Time Running Out for 2009 RMD Relief

People who received unwanted RMDs in 2009 have just a few days left to roll those RMDs back into their IRAs, thus eliminating the tax bill from the original distribution.

RMDs Suspended

The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) suspended required minimum distributions (RMDs) for 2009.  If you’re not familiar with RMDs, these are distributions that you are required to take from your traditional IRA and employer sponsored plans (401Ks) beginning at age 70 ½.

This is a one-time suspension of RMDs, effective for 2009 only.  This suspension was created in response to the sharp declines in the stock market, with the purpose of allowing individuals to keep the funds invested in their IRAs instead of being forced to take distributions when the market, and thus their account values, were significantly down.

Continue Reading Time Running Out for 2009 RMD Relief

Reverse Mortgages – What Should You and Your Parents Know Before Applying?

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April (2009) alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping home equity has been a safety net.  But it can be a risky one.

If your parents are at least 62 years of age and have significant equity in their home, a reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment.

If it’s right for them, it’s a worthwhile financial tool. If not, they could make some serious mistakes with their financial future.

Continue Reading Reverse Mortgages – What Should You and Your Parents Know Before Applying?

Social Security COLA Could Be 0% For Next Few Years

In January of this year, people collecting Social Security retirement benefits received one of the highest cost of living adjustment (COLA) increases seen since the 1980s.  Unfortunately, that increase may be the last one you see for a few years.

If you are retired and receiving Social Security benefits, you know that your benefits are increased each year to help you keep up with inflation.  This is called a cost of living adjustment, or COLA.  The COLA is announced in October of each year and is based on the CPI-W (the Consumer Price Index for Urban Wage Earners and Clerical Workers) from the 3rd quarter of the previous year to the 3rd quarter of the current year.  Changes announced in October go into effect in January of the next year.

In 2009, retirees saw their benefits increase by 5.8%, due mainly to the high cost of gas during 2008.  This was much higher than normal, with the average increase being around 2.8%.  Unfortunately, the Congressional Budget Office (CBO) is estimating that there will be no increase in Social Security benefits for the years 2010 through 2012.

Continue Reading Social Security COLA Could Be 0% For Next Few Years

Common Social Security Retirement Questions

As Baby Boomers are getting closer and closer to retirement, they have many questions about Social Security, such as…

Will Social Security be there for me when it’s my time to collect benefits?

For a long time the media has been telling us that Social Security is going bust. Millions of Americans depend on Social Security to fund all or part of their retirement, so this is a huge concern in our country. So do we really need to worry about Social Security going under before we start collecting our retirement benefits?

The 2009 Social Security Trustees Report anticipates that Social Security benefits paid to retirees will exceed Social Security taxes paid in by workers (and earnings on the funds in the trust) beginning in 2016.  In addition, the trust fund could be exhausted by 2037.  Once the trust fund is gone, benefits will still be paid out, but the taxes collected from people still working will only be enough to cover 76% of the benefits promised.

Continue Reading Common Social Security Retirement Questions

Making Safer Investment Decisions in 2009

It’s hard to say what 2009 will look like. While there are still several concerns (the housing market, rising unemployment, etc.), there will also be considerable government intervention to help improve the economy this year, both in the U.S. and worldwide.

So what should you do in 2009 to make your portfolio and overall financial picture better? Here are some general ideas to employ as markets and economies hopefully stabilize in the New Year:

Start with a plan (or review an old one): If you’ve worked with a financial planner in the past, now is a good time to review your plan to make sure you are still on track to meet your goals. If you haven’t worked with a financial planner before, or if you haven’t prepared a financial plan before, it might be time to meet with a Certified Financial Planner™ to create a plan. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.

Continue Reading Making Safer Investment Decisions in 2009

Should You Move to “Safer” Investments?

After watching their 401K balances shrink up to 40% in 2008, many people are wondering if they should change their allocation to include more “safe” investments, or if they should move completely to “safe” investments then move back into the market later.

Here’s what Walter Updegrave with Money Magazine has to say about this:

But as understandable as the urge may be to transfer all your money into the investments that seem safest – stable value funds, capital preservation funds, money market funds and the like – that would be a mistake.

Continue Reading Should You Move to “Safer” Investments?

Social Security Benefits Increase 5.8% for 2009

Finally some good news for retirees… Social Security benefits are being increased 5.8% for 2009.  This is the largest increase in more than 25 years!

This increase will boost the average monthly Social Security retirement check from $1,090 to $1,153.

Even more good news… for the first time since 2000, Medicare premiums will not go up in 2009.  Currently the Medicare Part B premium is $96.40 per month.

This is good news for Seniors who have seen their portfolios plunge over the last 15 months.  If possible, you should use this increase to reduce the amount you are withdrawing from your portfolio, to give it more time to recover recent losses.

Deducting Roth IRA Losses

Recently, someone asked me if they could deduct losses they incurred in their Roth IRA.  Here’s my response…

You can deduct losses in a Roth IRA, but the rules and treatment are different than you might expect.  First, in order to claim a loss in any IRA investment, you must withdraw the entire balance from all of your IRAs of the same type.  So, if you have a loss in your Roth IRA, you must liquidate all of your Roth IRAs in order to deduct the loss on your tax return.

Second, your basis in your Roth IRA includes your contributions plus conversions (from a traditional IRA) less any withdrawals you have previously taken from your Roth.  Form 8606, Non-Deductible IRAs, is used to determine the basis in your account and to

report withdrawals.  Note that reinvested dividends and capital gains are not part of your basis in a Roth IRA.

Finally, losses in a Roth IRA are deducted on Schedule A – Itemized Deductions, rather than on Schedule D – Capital Gains and Losses, which is where most people would expect to report the loss.  Roth IRA losses are a miscellaneous deduction, subject to a 2% floor.  This means that the deduction is only available if you itemize your deductions, and only the amount greater than 2% of your adjusted gross income (AGI) is deductible.  In addition, miscellaneous deductions are not allowed for purposes of the alternative minimum tax (AMT), so you could lose the benefit of the deduction if you are subject to AMT taxes.

Whether it makes sense to liquidate your Roth IRA to claim the loss will depend on several factors, such as whether you itemize or not, how large the loss is compared to 2% of your AGI, whether you’re subject to AMT tax, and other factors.  You should also consider how much will you lose in potential earnings if you liquidate your Roth IRA.  You may want to consult with your tax advisor and financial planner to determine the best decision for you at this time.

401K Options

Whether you’re switching jobs or retiring completely, chances are you have a 401K or other company sponsored retirement plan that you’ll need to make a decision about.

There are several options on how to handle your 401(k) money when you leave a job:

• Take the Money and run
• Leave the money in the 401(k) plan
• Transfer the funds directly to your new employer’s retirement plan
• Transfer the funds directly to an IRA account (direct rollover)
• Have the check made out to you, and then deposit the funds into an IRA account (indirect rollover)

To read the full article, click here.

Backdoor into Roth

You may have heard that the new tax law eliminates the $100,000 income limit for Roth conversions beginning in 2010.  If you haven’t been able to contribute to a Roth IRA because your income is too high, you now have a back door into the Roth IRA. 

You should start planning now to take full advantage of the new tax law.  How?  Contribute the maximum to a non-deductible IRA now (and every year up to 2010).  The limit in 2006 is $4,000 ($5,000 if you are 50 or older). 

In 2010, when the income limit for Roth conversions goes away, you can convert your traditional IRAs to Roth IRAs.  Because you made non-deductible contributions, only your earnings will be subject to income tax. 

Even better, taxes owed on conversions made in 2010 don’t have to be paid until 2011 and 2012, which allows you to spread the tax burden over several years.

What are the benefits of this strategy?  Tax free income in retirement, no Required Minimum Distributions at age 70 1/2, and tax free income for your heirs. 

Need help determining if this is the right strategy for you?  Check out or Tax Review.

Next Page »