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How Will You Withdraw Your Retirement Funds?

May 10, 2022

For much of your career, you’ve focused on building an appropriate retirement savings. But once you retire, the strategy will shift from saving to spending - or, more accurately, withdrawing. Many retirees have spent little time considering how they will take withdrawals from their retirement funds, so you might be surprised to learn that this part of your plan should include careful strategy as well. 


The rules for required minimum distributions (RMDs).  At age 72, you will be required to start taking RMDs from your retirement account, if you haven’t already. These withdrawals must be taken by April 1 of the year after you turn 72, and by December 31 in subsequent years. 


If you forget to take your RMD for the year, the IRS will impose a penalty in the amount of 50 percent of the amount you should have withdrawn. You definitely don’t want to overlook your RMD each year or withdraw less than the required amount. 


Your RMD is based upon your age, life expectancy, and the account’s balance. So, it will change each year, and must be calculated carefully to avoid triggering penalties. 


Withdrawals from multiple accounts. If you’re fortunate enough to have savings in multiple retirement accounts, you need to strategize withdrawals in a certain order. For example, you might feel tempted to withdraw from your Roth account first, in order to avoid income taxes. But it is important to know that withdrawals from a Roth IRA do not count toward your Required Minimum Distribution.  Only regular IRAs, SEP IRAs, Simple IRAs and 401(k)s count toward RMDs.


And of course, those of you with multiple IRAs from different jobs might face confusion when it comes time to take withdrawals. One simple way to deal with this question is to roll all of the funds into one account. 


Delaying your RMD. If you’re still working at age 72, while contributing to a 401(k), you might be eligible to delay your RMDs. However, you would still be required to take RMDs from other accounts from previous employers. 


Consider a Roth conversion. In some cases, it makes sense to roll all of your retirement accounts into one Roth account. Making this move will trigger a one-time tax debt, but then the money in the account will continue to grow, untaxed. This move makes sense in some cases but is not the right choice for everyone. 


As you can see, all of these considerations create quite a complex puzzle when it comes to retirement account withdrawals. Numerous rules and tax considerations can lead to wildly varying outcomes. Meet with me before you retire, and then regularly throughout your retirement, so that we can help you strategize your retirement income plan. 

Life Insurance for Different Life Stages: Tailoring Your Policy to Your Needs

16 Apr, 2024
Life insurance isn't one-size-fits-all. Just as your life evolves over time, so too should your insurance coverage. Whether you're starting your career, raising a family, or enjoying retirement, understanding how to tailor your life insurance policy to your current life stage is essential for ensuring adequate protection for you and your loved ones. Starting Out: Young Professionals As a young professional just starting out in your career, life insurance might not be at the top of your priority list. However, this is the ideal time to secure coverage, as premiums are typically lower when you're young and healthy. A term life insurance policy can provide affordable protection for your loved ones in the event of your untimely passing while also allowing flexibility to upgrade to permanent coverage later on. Growing Family: Parents and Homeowners For parents and homeowners, life insurance becomes even more crucial. You want to ensure your family is financially secure and able to maintain their standard of living if something were to happen to you. Consider a combination of term and permanent life insurance to cover immediate expenses, such as mortgage payments and childcare costs, as well as long-term financial needs like college tuition and inheritance planning. Midlife Milestones: Empty Nesters and Career Climbers As your children grow up and become financially independent, your insurance needs may shift. You might choose to adjust your coverage to reflect your changing financial obligations and goals. This could mean reducing coverage amounts or transitioning to a policy with cash value accumulation features, such as whole life insurance, to supplement retirement savings and leave a legacy for your heirs. Retirement: Golden Years and Legacy Planning In retirement, life insurance can still play a valuable role in your financial plan. While your need for income replacement may decrease, you may still want coverage to cover final expenses, estate taxes, or leave a financial legacy for your loved ones. An insurance policy with guaranteed death benefits, such as universal life insurance, can provide peace of mind and help protect your assets for future generations. Review and Adjust Regularly Regardless of your life stage, it's essential to review your life insurance coverage regularly to ensure it continues to meet your needs. Major life events, such as marriage, divorce, birth of a child, or career changes, may warrant updates to your policy. Working with a trusted life insurance broker can help you incorporate these changes into your long-term plans and make informed decisions about your coverage. Life insurance is a vital component of your financial plan at every stage of life. Meet with us now and regularly in the future so that we can help you evaluate and adjust your life insurance policy to ensure that it truly meets your needs.

How to Safeguard Against an IRS Audit

08 Apr, 2024
Receiving a notice from the IRS for an audit can be a nerve-wracking experience. The time, effort, and potential financial consequences make it a situation you'd rather avoid. Fortunately, many audits stem from avoidable errors. Here's how you can avoid the five most common audit triggers and keep your tax returns in the clear. Ensure You Report All Income Income discrepancies are a major red flag for the IRS. While taxes are typically withheld from regular wages, other sources of income, like business earnings or capital gains, may not have taxes automatically deducted. Be vigilant in accurately reporting all sources of income, whether you receive a 1099 form or not. Document and report any non-wage income meticulously to prevent underreporting. Explain Significant Income Fluctuations Significant fluctuations in income from year to year can draw the IRS's attention. If your income varies widely, provide explanations or notes with your tax filings. Whether it's due to changes in business circumstances or other factors, clarifying these fluctuations can help prevent misunderstandings. Document Business Losses Carefully While it's common for businesses to experience losses, chronic or substantial losses can raise eyebrows at the IRS. Keep detailed records of your business finances, especially in the early years. Additionally, if you operate a sole proprietorship, ensure your business activities are distinguishable from hobbies to justify loss deductions. Support Your Deductions Certain deductions, such as large charitable contributions or home office expenses, may attract scrutiny. Be prepared to provide supporting documentation for all deductions claimed on your tax return. Thorough records can help substantiate your deductions and alleviate concerns during an audit. Accurately Value Assets For estate tax returns, undervalued assets are a common trigger for audits. When valuing assets without a public market price, seek multiple appraisals from qualified professionals. Having multiple valuations can strengthen your position and minimize the risk of an audit. Remember, even if you enlist professional help for your taxes, the responsibility for accuracy ultimately lies with you. Review your tax returns carefully before signing them to ensure everything is in order. Understanding the Different Types of Audits IRS audits come in three main varieties, each with its own level of intensity. Correspondence Audit. Conducted through the mail, this audit is often triggered by missing information or minor discrepancies. Office Audit. Requires a visit to an IRS office, typically for more complex tax returns or multiple disputed items. Field Audit. The most comprehensive type, conducted in person at your home or business, involves a thorough examination of your return. Regardless of the type, the IRS will provide a written request for specific documents beforehand. By being proactive and thorough in your tax reporting, you can minimize the risk of an audit and ensure a smoother process if one does occur.
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