Traditional IRAs and 401(k) plans are among the most popular retirement saving vehicles, largely because of their favorable tax treatment. Traditional IRAs and 401(k) plans provide tax benefits in several ways. First, your contributions may reduce your taxable income. Traditional IRA contributions may be tax-deductible, and 401(k) contributions are taken from pretax earnings. As long as the funds stay inside the account, you don’t pay taxes on your growth.
However, you can’t defer your taxes forever. Distributions from these accounts are usually taxable. The IRS requires you to take distributions from a traditional IRA or 401(k) by age 70½. The amount of these required minimum distributions (RMDs) is based on your account balance and your age. The withdrawal usually increases as you get older.
Have you prepared a projected budget for your retirement? If so, that’s a good first step toward planning your retirement income strategy. Your budget can help you determine how much income you may need and whether you’re on track to reach your goals. You can also use your budget to adjust your spending as needed.
Your budget probably includes things such as housing, groceries, travel, dining, clothes, utilities and much more. You may be able to estimate these costs based on your current spending and your plans for the future.
Feel like you’re behind on your retirement savings? You’re not alone. According to a recent study from the Economic Policy Institute, the average family between the ages of 44 and 49 has only $81,437 saved for retirement. That number is $124,831 for those between ages 50 and 55 and $163,577 between ages 56 and 61.1 While those numbers might represent a good start, it’s fair to say they’re not sufficient to fund a long retirement.
Fortunately, you can take action to catch up. You may have to make some adjustments to your plans and vision, but you can still be able to fund an enjoyable retirement. Below are a few tips to get you started. The longer you wait, the more challenging your retirement might be.
It’s that time again. A new year has arrived. For many, the new year is a time for resolutions. Weight loss is a popular resolution, as are goals related to education and career advancement. Unfortunately, most people don’t stick with their resolutions. A recent study found that nearly 80 percent of all resolutions fail by February.1
Perhaps you have some financial goals among your list of resolutions. That could be a wise idea. With some simple changes in habit and behavior, you can significantly improve your financial picture. The key, of course, is to stay consistent and stick with your resolutions.
Are you thinking about retiring early? Maybe you’ve accumulated enough savings to retire in your 50s. Or maybe you’re facing a health issue or job loss that’s pushing you into retirement. No matter the reason, early retirement can present a number of unique challenges.
One of the biggest issues that early retirees face is taking distributions from their qualified retirement accounts, such as IRAs and 401(k) plans. These accounts are tax-deferred, which means there are no taxes on growth as long as the funds stay inside the account. However, distributions may be taxed as income. Additionally, if you withdraw funds from a 401(k) or an IRA before age 59½, you could face a 10 percent early distribution penalty.
Are you considering making a sizable financial gift to a friend or family member? A financial gift can be a great way to make a difference in a loved one’s life. It can also be an effective estate planning strategy, as gifting may potentially remove assets from your estate. That could reduce the amount of assets that face probate and the estate tax.
Gifting could trigger its own set of taxes, though. You may not know that the gift tax exists or how it works. Depending on the size of your gift, you could face up to a 40 percent gift tax.1 If you fail to pay the tax, the recipient may face additional tax obligations.
There are a lot of things to consider before you retire. One thing that some people forget to plan for, however, is their health care in retirement. Many people assume that Medicare will cover all their health care expenses once they retire. The reality is that it doesn’t.
According to Fidelity, the average retired couple typically has to pay $260,000 on health care expenses.1 That figure includes things like copays, deductibles, premiums and more. By planning ahead, you can help to avoid draining your retirement funds to pay for health care expenses. Act now to develop a sound health care funding strategy, and you can save your retirement money for things you want to do rather than spend it on health care expenses.
Annuities are offered in a wide range of different types, all of which serve different purposes. Deferred annuities offer a chance for growth and accumulation, often with downside protection. Immediate annuities don’t provide growth or liquidity, but they usually generate a guaranteed* lifetime income stream.
Have you hesitated to explore an annuity as part of your retirement planning? If so, you could be missing out on a tool that is helpful for generating income and managing downside risk. While an annuity isn’t appropriate for everyone, it can be useful in the right situations.
According to a 2015 survey from Rocket Lawyer, 64 percent of Americans don’t have a will.1 A will is often the most basic step in developing an estate plan as it provides guidance and instruction on which assets should flow to which heirs after your death.
A will is a valuable tool, but it can’t do everything. Even if you have a will, you may still have needs and goals that aren’t sufficiently addressed by your current plan. You may want to consider a trust.
Are you one of the millions of Americans hoping to retire early? Many people not only want to retire—they want to do so while they’re still young enough to be active and to enjoy some of their biggest goals in life. With focus, discipline and detailed planning, you can make it happen.
Even if you don’t plan on retiring early, it still makes sense to consider the possibility. Many retirees are forced to retire earlier than they would like because of medical issues or job loss. If this happens to you, a contingency plan could help you better manage the situation.
It’s difficult enough to accumulate assets to fund a normal retirement, but it’s even harder to save when you retire early. An early retirement means fewer years to save and more years of spending that have to be funded with your own assets.
Here at MasterPlan Retirement Consultants, we strive to keep you up-to-date with informative articles. Read on for more details of the latest and greatest news.