The 5 Costliest Mistakes IRA Owners Make
You might be scrambling right now to put together the money you need to make your IRA contribution for the year. There’s nothing wrong with that. In fact, there is a lot right with investing in your IRA. You get a sweet tax deduction, tax-deferred growth and a bigger nest egg to draw from when you retire.
But just because you contribute to your IRA doesn’t mean you can check that box and move on to your next task for the day. A lot of people do that and fail to take the extra steps that can amplify the true value of their IRA investments. Here are the top 5 mistakes investors make with their IRA accounts and how to avoid making them yourself:
1. Spreading It Out Too Much
Many investors have IRA accounts all over town. They do this in order to reduce risk and perhaps save on fees. There is some value in those arguments of course but the cost of doing this far outweighs the benefits.
First, by having IRA accounts all over the place, it’s very hard to keep track of your money. That means investments often go unchecked. The danger of not watching your money is that you can easily hold on to under performing investments for years and years and not even realize how poorly those accounts are doing.
The solution is to consolidate your investments. This is easy to do and very worthwhile as it makes it a snap to audit and upgrade your investments on a periodic basis. And if you are worried about having too many eggs in one basket, you can relax.
As long as your money is held at a bonafide custodian who offers SIPC coverage, your investments are insured up to $500,000 including $250,000 in cash. Many custodians offer much more coverage – some up to several million dollars’ worth – so ask about the coverage you have with the company you do business with.
(If you keep your IRA money in bank products rather than investments, SIPC won’t help you. To solve that problem, keep reading.)
2. Investing Too Conservatively
The next big error that people make with their IRA is that they put the money in lousy investments. Ultra-conservative people tend to keep retirement assets in bank products like CDs and this costs them a fortune. That’s because the rate of return on CDs barely keeps up with inflation if at all and this can be devastating over long periods of time. And since the greatest benefit of having an IRA is the ability to tap into years and years of tax-deferred growth, it costs you big if you park your money in low-return investments.
To give you a sense of this, let’s look at some numbers. Let’s say you invest your $5500 IRA contribution into a CD every year for 25 years and earn 3% on average compared to a conservative balanced fund that theoretically earns 6% on average. The person who invested in the balanced fund ends up with $100,000 more retirement money at the end of the period compared to the bank depositor.
Of course, the fund investor took on more risk and there are no guarantees of results. But because the nature of retirement accounts is long-term, the value fluctuations over the short run aren’t important. What counts is the value over the long-term. I urge you to learn about investing for growth and learn about dollar cost averaging.
3. Investing Too Aggressively
Of course there is a flip side to this issue and that is, investing too wildly. Some people feel that they can take all kinds of risk with their IRAs because they are such long-term arrangements. Well, you can certainly take some short-term risk, but it rarely pays to take on unwarranted risk.
Remember, your retirement money is very long-term. You don’t need to take tremendous risk in order to grow your money quickly. You need to get a good return over the long-run. Sadly, investors who buy super risky investments often end up underestimating just how much risk they really take on. This happens with DIY investors as well as those using advisors. In my experience, this leads to investors suffering huge losses in many cases.
4. Not checking beneficiaries periodically
Besides making investment mistakes with their IRA money, investors often make administrative errors which can be even more costly. And the biggest mistake in this category is failure to check your beneficiaries.
By law, your retirement money goes to the beneficiary you name in your retirement account documents. It doesn’t matter if you have a trust or a will. The people you name on the beneficiary document are the people who are going to inherit that money.
Picking your beneficiaries can be a tricky subject and you should only name them after careful deliberation – preferably with a qualified attorney who is expert in estate planning.
And don’t become complacent. Review your beneficiary selection every couple of years. I suggest this because things change; people get married, have kids, pass away, etc. It’s absolutely critical to review who your beneficiary designations are periodically. If you don’t your money could fall into the wrong hands and you won’t be able to do anything about it.
The trick here is knowing the best way to check on this. In my experience, there is only one way to do this and that is to get a copy of the beneficiary form your custodian has on record. You can’t just call the custodian or email. You need the actual form your custodian has on record. Here’s why this is so important.
First, when you pass away, that form is the document your custodian will follow. Second, this proves that the custodian hasn’t lost the document to begin with. Believe it or not, this happens all the time and if you die and there is no beneficiary document, your IRA money might go into probate which is a costly and time consuming exercise only popular among lawyers.
5. Putting Your IRA at Risk by Other Financial Behavior
The last mistake is I want to mention is having to deplete your retirement money as a result of spending. I know that sometimes you have no choice but to tap that IRA in order to keep the financial wolves at bay. But please understand that this is something you should avoid at almost all costs .If you tap into your IRA to pay off debts, you’ll have to pay a 10% penalty if you are under 59 ½ (unless you meet stringent requirements). And worse, you risk never being able to retire at all. That’s because once people start putting their fingers in their retirement cookie jar, they tend to keep doing so until all they have left is crumbs.
As you can see, these 5 mistakes are relatively easy to make – unless you are aware of them and take proper steps to avoid them. My suggestion is to take the time to ask yourself if you are at risk in any of these areas and if so, take corrective action immediately.
Neal Frankle, Certified Financial Planner ®, WealthPilgrim.com, CreditPilgrim.com
Investing Your IRA in Real Estate and Alternative Assets
The options for investing your hard-earned retirement savings are numerous, each with its pros and cons. Among those options would be investing your IRA in real estate and other alternative assets by operating a self- directed IRA. One important thing to remember is that age is not a limiting factor to retirement savings; you can start as soon as you get your first job.
If you are looking for a retirement vehicle to invest in, it is important to ask a trusted financial adviser on how best to invest your savings. For instance, if you desire to invest in stock market trading, you need to understand how volatile the stock market can get. By choosing to buy stocks, you might get yourself into a situation where you have your finances tied and hence cannot use it at a time when you need to.
As a wise response to market volatility, investors are diversifying their investments by looking and buying alternative investments, such as real estates. So, if you are looking for an investment option, look no further than real estate investment.
What accounts do you need to get started saving for your retirement?
An IRA, Individual Retirement Account or plan is an account that you open with a custodian, such as a bank or a brokerage firm where you direct a monthly amount of money to use after retirement. One disadvantage of the IRA is that they limit your investments to bonds and other exchange-traded stocks. If you have such an account and are interested in real estate and other alternative investments, you will be required to convert it to a self-directed IRA with a custodian offering that service. Another retirement account you can open is a 401 (k) plan, which has a higher contribution limit thus enabling you to save more.
A self-directed IRA (SD IRA) gives you investment freedom and complete control over your money and much more options than what a traditional IRA does. One good reason why you should consider a SD IRA is if you can’t trust someone with managing your funds and are confident with the investment decisions you make. The alternative investments include:
Real estate
- Private Placements
- Precious metals such as gold and silver
- Private equity
- Tax Liens
- Hard money lending
- Many many more
So, a SD IRA gives you absolute control and investment freedom, but is it a must have for everyone saving for retirement? No, SD IRA is not for everyone and this is why:
- You need to be an expert in the field you have chosen to invest in. For instance, if you chose to invest IRA in real estate, you need to be well conversant with land or properties. Another alternative asset is investing precious metals – in this case you need the help of a respectable and experienced precious metals dealer.
- As compared with other retirement plans, the assets in a SD IRA may not be liquid (having a ready market to sell to) but you will still be required to take Required Minimum Distribution (RMD) when you reach the age of 70 ½. If you are illiquid at the time of RMD’s are required, you don’t have to liquidate, you just have to pay the taxes due.
- SD IRA’s do have two very important rules to follow. One is the disqualified person rule. A disqualified person can neither extend credit to the SD IRA nor receive any immediate benefit from the SD IRA. Normally disqualified persons are the IRA owner, his/her spouse, children, grandchildren, parents and grandparents and their respective spouses. The other rule is the PT (Prohibited Transaction) rule. There are three assets classes not allowed by the IRS. These are Life Insurance Contracts, Collectibles and shares of an S Corp. As with any investment good record keeping is a must.
- SD IRAs are exactly that – self-directed so proper due diligence should be the rule. Don’t become a victim of fraud. You have all the investment control so just because investment looks too good to be true and it is not a regulated investment, be careful. It is your retirement dollars you are in charge of.
- Opening a SD IRA is also easy, but beware a lot of custodians have investments they wish to sell and although they can call it a SD IRA, it really isn’t.
So, before deciding on which IRA investment fits you, decide first on what you want to achieve with your funds first. Any action you take with your money will determine how your retirement will be.
7 Practices to Help your Clients with Retirement Planning
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Every financial planner wants their loyal clients to have a successful retirement. There are various methods to approach the aspect of retirement planning to ensure that your clients lead a comfortable life once they decide to wrap up their careers.
Here are 7 practices that will help you prepare your client well for their golden years.
- Review The Funding ‘Sources’
It is crucial to figure out which financial sources your client can tap into to fund their retirement. The retirement income can come from numerous sources that may include Qualified retirement plans like 401k, IRAs, annuities, pensions, social security, taxable investments, stock options, insurance policies, etc. It would be better not to consider anticipated inheritance into account as family ties/relationships and circumstances may change which can directly affect the number of assets that would eventually be passed on. - Monitor the Account Regularly
As financial advisors, you should constantly keep a check on your clients’ accounts and financial portfolio. Monitoring the accounts will help you understand how and where the money is flowing, discover transactions that weren’t ‘authorized’ and see if there are any unexpected activities or activities that are difficult to understand. Keep your clients in the loop at all times so that issues can be discussed immediately. Regular monitoring will also help you keep a check on new contributions that your clients or their assistants forgot to mention — contributions which can pile up without being invested properly. - Review Retirement Budget
Everyone has an estimate of their retirement budget. Review that budget with your clients and make adjustments or changes if possible. Check if any items can be eliminated without impacting their lifestyle, if they can move to an affordable area, the kind of lifestyle changes they can make such as cutting on travel or eating out, etc. Make only those changes that will allow them to maintain the retirement lifestyle they wish for. - Listen More
It is true that you need to talk at length with your clients and make them understand different investment options. But more importantly, you should spend time in listening to them. Recognize their needs, listen to their concerns and clarify the things you don’t understand. You should not enforce your favorite investment strategies upon your clients but rather make sure that the proposed strategies align with the client’s needs. When you listen carefully, you will minimize the risk of suggesting those investments that are not appropriate for your clients. - Act Against Impulses
The relationship between you and your client should be transparent and honest. If your client is being impulsive or leaning towards a decision that looks like an investment mistake, act against it. Do not be a ‘yes man’ and agree to each and every suggestion. The role of the consultants and advisors is to push against impulses of the clients, so that they don’t harm the retirement portfolios. You are hired to make good decisions for them, offer the right financial advice and warn against mistakes. - Help in Downsizing
Help your clients in downsizing as it becomes a natural thins as one comes closer to retirement. Once the kids graduate and move out, your clients might not need to stay in a huge house and rather move to a smaller one. They no longer have to stay in a place that’s closer to work and they can enjoy the option of moving to a different area that’s more affordable while offering the same comfort. Probably they can further cut down by giving up the extra cars or other household expenses that they won’t need post retirement. - Start Planning Early
The earlier you start the planning process, the better. That gives you a longer time to prepare, plan and invest to get better returns. As soon as your client contacts you regarding retirement planning, study how much time they have until retirement and assess their current financial situation. This will allow you to create a good retirement strategy for them. Encourage them to start early without procrastinating it any further. Give them an honest assessment of how ready they are for the retirement and even when the results do not look bright, give them options that will work for them.
Explain your role to your clients if they are unclear about that. It’s your job to ensure that your clients are well-prepared for retirement. Be completely honest and offer alternatives if and when required to augment their investment and financial portfolio.
Retirement Planning for Veterans – Investment Options You Must Make the Most Of
Are you sure that your pension plan is sufficient to lead a comfortable life throughout your retirement? Can you guarantee that your lifestyle won’t change if the cost of living continues to rise? Can you count on your social security benefits for the rest of your life? It is important that you have a secure and steady stream of income that has you covered beyond your basic expenses. Military members surely have a great pension plan that assures a 50% pension after 20 years of service but unfortunately even a 50% pay is not enough to live a comfortable life throughout retirement. While it is a good amount, it is still not adequate and this is exactly why veterans and military members need to take retirement planning seriously. Not to forget the fact that most military members never even serve 20 years due therefore they are not entitled to receive the retirement benefits.
For all these reasons, it is necessary that veterans and military members plan their retirement regardless of whether they serve the military or separate from it to join a different sector. Contributing to an IRA allows you to take your income with you wherever you go and it also offers great tax benefits.
What Makes Military Veterans Different from Other Employees
Most military veterans are on PDRL wherein they receive a predetermined payment every month. However, despite generating a steady stream of income, the payment overrides the possibility of demotion, disability and job loss.
A veteran only receives a certain percentage of his base pay and retiring on the basis of this pay alone is not a prudent decision as it would not even cover the basic expenses during retirement. VA payments are not considered to be a source of income and hence they are tax-free. So veterans who are entitled to receive benefits do not qualify to contribute to an IRA. They can, however, take advantage of other retirement savings options.
Best Investment Strategies for Long-term Retirement Savings
Veterans are eligible to receive home loans which can be leveraged for purchasing large properties or a multiunit that can be rented out for substantial profits, provided you reside in one area of the multiunit.
The thrift savings plan is another lucrative investment option that allows account holders to make tax-free retirement contributions. Veterans working in a combat zone can get tax-free deductions if they have dependent children. The money that is saved during a deployment is not taxed even when it is time to withdraw. A TSP allows veterans to invest in bonds and stock. It also offers target date funds that comprise a mix of five different index funds. Expenses are kept to a minimum in the TSP program by forfeiting automated contributions and the loan charges are also low. The only caveat with a TSP is that veterans do not receive a matching contribution that federal employees do which is where a Roth IRA gains preference.
Why a Roth IRA Makes a Rational Choice
The Roth IRA comes with tangible future tax benefits unlike a traditional IRA which is tax deductible. This means that there is no tax break when you make your contributions. All your retirement savings keep growing tax deferred and become tax free if the IRA owner has the IRA for 5 years and reaches the age of 59 ½.
A Roth IRA is extremely flexible as compared to other investment options, which is why opening a Roth IRA is beneficial for military members and veterans. If you are a single filer and your adjusted gross income does not exceed $110,000 or $160,000 if you are a joint filer, you can establish a Roth IRA and enjoy tax-free withdrawals at age 59 without inviting any penalty.
Investing Your IRA in Real Estate and Alternative Assets
source: ralblog.com
The options for investing your hard-earned retirement savings are numerous, each with its pros and cons. Among those options would be investing your IRA in real estate and other alternative assets by operating a self- directed IRA. One important thing to remember is that age is not a limiting factor to retirement savings; you can start as soon as you get your first job.
If you are looking for a retirement vehicle to invest in, it is important to ask a trusted financial adviser on how best to invest your savings. For instance, if you desire to invest in stock market trading, you need to understand how volatile the stock market can get. By choosing to buy stocks, you might get yourself into a situation where you have your finances tied and hence cannot use it at a time when you need to.
As a wise response to market volatility, investors are diversifying their investments by looking and buying alternative investments, such as real estates. So, if you are looking for an investment option, look no further than real estate investment.
What accounts do you need to get started saving for your retirement?
An IRA, Individual Retirement Account or plan is an account that you open with a custodian, such as a bank or a brokerage firm where you direct a monthly amount of money to use after retirement. One disadvantage of the IRA is that they limit your investments to bonds and other exchange-traded stocks. If you have such an account and are interested in real estate and other alternative investments, you will be required to convert it to a self-directed IRA with a custodian offering that service. Another retirement account you can open is a 401 (k) plan, which has a higher contribution limit thus enabling you to save more.
A self-directed IRA (SD IRA) gives you investment freedom and complete control over your money and much more options than what a traditional IRA does. One good reason why you should consider a SD IRA is if you can’t trust someone with managing your funds and are confident with the investment decisions you make. The alternative investments include:
- Real estate
- Horse breeding business
- Precious metals such as gold and silver
- Private equity
- Art galleries
So, a SD IRA gives you absolute control and investment freedom, but is it a must have for everyone saving for retirement? No, SD IRA is not for everyone and this is why:
- You need to be an expert in the field you have chosen to invest in. For instance, if you chose to invest IRA in real estate, you need to be well conversant with land or properties. Another alternative asset is investing is horse breeding business, but you also need to clearly understand what the horses require. A common mistake investors make is to invest IRA in real estate or the horse breeding with no expertise at all and only do so because their friends have been successful in these businesses.
- SD IRAs are more risky in that they do not allow for diversification of the asset classes. What this means is that your retirement is at risk if something bad happens.
- As compared with other retirement plans, the assets in a SD IRA are seldom liquid but you will still be required to take Required Minimum Distribution (RMD) when you hit seventy and a half years. A penalty follows if your asset generates less cash than what is required to take the RMD.
- This account prohibits direct transactions to self or family. It does not allow you to borrow or lend money to your account, and you cannot also buy or sell assets from self to self. If a prohibited transaction is noted, your SD IRA is disqualified and you are penalized.
- A SD IRA requires proper record keeping, which may not go so well with some people. Rental property will need a regular check now and then in order to keep the tenants happy. All the transactions undertaken in this property need to be documented should cases of violations arise.
- SD IRAs are less transparent and one could easily become a victim of fraud. This is because there are little or no regulations set on alternative investments. It is, therefore, wise not to invest IRA in alternative assets just because the returns look so promising.
- Opening a SD IRA is also not easy since not all custodians offer the service.
So, before deciding on which IRA investment fits you, decide first on what you want to achieve with your funds first. Any action you take with your money will determine how your retirement will be.
What Do Financially Successful People Do Differently?
Whom do you consider to be financially successful? If your answer is ‘those individuals who make loads of money’, then the answer is partly true. You could have a ton of money but lose it in an instant due to a bad financial decision. On the other hand, you can build up a great financial portfolio and grow big financially, in spite of starting small, with smart decisions and choices. So, what makes someone financially successful? Read on.
Here are some of the things that Financially Successful People Do Differently
1. They Keep a Check on their Thoughts and Emotions
Financially successful people believe in affirmative thinking and practice the same. They believe that ‘thinking’ controls every aspect of their life — business, finance, health and relationships. At the same time, they don’t let emotions control them. They keep a check on how they feel and don’t let negative emotions such as stress, fear, sadness or overwhelming events cloud their judgment. They understand that these emotions will make the brain less resourceful, and hinder their ability to make good decisions.
2. They Keep the Experts Close and Secure their Retirement
Successful people know their strength and the areas where they lack the required expertise. They don’t hesitate to acknowledge their weaknesses and choose to build a team of experts in their business to compensate their weaknesses. They assemble a team of experts that include a good business lawyer, financial counselors, accountants, financial advisors, etc., who can assist them in making good financial decisions. Having a trustworthy team of such experts can take their business to great heights and even lend a big hand in retirement planning.
3. They Prioritize Differently
The tasks on the ‘to-do’ list will keep growing, no matter how fast you complete them. It is no different for financially successful people, but they approach that list differently. They focus on starting and executing important things first, rather than the easy ones. They apply this to their financial decisions as well by tackling important decisions that can help them make money, instead of pushing such decisions to ‘some-other-time’ which can have the potential to seriously affect their finances. Change the mindset to approach the important tasks first, regardless of how tempting the easy ones seem.
4. They Minimize their Taxes
Financially successful people aim to get the most of their investments and money by minimizing their tax burden. They have a certified public accountant who ensures that they don’t miss applicable deductions when they file their taxes. Additionally, they invest pre-tax dollars through tools such as company 401(k) to the employer match. They choose to invest in Roth IRA as well so that they don’t have to pay taxes on their earnings in the future. It is essential to pay taxes but you can take advantage of tax benefits to the degree the law allows.
5. They Never Stop learning
The common trait amongst every financially successful person is that they NEVER stop learning. They always immerse themselves in books, articles or any reading material that will help them grow, both in business and financially. They know that there is always something to learn and keep their minds open about the same.
6. They Know How to have Fun
Financially successful people don’t just know how to make money, but also how to spend it and have fun. They spend their hard-earned money on vacations, loved ones, hobbies, and fun activities to do with their family. This allows them to build and strengthen important relationships and even grow personally. They understand that celebrating their accomplishments, no matter how small, is equally important. Not only does this allow them to see how they are faring in their business and financial journey but also recharges them to strive and reach for their next financial goal.
7. They Always Set Goals
Goals are a part of every financially successful person’s life. Goals provide them with a roadmap of what and how they should do things to proceed ahead in their business. They set SMART (specific, measurable, achievable, realistic and time-bound) goals that help them dream bigger and fulfill their desires. They make SMART financial goals that help them save money and manage their finances smartly.
8. They Keep Adapting and Reinventing Themselves
Things in the business world are dynamic and keep changing frequently. Financially successful people adapt to these changes and are willing to reinvent themselves to maximize the opportunities presented to them. By keeping an open mind and a willingness to change with the times, they successfully capitalize on financially successful opportunities.
9. They Believe in Paying it Forward
It is true that financially successful people put a lot of effort in making more money, but there is another side to them. They believe that it is equally important to give back a portion of their wealth to the community. They frequently donate to a favourite charity or simply help someone in need. It keeps them grounded and gives them a purpose to make more money so that they can keep paying it forward.
10. They are Not Afraid of Failing
Successful people are not scared of embracing failure. They rather consider it to be a stepping stone towards success. They know that they can’t always succeed and that failure will be inevitable at some point but they don’t let the fear of failure deter or stop them from going after what they want. They might make decisions that would literally cost them money, but they learn from the mistakes and forge ahead. When you overcome the fear of failure and see it as a temporary setback instead, you open multiple avenues to explore and succeed, just like financially successful people.
11. They take Risks Even when it Comes to Debts and Loans
Usually, debt and taking loan scares off people, and rightfully so. But financially successful people view them as powerful tools that can enable them to purchase or even own a greater percentage of an investment. If successful, it could earn them a lot of money through the interest on the loan. It is a risky move as irresponsible and impulsive decisions can have negative effects, but it is a risk the financially successful people are willing to take as they see it as a chance to leverage debt to maximize returns.
12. They are REALLY Persistent
Lastly, the one trait that sets the financially successful apart from others is persistence. This quality enables them to take another step when they think they can’t go any further, overcome obstacles without getting overwhelmed and attain their goals, no matter how big. Financially successful people manage to pay off debt, create better products and increase their retirement savings through persistence.
A quote by Winston Churchill does a perfect job of outlining the attitude displayed by financially successful people — ‘Success is walking from failure to failure with no loss of enthusiasm.’ You no longer have to just dream of being financially successful, but rather live it. Embrace these twelve qualities and you will be on your way to becoming financially successful like those people you look up to. Make wise decisions and don’t hesitate to consult with the experts when needed.
Why Should You Use a Roth IRA to Save for College (and Retirement)?
When it comes to putting money away for the years to come, you have quite a few options available. One of these is a Roth IRA, which could be your best choice when you’re planning your child’s education. As a parent, cutting down on a few small expenses and making the right choices now will help you offer your child a secure future!
Use a Roth IRA to Save for College and retirement
4 Ways to Boost Your Savings
Here are some tips that will help strengthen your personal finance strategy for college savings as well as retirement:
- Start Saving Early and Often – If you get used to saving money for your kids’ education when they’re still young, you have a better chance of building a good-sized nest egg by the time you retire. By starting early, your money will have the potential to grow that much more, thanks to the magic of compounding interest.
For a college student, retirement planning is probably the last thing on their mind. However, college is expensive, even if they get a scholarship, so encourage them to start saving early. The earlier you and your child start saving, the larger your college and retirement nest egg will be.
Here’s another reason to start putting funds in an IRA now: When you save even small amounts of money and give it more time to grow, you actually need to put less money away every month to reach a certain goal. Plus, the tax benefits compound over time too. You need to save every penny, especially with skyrocketing tuition and living costs!
- Remember, Roth IRAs Offer Unique Benefits – It may seem like a bad idea to tap into a retirement account for college expenses, but look at some of the advantages a Roth IRA gives you as a saving tool:
- Unlike most other IRA or retirement accounts, early withdrawals from a Roth IRA do not incur penalties or taxes. While only applicable up to the total amount you’ve contributed, it can help cover college tuition in a pinch.
- While determining financial aid, all of your assets, earnings and savings are taken into consideration (even a 529 College Savings Plan), except a Roth IRA. The money you’ve saved in this account won’t count against your child’s eligibility.
- Withdrawals from a 529 plan (for any purpose other than college) involve tax and penalty. For someone who decides not to go to college, Roth IRA savings can still be used for retirement savings or other purposes, penalty-free.
- Understand the Tax Breaks and Rules – Depending on your income and your child’s status in school, there are some tax advantages you can use to save money:
- You can save up to $2,500 annually during the first four years of undergraduate study (for students enrolled at least half-time) with American Opportunity Credit. Of this amount, 40% is a refundable credit, so it can be paid even if you have no tax liability. MAGI (modified adjusted gross income) limits are $90,000/$180,000 (singles/joint filers claiming the credit).
- The Lifetime Learning Credit isn’t affected by student status or number of years in school, and can save you up to $2,000 (non-refundable). MAGI limits are $55,000/$110,000.
- If you don’t qualify for tax credits, you could receive an income adjustment of up to $4,000 with the Tuition & Fees Deduction. MAGI limits are $80,000/$160,000, and it’s not limited to the first four years of college.
Don’t take distributions till the final year financial aid form has been filed. Stay updated with tax rules and loopholes (which keep changing). For instance, in the 2017-18 academic year, you can use tax returns from your child’s sophomore year while applying for aid in their senior year. Consult a tax professional or personal finance advisor too.
People are retiring younger, with better health and more time to enjoy their golden years. If you want to spend your retirement at leisure without worrying about how to stay afloat, make the most of every penny you save. Your kid’s college education could be the largest expense you deal with, so plan it right and get cracking on your savings plan today!
5 Compelling Reasons For Women To Make Retirement Planning A Priority
Saving for a secure future remains a primary goal for every wise individual be it a man or a woman. But, a woman, irrespective of her marital status, faces unique economic issues post retirement. A woman lives longer than a man and hence she needs more money to survive. She serves fewer years in the workforce as compared to a man because a woman is likely to give her career a break for raising children or to care for an elderly parent. These interruptions make it all the more difficult for a woman to obtain a promotion or a pay hike. A lower income coupled with lesser years in the workforce and a longer life expectancy make savings and investments a little more difficult for a woman.
5 Compelling Reasons To Make Retirement Planning A Priority
#1 Women Are Less Likely To Take Advantage Of Retirement Plans
Retirement savings tend to take a back seat in a woman’s life due to career breaks. Women are also found to be more conservative investors as compared to men. Some of them are unable to avail retirement benefits due to the shortage of the number of work hours needed in a year to qualify for the employer’s retirement plan. Women also lose out on retirement security due to their uneven work patterns, the wage gap, and their role as caregivers. Working for an employer that offers a sound retirement savings plan for employees, can make it easier for you to save money and taxes at the same time. 401(k) plans are meant for the employees of public and private organizations and help you save money while managing your financial obligations alongside.
#2 Women Tend To Live Longer Than Men
Women need to plan for a longer retirement period as they tend to outlive their male counterparts by the average difference of a decade. A longer life expectancy means a woman is likely to lead a lonely life at an older age and is expected to spend more on medical care during that phase. The death of a spouse brings down the income to half and to make things worse; the social security benefits decline dramatically. A self-directed 401(k) plan is a golden opportunity to lower the burden of tax and save for the retirement. The sooner you start, the more you save.
#3 Widowhood And Divorce Invite Serious Financial Difficulties In Case Of An Illness
Due to a longer life expectancy, women tend to live much longer than men. Widowhood generally occurs at a later stage in life and can be emotionally draining and financially devastating for a woman. Living alone without a spouse due to divorce or widowhood significantly increases the expenditure of long-term care in case of disease or disability. Plan in advance and stay prepared for every adversity in life. Self directed retirement plans are the key to lifelong financial stability.
#4 Women Rely Solely On Social Security
Women have the tendency to rely completely on Social Security for their retirement funds. A recent study suggested that more than 20% of widowed women are dependent exclusively on Social Security for their income. Opting for social security benefits at an earlier stage can significantly reduce the amount. Similarly, delaying the claim by a few years would result in a considerable increase.
#5 Women Have A Lower Workforce Participation
Women often sidetrack savings when balancing multiple financial obligations with lower workforce participation. Raising children or caring for an aging parent leaves little money at disposal towards the end of life. Despite a considerable increase in workforce participation, women continue to earn less as compared to men. Lower workforce participations adversely affect the career ladder and this makes it extremely difficult for a woman to accumulate an adequate amount to support her retirement.
Loss of a spouse, increasing costs of healthcare, and chronic illnesses that crop up with aging can be debilitating for a woman. Save for your retirement today, because life gets demanding with every passing day. Meet an experienced financial advisor and get started with your personalized retirement plan that efficiently caters to the challenges that confront your unique situation. Plan smartly to make your retirement phase easy and comfortable and continue to enjoy the same lifestyle till your last breath.
The Why and How of Retirement Planning for Women
Source: sixtyandme.com
Retirement Planning for Women: Proper retirement planning is crucial for everyone, but it may be even more important if you’re a woman. Despite an income gap where men earn almost 25% more, most women do not have a financial plan that will help them maintain their comfort, security and independence after retirement.
Women Approach Financial Planning Differently
Most women don’t have the time or energy to plan their finances, investments and savings after providing care for their families, managing day-to-day expenses and handling other personal priorities. Many feel lost in the world of income and portfolio planning and are uncomfortable discussing money with advisors.
Knowledge is power, so let’s consider why it’s important for you to have a smart financial plan, and some simple ways to get started.
What Are Some Retirement Planning Hurdles Faced by Women?
Here are some common obstacles that women face with retirement planning:
- The average income for women is lower than for men, and they typically contribute 30% less to their 401k plan. Less than half of all employed women between the ages of 21 and 64 participate in an IRA or other retirement plans.
- Fewer women have recovered from job losses caused by economic recession in the last decade. Many women work part-time or too few hours to be eligible for employer-sponsored pension plans.
- Life expectancy is higher by 5-7 years for women, which raises the chances of needing long-term care at some point. However, almost 20% of women between the ages of 18 and 64 have no insurance coverage.
- Social Security benefits are lower for women. Couples need to be married at least 10 years before a divorce, for either party to claim their ex-spouse’s benefits. Since most divorces happen within 7 years, a number of older women face financial trouble after a divorce.
- Women are also more likely to provide care to parents and family members, taking an average of 12 years off from work. Many single mothers are unable to save for retirement, and more women than men are single parents.
- Single, widowed or divorced women often have to provide for themselves as they get older. Almost a third of single, divorced or widowed women over the age of 64 are not financially stable, compared to 1 in 5 men.
- Men tend to make more aggressive investments than women, with potentially higher gains that keep pace with inflation.
How Can You Overcome These Hurdles?
Here are some basic financial tips to help you meet your retirement planning goals:
- Set Some Goals:
You need to know where you want to be before you can start taking steps to get there. Decide which financial goals are most important to you, whether for yourself or your parents, children and other loved ones. - Analyze Your Finances:
Understand where you stand at the moment, listing your sources of income against expenses. This will help you determine areas where you can cut down spending, to save for financial emergencies as well as retirement. - Learn What You Can:
The best way to start making smart financial investments is to understand everything you can about them. Explore retirement savings, employer-sponsored plans, insurance and investments that can help you save for the future. - Get Expert Help:
Don’t rely on advice from well-meaning friends and relatives, since they may not have the expertise to help you reach your goals. A professional advisor will be able to help you create an effective and structured financial plan.
As a woman, not only are you statistically likely to live longer than men, but the financial odds may be stacked against you in other ways as well. If you don’t already have a nest egg for your golden years, it’s definitely time to start one.
With a self directed IRA, you can explore investment opportunities at your own pace. Get in touch with our financial advisors to learn how, today!
What to Do If Your Parents Don’t Have a Retirement Plan?
Most millennials and working youngsters today have parents who are close to retirement age, many of whom do not have a sufficient nest egg to see them through their golden years. The responsibility for your parents’ care and comfort (as well as their debts) could fall on you if their retirement planning strategy falls short of their actual requirements.
It’s important for you to understand where they stand in terms of social security, pension funds and savings, so you can plan for potential expenses in the future. Whether they live with you, on their own or in a retirement community, you may need to budget and save today so your parents are comfortable and secure tomorrow!
What You Need to Know about Your Parents’ Retirement Savings
When you’re trying to help your parents with retirement planning, it’s crucial to understand where they stand. This helps you work out real solutions for issues like debt, healthcare and day-to-day expenses, in addition to providing them the financial independence and “space” they desire.
Offering a supplemental income source could not only wound their pride, but also create a mutually harmful dependency. This is a larger risk if the reason for insufficient retirement savings is bad money management or unnecessary expenses.
Start by asking where they have parked their retirement nest egg, if at all. For instance, have they invested in:
- Insurance?
Not just life insurance, but additional coverage for potential medical issues that arise with age. Long term care insurance may be expensive, but a prolonged illness or disability could eat into their savings and your own! - Retirement Funds?
Ask whether (and how much) your parents have invested in IRA and 401K plans. Help them make the most of contribution limits and tax breaks, even if they’re uncomfortable telling you how much they’ve saved. - Debt Repayment?
If mortgages or outstanding loans are paid off, that’s one less thing to worry about later. If not, it may be time for gentle encouragement, so your parents aren’t saddled with debt when they’re no longer able to work.
Helping Your Parents with Retirement Planning
Here are some effective ways to help your parents manage their finances and save for retirement:
- Meeting an Advisor:
A third-party financial advisor can not only look over your parents’ investment portfolio and rebalance it if required, but also minimize any awkwardness they feel discussing finances with you. - Updating Wills and Trusts:
Get a lawyer to help your parents with wills, trusts and other estate planning documents. Existing paperwork should be up-to-date, your parents should consider a power of attorney as well. - Maximizing their Savings:
Encourage your parents to save as much as possible, making frugal living choices now so they have financial security later. Check their budget for unnecessary expenses that can be trimmed. - Boosting Retirement Income:
Delaying retirement by a few years, continuing to work part-time, making smart investments, and exploring business opportunities can all help boost income both before and after they retire. - Preparing Yourself As Well:
No matter how well you plan, there’s no way to guarantee that your help won’t be needed somewhere down the line. Plan your own finances and savings, so you can help your parents when they need it.
Early planning will help you prepare against the financial impact of their retirement, if they can no longer care for themselves at any point. Even if it doesn’t feel like any of your business, you definitely need to consider your parents’ retirement plan and help them get it on track (so you don’t end up being it!).
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