Retirement Planning – What big lessons did we learn from 2016

What big lessons did we learn from 2016 regarding retirement planning? How should people go about putting together their retirement/investment programs? What throws people off course when executing their investment program? Why do so many people make ill-advised changes to their retirement programs? Do you have any advice for people to raise their chances of success with their retirement planning? Watch Szarka Financial’s CEO Alex Menassa, CFP®, ChFC®, discuss these issues with Fox 8 News Anchor Gabe Spiegel.

What Can You Do if You Can’t Add to a Traditional or Roth IRA?

Traditional IRA and ROTH IRA plans are designed to allow investors to accumulate savings through contributions and earnings.

Traditional IRAs allow for deferred taxes until withdrawals are made, but tax liability is triggered when funds are distributed. On the other hand, there are no tax breaks for Roth IRAs when contributions are made, but eligible distributions are generally tax-free. This includes accumulated investment income.

So with Traditional IRAs, you avoid taxes when you put the money in. With Roth IRAs, you avoid taxes when you take it out in retirement.

Anyone with earned income can contribute to a Traditional IRA, as long as they are younger than 70½. Roth IRAs, however, have income-eligibility restrictions based on a person’s Modified Adjusted Gross Income (MAGI), depending on tax-filing status.

What happens if you are ineligible to participate in a Traditional IRA or ROTH IRA, because for example, you find yourself at the point of maxing out your contribution limits? The current contribution limits are $5,500, and $6,500 for those over age 50, so what might your options be?

If you find yourself ineligible to participate in a ROTH or Traditional IRA, now may be the time to look to old friends for help. The life insurance and annuity business still receive favorable tax treatment on earnings, with the only limitations on deposits being affordability or underwriting.

You just can’t put everything there, nor would it be wise to do so, but this may be a consideration depending on your individual circumstances.

Life insurance offers the following benefits (just in case you forgot!):

• Income tax-free death benefits to beneficiaries

• No defined annual IRS limitations on premiums

• No limit on gross income or modified gross income to affect your ability to contribute

• Missed premiums may be “made up” at a later time

• Tax-deferred accumulation

• Distributions using loans and withdrawals are income tax-free when structured properly

• No 10% penalty tax for accessing cash values prior to 59 ½ if structured properly

• Take distributions when needed, if at all

• No required distributions (RMDs) for owners

All signs point to changes in some aspects of IRS rules regarding IRAs, such as RMD on ROTH IRA and a ceiling on accumulation values in IRA accounts, sometime in the future.

Give us a call to schedule a discussion with a Szarka advisor about how this option, and others like it, may help your retirement planning diversification.

Should People be Worried About the Results of This Election?

Now that we know the results of the election, what should you do with your investments? In my opinion, if you were positioned appropriately before the election, it makes sense to retain that same strategy during the transition into the new administration. 

On the other hand, this change may also be a good time to step back and review your overall financial picture. Have your long-term goals changed? Are your investment returns meeting expectations? Reasonable goals, combined with sound planning, can pay dividends regardless of market conditions. According to FINRA (Financial Industry Regulatory Authority), the following 5 steps can help steady your pulse during market downturns and elevate your financial security.

1. Revisit your financial goals.
Set clear, prioritized goals. Good financial goals, tied to a sound long-term financial plan, typically will survive short-term market ups and downs. It is critical that you have a plan that includes annual savings as well as a diversified portfolio based on reasonable returns for the market risk that is appropriate for you.

2. Focus on asset concentration.
Do you have a large position in a particular stock or mutual fund? Significant market movement in that position can illuminate concentration risk, the risk of amplified gains or losses that may occur from having a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio. It’s important to diversify across, and within, the major asset classes to reduce the potential of a significant loss.

3. Focus on your financial security.
Take advantage of day-to-day opportunities to help build your finances for the long term, such as paying your credit-card debt on time and in full, if possible, to avoid paying high interest rates (which are cancerous to your long-term savings plan), and setting aside funds for the unexpected (car repair) or the specific (vacation in Hawaii). If possible, set up automatic contributions; to 401(k) plans, savings accounts and a Roth IRA if you qualify.

4. Understand the impact of higher interest rates.
Yes, the Fed finally started to raise the federal funds rate and might do so again. That will have a positive impact on your savings accounts, but it will likely have a negative impact on your current bond holdings. When interest rates rise, bond prices generally fall. New bonds will have higher interest rates, so it will be better long-term, but you might see a short-term negative impact on the bond portion of your portfolio. Stick with the plan!

5. Protect your money.
Fraud is a growing threat and financial scammers operate in all market conditions. In times of high market volatility, investors may be particularly vulnerable to pitches touting guarantees of “risk-free” returns. Combining a guarantee with a specific amount of money you will make—”this is a safe investment that will earn you $6,000 every quarter”—is a highly effective tactic known as phantom riches. You can avoid fraud by working only with registered investment professionals—use FINRA BrokerCheck ( to find out if a person is registered to sell securities—and by sticking to your pre-determined financial plan.

These steps are just some of the right things to do when it comes to financial matters. Unfortunately, no one can predict what will happen in the various markets. That is what makes it all work. If we knew what was going to happen, we could devise the perfect plan. So, as an alternative, I suggest you define your goals, develop a plan based on reasonable expectations, maintain a diversified portfolio, periodically monitor it and stick to the plan. Let us know if you would like to have your plan reviewed or, if you don’t have one, we can help you develop something that fits your unique goals and expectations.

New IRS Rule Could Provide Relief on IRA Rollovers

Sooner or later, almost all investors will eventually be faced with the decision of whether to roll their 401k (or other employer sponsored retirement plan) into an IRA. The IRS recently issued a new rule that could actually make life a little bit easier for taxpayers in this regard.

First, some background. As we have written about many times in the past, fixed pension plans are going the way of the dinosaur. For most people going forward, their major sources of retirement income savings will be their 401k. Depending on where you work, chances are good that you are eligible to contribute to a 401k plan through your employer. And if you move from job to job, you may begin to build up a collection of 401k plans from each employer.

Sooner or later, you’ll be faced with the decision of what you should do with these 401ks and begin considering rolling them into an IRA. Maybe you would like to pull all the 401k money together from the different plans into one IRA account to make it easier to administer and keep track of everything. Maybe you want a wider assortment of investment options than what the 401ks offer, and/or you want just one comprehensive set of investment options that applies to all the money rather than having each of the 401k’s subject to their own individual limitations. Or maybe you’re finally ready to retire and you want total flexibility to take distributions from the entire amount whenever you want, to meet your retirement income needs.  In any of these cases, you could potentially consider consolidating all the 401ks into an IRA by doing a rollover. Of course, this is a decision that must be made on a case by case basis depending on the needs of the taxpayer.

There are generally two ways to accomplish an IRA rollover. Many taxpayers who are not familiar with these rules, who maybe have never done this before, might only be familiar with the first method, known as the “60-day rule”. Under this method, the taxpayer just asks the 401k provider for a total distribution, and the taxpayer then has 60 days to deposit the money into their new IRA.  The problem is that if they miss the 60-day time window the whole thing is considered a taxable distribution rather than a rollover, including being subject to a 10% penalty if the person is under age 59 ½. Certainly an ugly situation in which no one would want to find themselves, but it’s happened to many taxpayers in the past.

Up until now there was almost no way for taxpayers to avoid the harsh consequences of missing the 60-day time window. But under a new rule issued this past August, for once it’s “the IRS to the rescue”!  Under the new rule, if a taxpayer misses the 60-day time period they can actually fix this problem themselves, and at practically no cost. All they have to do is fill out a form asking for a waiver of the time period, provided that the reason for the late rollover is among a specific list of permissible reasons allowed by the IRS. There are 11 acceptable reasons under this new rule, including financial institution error, misplacing the rollover check, mistakenly depositing the rollover into the wrong account, and other misfortunes such as severe damage to a personal residence, death or serious illness of a family member, and incarceration.

It’s not often that the IRS actually issues rulings that are so helpful and, dare we say it, “compassionate”! So this is certainly good news. On the other hand, taxpayers should be aware that this ruling does not change the fact that the rollover has to otherwise be valid in all respects, such as being the taxpayer’s only rollover within a 12-month period.  Also the new IRA custodian will still have to alert the IRS that this is a late rollover, which could invite an audit to make sure that the relief conditions were properly met.

Taxpayers should also be aware that there is a better method to make a rollover that avoids all these problems in the first place, known as a “trustee-to-trustee transfer” or a “direct rollover”. This is actually considered the “gold standard” for how to make a rollover. Under this method, you first have to decide who your new IRA custodian is going to be. Then you direct the 401k plan (preferably by phone if the plan so allows, otherwise via rollover paperwork) to make out a check directly to your new IRA custodian. The key is that the check is not made out to you personally; it’s made payable to “XYZ Custodian, IRA FBO (“for the benefit of”) John/Mary Smith”. That’s what makes it a direct rollover. The check is mailed to your address, and you forward it to your new IRA custodian.  In this case there is no 60-day time limit at all to worry about. You can initiate a direct rollover at any time for 401ks that you’ve had for many years, and take as long as you like to deposit the check into your new IRA (not that you’d necessarily want to wait very long!)

Any time the IRS issues a ruling like this that is actually helpful, it can be considered a victory for taxpayers.  However, there are still plenty of other rules and traps to watch out for. If you are considering a rollover, feel free to contact us for more detailed guidance.

Selecting Long Term Care Policies

With greater numbers of individuals living longer, long term care is becomingly an increasingly vital consideration. Mapping out a way to afford the cost is another important action as well. Mark Stratis, senior financial planner for Szarka Financial explains to Tim Muma the different types of Long Term Care Policies that can help you and your loved ones.

Click here to listen to the full podcast.

3 Things to do the Moment you Decide to Retire

What are some things people should do as soon as they decide to retire? Where should they start when it comes to making a budget? What are some tips for people regarding their investment assets? Watch Szarka Financial’s Senior Financial Advisor Alex Menassa, MBA, CPA discuss these issues with Fox 8 News Anchors Autumn Ziemba and Matt Wright.

A Possible Windfall for Divorced Spouses from Social Security

What are some retirement planning issues that divorced spouses have to face? Is there help available if a spouse spent significant time out of the work force? What are the requirements for a divorced spouse to collect on their ex-spouse’s record? Will this have any impact on the ex-spouse? Watch Szarka Financial’s Senior Financial Advisor Alex Menassa, MBA, CPA discuss these issues with Fox 8 News Anchors Stefani Schaefer and Gabe Spiegel.

Financial Tips for Women After a Loss of a Spouse

How common is it for women to lose a partner before retirement? What tips do you have for widows who need to continue working after the loss of their husband? Many pre-retired widows are concerned they will not be able to afford to retire. What steps can they take to try to ensure that doesn’t happen? Watch Szarka Financial’s Senior Financial Planner Chuck Conrad, JD, discuss these issues with Fox 8 News Anchor Roosevelt Leftwich.

Why Should You Plan Retirement Like a Vacation

Have you ever taken a vacation, without first planning where you want to go, what you want to see, how you are going to get there and how much it will cost?

Waiting to the last minute to decide on a vacation usually doesn’t end well. For example, it would be silly to get in your car and just start driving to England from Cleveland, wouldn’t it? But for many Americans, that is how they are approaching their retirement—with no real plan.

We all want to have a fun and memorable vacation. And we know that good planning can help to make that happen.

We have friends with two small children who recently returned from a trip to Walt Disney World in Florida. Having never been there before, they wisely consulted with a travel agent who was an expert in all things Disney, well over a year before they visited. The agent talked to them about their goals for the trip, which would allow them to experience all of the magical things that were important to both the kids and the parents. They settled on a budget, which they knew, based on the advice from the agent and their situation, would allow them to have their dream vacation. Because they started early, they were able to save plenty of money to meet their goals for the vacation without much sacrifice related to their daily living. Since they have returned home, they cannot stop talking about what a great time they had and how this was one of their best family vacations ever!

Not unlike how travel agents can help to determine your goals and budget for a vacation, working with a financial planner can also help you to be strategic and plan effectively for your retirement. These days, with improved healthcare and technology, retirement can last 20 – 30 years.

One of the biggest concerns people have when they begin their retirement is running out of money.

With interest rates at record lows, it’s even more critical to plan. You wouldn’t want to take an extended vacation without putting together a plan, so why would you retire without doing so?

Here are the top 10 reasons why you should have a strong financial plan, according to a recent study by Forbes. It will:

  1. Help you define your financial goals
  2. Help you see whether your goals are realistic, especially for your timeline
  3. Help you see how you can bring your spending in line with your goals
  4. Show you what money mistakes you are currently making
  5. Allow you to measure progress toward your goals
  6. Help you find new ways to maximize your money
  7. Help you identify risks that you hadn’t thought of
  8. Make you more confident with your money
  9. Help you build wealth
  10. Help you live more comfortably

The reality is that most Americans should plan for their retirement, yet it is easy to procrastinate because we may feel like it is far away or it’s too overwhelming. Vacations have a definite beginning and an end, which is easier to view as a project. However, the time frame for retirement is unknown and the end, well, most of us don’t want to think about that yet. Even so, we should understand that Plan A may not work out and we should have a Plan B in case of emergencies, illness, downturn in the economy, or any other unexpected situation. Being aware of the possibilities puts us into a better position to handle life’s challenges.

I receive many inquiries from people in their 50’s and 60’s who have done little to prepare financially for retirement. I believe it is never too late to start planning. If this resonates with you, and you would like to begin a discussion on where you are in regards to retirement, why not get that conversation started today?

Watch Out Baby Boomers it’s Time to Begin Taking Your RMD

It is estimated that over the next 18 years about 10,000 people a day will turn 70½. This will create a potential windfall for the Treasury Department, because these distributions are taxable at the highest marginal income tax rate.

Why are people being forced to take distributions?
IRAs and other retirement plans were not designed to allow people to transfer wealth or leave an inheritance. They were created to provide income during an individual’s retirement years.

The initial wave of Baby Boomers who were born in the first half of 1946 must begin taking their required minimum distributions (RMD) as of July 1, which are distributions from their retirement accounts held in IRAs, 401(k)s and similar plans. That’s because those born in January 1946 become 70½ in July of this year, and the distribution rules specify the latest the distributions may begin, without penalty, is April 1 in the year after turning 70½. Moving forward, annual distributions must be taken by December 31 each year in order to avoid a 50% penalty on the amount they failed to withdraw.

What happens if you wait until April to take the first distribution?
While April 1, 2017 is the latest time to begin distributions for those turning 70½ this July, it is usually advisable to take the initial distribution no later than December 31. If one waits until next April, then both the 2016 and 2017 distributions must be taken in 2017 and that may cause some additional income tax and other costs for the taxpayer.

That may not sound like a big deal, but one of the repercussions of taking two distributions in the same year is that it may increase Medicare premiums related to the higher reported income. Those higher premiums are then locked in for the next year.

Missing the April 1 deadline or not taking out the full distribution amount required can also be costly. There is a 50% excise tax on any amount that one fails to withdraw. For example, if you were required to take out $1,000 and you failed to meet the deadline, it’s a $500 excise tax penalty. That also means that the $1,000 is added to your ordinary income on which you are taxed. If that tax rate is 15%, then that means you will need to pay an extra $150 in income tax. So you could end up paying an extra $650 in taxes because you missed taking the $1,000 distribution on time.

Do I have to take the distribution from a specific IRA?
You can take your distribution from any one of/or combination of your qualified retirement accounts, as long as you take out the entire amount required for that tax year.  For example, Fred has 5 IRAs and the total value is $250,000. His RMD on those accounts would be approximately $8,000. Fred can elect to have that $8,000 come out of just one of his IRAs or he can spread it out across any combination the five different IRAs, however he chooses, as long as he meets the full amount of the RMD.

What if I am still working?
“If you are still working at 70½, you don’t have to take a distribution from your current employer’s 401(k) plan until you leave your job. Although you cannot contribute to a traditional IRA once you turn 70½, you can continue funding a 401(k) plan if you keep working beyond that age (unless you own 5% or more of the company). However, once you stop working, you must begin your annual required minimum distributions and can no longer fund your employer-based retirement plan,” says Mary Beth Franklin, contributing editor to InvestmentNews.

“If you have multiple 401(k) plans, you must calculate a separate required minimum distribution from each employer plan and you must take a distribution from each plan each year once you turn 70½.”

The most recent tax law changes preserved the option for IRA owners who are at least 70½ to donate up to $100,000 per person to charity and avoid the taxes on the amount donated.

For married couples, each spouse can give up to $100,000 per person of their RMD directly to charity, with the exception of private foundations and donor-advised funds, which are not eligible. Any money that is donated will be excluded from taxable income, although it will no longer qualify for a charitable deduction.

One-Time Transfers to an HSA
“You may be able to make a qualified funding distribution from your traditional IRA or Roth IRA to your health savings account (HSA). The one-time distribution must be less than or equal to your maximum annual HSA contribution, and it must be made directly by the trustee of the IRA to the trustee of the HSA,” notes Franklin. “The distribution is not included in your income, but it cannot be deducted as an HSA contribution.”

If you are nearing 70½ and have questions regarding how to calculate your RMD, when to begin taking it or how you might be able to reduce your tax burden, why not schedule a time to sit down and review your specific situation.