a while, or even head back down. However, many feel rates will climb before they sink, so what can you do?

  • Build a CD “ladder.” As interest rates rise, newer certificates of deposit will offer higher yields, and if you invest in CDs with a range of maturities, in particular less than two years, you’ll be poised to act when rates move higher. You can reinvest the proceeds of CDs that mature into new CDs with better yields.
  • Adjust bond fund allocations. Bonds function very much like CDs when it comes to their price. As rates go up, their prices generally fall. Placing more assets in shorter duration or maturity bonds or bond funds with allow the assets to reinvest in ever rising bond rates. Long-term bond funds are still worthy of purchase, but when rates are rising, skewing your holdings towards short duration or maturity bond funds may be superior while rates are climbing.
  • Dividend paying Stocks. Currently many companies are increasing their dividend payout and this means greater return for your money from dividends. Companies who do not raise dividends may be looked as less favorably as their interest-like return is not keeping up with the market or inflation.
  • Revise personal debt. If rates are going higher, lock in fixed rates. Further, pay debt that is going to raise its interest charges.

Interest rates present complex challenges. Please call and make an appointment so we can help you get into position for rising rates.

Note: Past performance of an investment or strategy is no guarantee of future returns.

This video and text is for information use only and is based on information believed to be true. Much of the information included is readily available online, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888, This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

 

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How to be tax efficient with your investments.

Reducing the taxing effect on your investments is a sure way to increase your rate of return without taking more risk,

1-minute video on how to be tax efficient with your investments.

 

This video is for information use only and is based on information believed to be true. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at This email address is being protected from spambots. You need JavaScript enabled to view it. , 573-874-3888, if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

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