Retirement Planning

Financial Housekeeping: What To Do with Those “Old” 401(k)s

There is no shame in owning multiple  401(k) or 403(b) accounts—the fact that they exist indicates a commitment to retirement savings. What may bring on a twinge of guilt (and rightfully so) is the neglect of these accounts, such as ignoring how the money is invested and leaving quarterly statements unopened.

Sound familiar? Rest assured that you’re not alone. When leaving an employer many people opt to take the easy way out and check the box next to “no change, leave funds in current 401(k).” Then they go on to their next job and forget about it. For some, this may be the best option, but for many, it’s not.

When is it a good idea to leave your 401(k) with your old employer?

  • If you have a small balance (usually less than $20,000–$25,000), otherwise you’ll pay a custodian (bank or brokerage) an annual maintenance fee to hold the account.
  • If you like the investment options available to you and don’t have the time or inclination to investigate the best place to invest outside the 401(k).

In other situations, it makes more financial sense to choose one of the other options available to you:

  1. Rollover the 401(k) to a self-directed IRA in an account at a new custodian. You can then manage it yourself with the help of an advisor or online investment service.
  2. Rollover the 401(k) into your new employer’s 401(k) if there are decent investment options available, you have a small balance, or you don’t want to manage it yourself.

There is a fourth option: cash out and pay tax and penalties (with some exceptions) on the balance. However, this is not a smart choice for most people.

There are many advantages to rolling over to a self-directed IRA:

  • Gives you more investment options, including exchange-traded funds and stocks.
  • Possibly reduces 401(k) record-keeping and other account maintenance fees.
  • Reduces the number of investment statements you receive.
  • Reduces the chances of duplication in your portfolio.
  • Decreases the possibility that you will “forget” about your money.

Here are the steps you need to take to rollover your old 401(k) into an IRA:

  1. Open an IRA account at your chosen custodian or let your financial advisor know that you want to rollover your employer retirement account and they will send you the account application paperwork.
  2. Contact the plan administrator for your previous employer company and ask to be sent an IRA rollover form or ask if you can execute the rollover on-line.
  3. Be sure to check the boxes for no tax withholding; because you are planning to roll the funds over, there will be no tax consequences. Some companies will conduct a trustee-to-trustee transfer, which means you won’t have to handle the money, but most send checks made out to the new custodian. The check will be written to the name of the new custodian, FBO (for the benefit of) your name and your new IRA account #.
  4. You will then mail the check to your new custodian to deposit into your IRA. There may be a one-time fee – $25-50$ to execute the rollover.
  5. It’s also important to know that the mutual funds you own in your 401(k), will most likely be sold and the money will be moved to a cash account prior to the rollover. This means that you must go invest the cash in your new IRA account after the rollover is complete.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful or inspirational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

Just Retired? 10 Ways To Keep Spending Under Control

Just retired? Here are a few ideas about how to keep your spending under control. Does this sound like you?

You have just retired, and you’re exhilarated. Each day dawns with no schedule. You can sleep in or get up early. You can fiddle around the house all day or go out with friends. You can stay out late, enjoy another glass of wine and not worry about being alert for a meeting the next morning. You answer to no one but yourself (or your significant other).

You start to enjoy yourself. You start traveling to places that you have always wanted to go and you find wonderful treasures that you want to bring home. You go out to eat more often because you like being out of the house and you don’t have to get up for anything in the morning. You go to plays, concerts, and other live entertainment more often.

After about a year of pure fun, you want to feel productive. So you volunteer and donate your time and money.

You’re having the time of your life.

What Happens After the Honeymoon Phase of Retirement

Then, the credit card bills start to come in, and the balances due are large. You deplete a savings account and maybe have to sell some investments to pay bills. You start to get worried that maybe you’re spending too much. The stock market is in sideways mode, and you don’t see any growth in your portfolio. You realize it’s time to slow down and take stock of the situation.

If this all sounds familiar, you’re not alone.

It’s not uncommon for people to become accustomed to a certain standard of living or way of life. It’s not easy to adjust. It’s also not unusual to want to enjoy the new-found freedom that retirement brings. Yet, it’s a good idea to be aware and thoughtful about what is going on and try to bring things back under your control.

10 Ways to Keep Spending Under Control

Here are a few ideas about how to keep your spending under control:

  1. Presumably, when you retired, you had spending goals. At the beginning of each year, go back and check these assumptions to make sure you are still on track. If not, make adjustments in your spending.
  2. If you don’t want to cut back on your lifestyle, consider working part-time. Perhaps you can use your skills on a consulting or part-time basis.
  3. While traveling, consider renting out your home to bring in extra cash.
  4. If you have an appropriate space in your home, convert it to an Airbnb rental.
  5. Turn a favorite hobby into a business.
  6. Take more stay-cations. Be a tourist in your own town. It will save you on airfare and hotels, dining out and shopping.
  7. Reassess your need for new clothing and accessories. It’s likely that you don’t need as much now that you’re not going to a workplace daily.
  8. Consider selling items that don’t fit your new lifestyle at consignment shops or eBay.
  9. Let your friends know that you want to cut your spending back and ask for their support.
  10. Find things to do that don’t cost a lot of money.

Remember, sometimes the finest things in life are free.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful or inspirational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

A Little Year End Tax Planning with Your Holiday Punch

HD-200911-r-pomegranate-punchOr,  8 Year End Tax-Related Deadlines and Things to Think About

With the busyness of the holiday season, it’s easy to forget about things like tax planning. After all, we’d rather focus on having fun with our friends and family! However, there isn’t much you can do to improve your tax situation after December 31st for 2015, so now is the time to do a little planning so as not to miss out on tax-saving or retirement saving opportunities and avoid penalties. (After all, the IRS has ways of knowing who has been naughty!).

1. Roth IRA Conversions: There were income limitations on converting regular IRA’s to Roth IRA’s, but no longer, now anyone can convert IRA’s to Roth’s as long as they are able and willing to pay the tax on the conversion. Why would you want to do this? Because converting to a Roth IRA will guarantee you will owe no income tax on the funds if withdrawn during retirement because you pay the tax now. For example, if your income dropped in 2015 due to a job change, you might consider converting some of your IRA to a Roth because you will be in a lower tax bracket and pay less taxes than you might in future years. The deadline for conversions is December 31, 2015, but you will want to do this by at least December 22nd to make sure the paperwork gets processed with your custodian.

2. Establishing a New Qualified Retirement Plan:  If you are self-employed and want to establish a qualified plan such as a 401(k), money purchase, profit-sharing or defined benefit plan, it must be set up by December 31st. Many people confuse this deadline with the SEP IRA deadline that can go into the next year, including extensions.

3. Max Out Qualified Plan contributions. If you contribute to a 401(k) or 403(b) at work and have not contributed the maximum and are able to, talk to your payroll department to increase your contribution before December 31st. For those under 50, the maximum contribution is $18,000 and for those over 50, the maximum contribution is $24,000. At the very least, try to contribute up to any employer match.

4. Take RMD’s (Required Minimum Distributions) on retirement accounts if you have reached age 70 ½. The minimum distribution rules apply to traditional IRA’s, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. If you don’t take the distributions or don’t take enough out, you may have to pay a 50% excise tax on the amount not distributed as required.

5. Take MRD’s From Inherited IRAs. If you have inherited an IRA from someone other than a spouse, you must take minimum required distributions beginning in the year after the year of death of the original owner and by December 31st of that year. To calculate the MRD, the IRS has a Single Life Expectancy table and each year you would subtract one year from the initial life expectancy factor. Fortunately, there are on-line calculators to help you do this!

6. Review Your Charitable Contributions. If you itemize deductions and are charitably minded, you will want to donate what you plan to before December 31st . You may deduct an amount up to 50% of your adjusted gross income, but 20% and 30% limitations apply in some cases. Good to know: donations made by check are considered delivered on the day you mailed it.

7. Donate Highly Appreciated Assets To Charity. Any long-term appreciated securities, such as stocks, bonds or mutual funds may be donated to a public charity and a tax deduction taken for the full fair market value of the securities up to 30% of the donor’s adjusted gross income. In addition to the tax deduction, the donor avoids any capital gains taxes. Probably the easiest way to do this is to set up a donor-advised fund –it’s like a charitable savings account: a donor contributes to the fund as frequently as they like and then recommends grants to their favorite charity when they’re ready.

8. Do Some Tax-Loss Harvesting. This is the practice of selling a security that has experienced a loss. By selling the security and taking the loss, an investor can offset taxes on capital gains or up to $3000 on ordinary income. The sold security can be replaced by a similar one, maintaining the optimal asset allocation and expected returns. When doing this, watch out for the wash-sale rule: your loss is disallowed if, within the period beginning 30 days before the date of the loss sale and ending 30 days after that date, you acquire a substantially identical security.

And, don’t forget to take a sip of that punch!

If you found this information interesting, please share it with a friend!

3 Things You May Not Know About the Roth IRA

Here are 3 features of Roth IRA's that highlight the unique saving and planning advantages of the RothRoth IRA’s are a great savings tool. They are different from traditional IRA’s in that they aren’t deductible, so Roth’s don’t lower your tax bill immediately.

However, the tax-free nature of any earnings, no required minimum distributions (RMD’S) and ability to withdraw your contributions at any time tax and penalty free, make them a great planning tool as well as savings tool.

Before any discussion about Roth IRA’s it’s important to be aware of the income limitations for contributions.

In 2015, for single tax-payers there are phase-outs between modified AGI of $116,000 and $131,000 and over $131,000 Roth contributions aren’t allowed. For joint tax-payers, the phase-out range is from $183,000 to $193,000 and over $193,000 is disqualifying.

Here are 3 features of Roth IRA’s that highlight the unique saving and planning advantages of the Roth:

1. You Can Open A Roth For Your (Employed) Children

As soon as your child has taxable earned income and regardless of age, you can contribute to a Custodial Roth IRA for them up to the amount they earn or a maximum (in 2015) of $5500.00, whichever is smaller.

As a parent you retain control of the account until your child turns 18 (or 21 in some states). What a great way to start a nest egg for your children and teach them something about money at the same time!

2. High Earners can contribute to a Roth 401(k)

High earners can work around the income limits noted above by contributing to a  Roth 401(k) if their company plan allows it.

No income limits apply to Roth 401(k) contributions so it can make good sense for big earners to contribute to a Roth 401(k) or split contributions between traditional and Roth 401(k). Total contributions cannot exceed the annual limit of $17,500 ($23,000 for those 50 and older).

3. The Back-Door Roth and Pro-Rata Rule

Five years ago, income limits on Roth conversions lifted so that anyone no matter how much money they make can convert a traditional IRA to a Roth. At that time, a popular strategy developed called the back-door Roth.

This is how it works: people who hit the income limits for Roth contributions instead contribute to a non-deductible IRA and then immediately convert it to a Roth IRA.

However, it’s not that simple because of the pro-rata rule. If the person converting has other traditional IRA assets, the taxes due on the conversion will depend on the ratio of IRA’s that have been taxed to those that haven’t.

There is a workaround to the pro-rata rule: roll traditional IRA assets into a company plan such as a 401(k) or solo 401 (k) before attempting the back-door Roth, effectively taking them out of the pro-rata equation.

Due to the wide array of tax outcomes that could occur while applying these strategies, it would be wise to get a second opinion from your financial advisor or tax accountant.

Do you want to manage your money (and life!) better?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

Like this post?

If you found this blog post useful or inspirational, please share it on your favorite social media network!

If you found this information interesting, please share it with a friend!

How To Deal With Those “Old” 401(k)’s

ID-100264449There’s no shame in having multiple 401(k) accounts — it’s an indication that you’ve been committed to saving for retirement  over the course of your work life.  However, what may give you a justifiable twinge of guilt is ignoring them.

If you are guilty as charged, you’re not alone. Half of the people who change employers leave their 401(k) money where it is, according to an ING Direct survey. The result: “15 million orphaned 401(k) accounts representing more than $1 trillion.” For some, this is an OK option. For many, it’s not. Read on for ways to deal with those “old” 401 (k)’s:

Keeping the 401(k) With Your Old Employer

It is probably better to move your 401(k), either into a traditional IRA, a traditional 401(k), or a Roth 401(k) — mainly to avoid the out-of-sight, out-of-mind issues. But it may make sense to leave it where it is in these situations:

  • You like the investment options your old employer offered, and have been happy with the performance.
  • You are aware of the associated costs and fees and they seem reasonable.
  • Your former company doesn’t require that you move the account due to a low balance (usually $5,000 or below).
  • You don’t have the time or inclination to decide where to open a rollover individual retirement account and how to invest it. Many 401(k) plan agreements require the investments within them to be sold and placed in cash before the funds can be rolled over into a new account. Your balance would stay in cash for awhile, earning little, if you’re not prepared to reinvest it now.

Options for Moving Your 401(k)

You can roll over a 401(k) to a self-directed IRA at many brokerage firms.  You can then manage this transaction yourself or with the help of a financial adviser. Or, if your new employer will accept rollovers from a previous company plan, you can roll your old 401(k) into your new employer’s 401(k) plan.

In both cases, it’s a very simple transaction:

  • Ask the plan administrator at your previous employer company for a 401(k) rollover form. Check the boxes and fill out information for a direct rollover to the new IRA custodian or new 401 (k) plan. If there is a question about tax withholding on the form, be sure and check that you don’t want tax withheld. Most companies will conduct this type of direct trustee-to-trustee transfer, which means you won’t have to handle the money. However, some companies will send checks made out to your new custodian in care of your new IRA or company plan.
  • In the meantime, if you are rolling over to an IRA, open a new like-kind (traditional or Roth) IRA account at your chosen custodian. If you are rolling over to your new company plan, make sure you have enrolled in the 401(k) plan and have informed your employee benefits administrator of your intent to roll money into the plan. In both cases your account balance should be transferred within the month.
  • If instead, an eligible rollover distribution is paid to you by check, (referred to as an indirect rollover), you have 60 days from the date you receive it to roll it over to another eligible retirement plan. Any taxable eligible rollover distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory income tax withholding of 20 percent, even if you intend to roll it over later. If you do roll it over and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld.

What you don’t want to do is cash out your old 401(k) accounts — meaning you don’t want to remove the money from them in a way that costs you its tax-deferred status. With a traditional 401(k), If you are younger than 59½, you will pay income tax plus a 10 percent penalty on the withdrawal. If you are older than 59½, you will owe income tax. With the Roth 401(k), you would not pay tax on your contribution amounts, but any gains or earnings would be taxed the same as a traditional 401(k) withdrawal. Letting the accounts grow tax-deferred is the best option for growing your retirement nest egg.

Image by Stuart Miles

If you found this information interesting, please share it with a friend!

The Solo-K: Smart Retirement Planning for the Self-Employed updated for 2018

Solo-k Smart Retirement Planning Self-Employed

Solo-k Smart Retirement Planning Self-Employed

In 2001, the government gave self-employed workers a gift: a 401(k) plan that allows for greater amounts of tax-deferred income with less hassle to set up than any other retirement plan.

The plan, mostly called a Solo 401(k) or a Solo-k or one-participant plan beats traditional corporate 401(k)s in higher savings limits and in the ability to invest in a variety of options. With this plan, you are both an employee and an employer and make contributions for each.

You are an excellent candidate for a Solo-k if:

  1. You are a business owner or self-employed person.
  2. You have no employees, except for a spouse.
  3. You can and want to save a lot of money in certain years. You don’t have to make the same level of contribution
    every year.

Contribution limit

Up to $55,000 in 2018 (plus $6,000 catch-up contribution for those 50 or older) or 100% of earned income, whichever is less.

  • In your capacity as the employee, you can contribute up to 100% of your compensation or $18,500 (plus that $6,000 catch-up contribution, if eligible), whichever is less.
  • In your capacity as the employer, you can make an additional contribution of up to 25% of compensation.
  • There is a special rule for sole proprietors and single-member LLCs: You can contribute 25% of net self-employment income, which is your net profit less half your self-employment tax and the plan contributions you made for yourself.
  • The limit on compensation that can be used to factor your contribution is $275,000 in 2018.

All contributions are pre-tax. If you take withdrawals before age 59 1/2 tax is due as well as a 10% penalty. You must take RMD’s (Required Minimum Distributions starting at age 70 1/2.

Spouse element

If your spouse works in the business, you can potentially contribute up to $55,000 plus catch-up if age-eligible, doubling the contribution.

Other things to know:

  • Once the 401(k) reaches more than $250,000 you have to file paperwork with the IRS.
  • You can open a 401(k) at almost all custodians.
  • The contribution limits are annual, per person, so if there are other 401(k)’s it will limit the solo-k contribution.
  • You can also choose a solo Roth 401(k) which follows most of the same rules as the Roth IRA (except for the income limits, there are no income limits for a Roth 401(k).
If you found this information interesting, please share it with a friend!

Short List for your Finances 2014

listThere are many actions you can take to improve your finances, and that’s sometimes the problem. I have compiled a short list of ideas that can make a real difference in your financial health. Copy and paste this short list into Evernote or other list-making software or  print it out and tape it to your fridge. Then check off the items as you complete them and celebrate with your favorite indulgence – mine would be a piece of high-quality chocolate or a glass of Pinot Noir!

1. Write Down Your Financial Goals. We all know that writing things down makes them more real. Just having ideas floating  around in our heads  doesn’t cut it. Quantified goals are more likely to be achieved, so be as specific as possible as to deadlines and numbers.  For example, “I want to increase my net income by 20% in 2014 through a combination of decreasing expenses and adding new clients,”or “I want to reduce my spending on dining out from $500 to $300 per month.”  Next, you can make a plan to tackle your specific goals.

2. Make a Plan to Tackle Your Goals.
 Big goals can seem less daunting if you break them down into action steps. Take your list of goals and write down a simple plan of action for each. For example, taking the first goal above, an action item could be to review all business expenses from 2013 and determine whether they are 1. necessary 2. you could find a cheaper alternative, or 3. you could get away with spending less. Make a commitment to tackle the action steps by scheduling them into your calendar. 

3. Review Your Retirement Saving Strategy.  Most of us are saving on a regular basis to a retirement plan through our employer or through a self-employed retirement plan, but not all of us are saving as much as we could. Review your current payroll deductions into your 401(k) or your IRA contributions and see if you can increase the contribution amount to this year’s limits. Time is as important as the amount of money you save – it pays to start earlier than later.

If you are contributing to a Roth IRA, congratulations! – you have taken advantage of an excellent retirement savings vehicle. If you follow all the rules, you will only pay tax on the money invested once – before you contribute to the Roth. After that, your contribution and earnings can grow tax free for years.

4. Call your Insurance Agent. If you have been paying your insurance premiums for auto, home, and liability coverage on automatic, take the time to call your insurance agent or shop your insurance to feel confident you’re getting the best deal and your coverage is adequate for your current life situation. You might be surprised to find out that you have been overpaying or are underinsured.

5. Make a Charitable Giving Plan. Giving to needy or inspiring causes is a wonderful thing – the act of giving uplifts us and benefits the recipient. It  can also have excellent tax advantages, so it pays to know the different ways to give. For example, a great way to donate to a charity is to use a Donor Advised Fund (DAF). DAF’s can be funded using appreciated securities rather than cash, the securities are then sold within the fund to avoid the capital gains tax. The tax deduction is taken in the year when the account is funded avoiding ongoing record-keeping.

6. Understand Your Parent’s Finances. As uncomfortable as it may seem, it’s really important to talk to your parents about their financial planning so you know where they stand financially now and when they die. Questions to get answers to:  Do they have a plan to pay for possible long term care expenses? Have they created wills and trusts so that their estate is distributed with the least amount of costs and hassle? Do they have Durable Powers of Attorney set up for healthcare and finances? Knowing the answers to these questions before your parents grow too old will reduce stress later and possibly save dollars.

I’ll stop now and give you a chance to get started on your short list! If you enjoyed this post and found it useful, please let me know by commenting, tweeting it, or posting it on LinkedIn, Facebook, or Pinterest and I will plan to write similar posts in the future.


If you found this information interesting, please share it with a friend!

Planning and Chance

The Bay Bridge. Photo by Michael Macor
The recent Bay Bridge closure is a reminder that life is short and fragile. Photo by Michael Macor

The moment I heard about the Bay Bridge near-catastrophe….I thought oh, my God, that could have been me, my husband, or any one of the many people I know and love who cross the Bridge regularly. As it turned out, I did know one of the people who was on the bridge that day.  Lucky for her – she walked away with 4 flat tires, a totaled car, and frazzled nerves – but she was alive.  We all admit that “life is short” but when we say this we are thinking of our normal life span and yes, it goes by too quickly. But life is also fragile and we have no control over so many things – including whether we’re driving on the Bay Bridge at the moment it collapses.

What we do have control over, is how we choose to live day by day, and also how we prepare for the inevitable day of our passing. There’s a reason why so many positive-thinking, self-help, spiritual guides suggest writing your own eulogy as a way to get inspired about how to live your life. This exercise forces you to think about how you want to be remembered….and if you are living that way now.  Many of us get caught up in the busyness of the day-to-day, and never step back to see if all that activity adds up to a life we are proud of.

Think for a second about those you’ll leave behind.  The kindest thing any of us can do for the people we love, who will inevitably be devastated by losing you,  is to plan and prepare. Execute a will and a trust. Decide who will be the best guardians of your children. Make sure the designated beneficiaries on your retirement accounts are up to date. See a financial advisor about life insurance- do you need it?  Let someone you trust know where the key to your safe deposit box is  and where to find the combination to your home safe ….store your important documents and make copies for a trusted friend or advisor.   Live lightly, when you buy stuff and store it, think about a loved one walking into a room or closet and having to decide whether to keep or toss, recycle or sell your belongings.

The Bay Bridge near catastrophe was scary and inconvenient but sometimes that’s what it takes to motivate us to make positive changes and to take care of business.

Take good care.

If you found this information interesting, please share it with a friend!
Curtis Financial Planning