72(t) Distributions

72(t) Distributions

 

Do you need to access your retirement money early? Usually, anyone who takes money out of an IRA or a retirement plan prior to age 59½ faces a 10% early withdrawal penalty on the distribution. That isn’t always the case, however. You may be able to avoid the requisite penalty by taking distributions compliant with Internal Revenue Code Section 72(t)(2).1

 

While any money you take out of the plan will amount to taxable income, you can position yourself to avoid that extra 10% tax hit by breaking that early IRA or retirement plan distribution down into a series of substantially equal periodic payments (SEPPs). These periodic withdrawals must occur at least once a year, and they must continue for at least 5 years or until you turn 59½ (whichever occurs later).1,2

 

How do you figure out the SEPPs? They must be calculated before you can take them. Some people assume they can just divide the balance of their IRA or 401(k) by five and withdraw that amount per year – that is a mistake, and that can get you into trouble with the IRS.2

 

The IRS allows you to calculate SEPPs by three methods, all with respect to your age and your retirement account balance. When the math is complete, you can schedule SEPPs in the way that makes the most sense for you.

 

The Required Minimum Distribution (RMD) method calculates the SEPP amount by dividing your IRA or retirement plan balance at the end of the previous year by the life expectancy factor from the IRS Single Life Expectancy Table, the Joint Life and Last Survivor Expectancy Table, or the Uniform Lifetime Table.2

 

The Fixed Amortization method sets an amortization schedule based on the current balance of your retirement account, in consideration of how old you are in the current year and your life expectancy according to one of the above three tables.2

 

A variation on this, the Fixed Annuitization method, calculates SEPPs using your current age and Appendix B of Rev. Ruling 2002-62. If you use the Fixed AmortizationorFixed Annuitization method, you must also specify an acceptable interest rate for the withdrawals which can’t exceed more than 120% of the federal mid-term rate announced periodically by the IRS.2

 

A lot to absorb? It certainly is. The financial professional you know can help you figure all this out, and online calculators also come in handy (Bankrate.com has a very good one).

 

Problems occur when people don’t follow the 72(t) rules. There are some common snafus that can wreck a 72(t) distribution, and you should be aware of them if you want to schedule SEPPs.

 

First of all, consider that this is a multi-year commitment. Once you start taking SEPPs, you are locked into them. You will take them at least annually, and you won’t be able to contribute to that retirement account anymore as the IRS doesn’t let you do that within the SEPP period.2

 

If you are taking SEPPs from a qualified workplace retirement plan instead of an IRA, you must separate from service (that is, quit working for that employer) before you take them. If you are 51 when you quit and start taking SEPPs from your retirement plan, and you change your mind at 53 and decide you want to keep working, you still have this retirement account that you are obligated to draw down through age 56 – not a good scenario.1

 

Some people forget to take their SEPPs according to schedule or withdraw more than they should, and that can subject them to Internal Revenue Code Section 72(t)(4), which tacks a 10% penalty plus interest on all SEPPs already made. The IRS does permit you to make a one-time change to your distribution method without penalty: if you start with the Fixed AmortizationorFixed Annuitization method, you can opt to switch to the RMD method.3,4

 

How can I boost or reduce the SEPP amount? The easiest way to do that is to increase or decrease the balance in the IRA or retirement plan account. You have to do that before arranging the payments, however.2

If you need to take a 72(t) distribution, ask for help. A financial professional can help you plan to do it right.

    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 – irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments#2 [11/21/13]

2 – forbes.com/sites/advisor/2012/02/13/the-72t-early-distribution-from-your-ira/ [2/13/14]

3 – financialducksinarow.com/531/penalties-for-changing-sosepp/ [3/27/09]

4 – bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx [4/3/14]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. Please consult your Financial Advisor for further information or call 800-900-5867. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. 


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Northrop Grumman, Chevron, Hughes, Raytheon, ExxonMobil, Glaxosmithkline, Merck,  Verizon, Pfizer, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

 

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Wise Decisions with Retirement in Mind

Wise Decisions with Retirement in Mind 

  

Some retirees succeed at realizing the life they want, others don’t. Fate aside, it isn’t merely a matter ofstock market performance or investment selection that makes the difference. There are certain dos and don’ts – some less apparent than others – that tend to encourage retirement happiness and comfort.

Retire financially literate. Some retirees don’t know how much they don’t know. They end their careers with inadequate financial knowledge, and yet feel that they can plan retirement on their own. They mistake retirement income planning for the whole of retirement planning, and gloss over longevity risk, risks to their estate, and potential health care expenses. The more you know, the more your retirement readiness improves.

   

Retire knowing that you’ll have to assume some risk. Growth investing is increasingly seen as a necessity for retirees who want to keep ahead of inflation.

 

According to data and research compiled by the Social Security Administration, the average 65-year-old man will live to be 84 and the average 65-year-old woman will live to be 86. So that’s a 20-year retirement. The SSA also notes that roughly a quarter of today’s 65-year-olds will live past 90, and about 10% of them will live beyond age 95.1

   

If these seniors rely on fixed-income investments for the balance of their lives, they may end up with reduced retirement income potential, and in turn a reduced standard of living. Look at the Rule of 72: if an investment is yielding 2%, it will take about 36 years to double your money. Yes, interest rates are rising – but inflation should rise with them.2

 

A generation ago, mature Americans were urged to gradually shift their portfolio assets out of stocks and into fixed-income investments. One old rule of thumb was to subtract your age from 100, with the resulting number being the percentage of your portfolio you should assign to equities.3

 

Today, retirees and retirement planners are reconsidering this thinking. As the Wall Street Journal reported recently, one study of retirement money and longevity risk concluded that retirement funds may last longer if a retiree gradually increases the stock allocation within a portfolio about 1% per year from an initial range of between 20-50% to between 40-80%. The concept here is that a retiree’s stock allocation should be lowest when their retirement nest egg is largest.3

 

Retire debt-free, or close to debt-free.  Who wants to retire with 10 years of mortgage payments ahead or a couple of car loans to pay off? Even if your retirement savings are substantial, what will big debts do to your retirement morale and the possibilities on your retirement horizon? On that note, refrain from loaning money to family members and friends who seem quite capable of standing on their own two feet.

 

If the thought of using some of your retirement money to pay outstanding debts hits you, set that thought aside. You have dedicated that money to your future, not to bill paying. On second or third thought, other sources for the cash may be apparent.  

 

Retire with purpose. There’s a difference between retiring and quitting. Some people can’t wait to quit their job at 62 or 65 – their work is “killing” them, or boring them senseless.  If only they could escape and just relax and do nothing for a few years – wouldn’t that be a nice reward? Relaxation can lead to inertia, however – and inertia can lead to restlessness, even depression. You want to retire to a dream, not away from a problem.

 

A retirement dream can become even more captivating when it is shared. Spouses who retire with a shared dream or with utmost respect for each other’s dreams are in a good place.

 

The bottom line? Retirees who know what they want to do – and go out and do it – are contributing to their mental health and possibly their physical health. If they do something that is not only vital to them but important to others, their community can benefit as well.

      

Retire healthy. Smoking, drinking, overeating, a dearth of physical activity – all these can take a toll on your capacity to live fully and enjoy retirement. It is never “too late” to quit smoking, quit drinking or slim down.

 

Retire in a community where you feel at home. It could be where you live now; it could be a place hundreds or thousands of miles away where the scenery and people are uplifting. It could be the place where your children live. If you find yourself lonely in retirement, then “find your tribe” – look for ways to connect with people who share your experiences, interests and passions, and who encourage you and welcome you. This social interaction is one of the great intangible retirement benefits. 

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 – ssa.gov/planners/lifeexpectancy.htm [2/6/14]

2 – investopedia.com/terms/r/ruleof72.asp [2/6/14]

3 – tinyurl.com/m8akefj [2/3/14]

 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. Please consult your Financial Advisor for further information or call 800-900-5867. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. 


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, Glaxosmithkline, resources.hewitt.com, access.att.com, ING Retirement,  Qwest, Chevron, Hughes, AT&T, Northrop Grumman, Raytheon, ExxonMobil,  Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

IRS Retirement Plan Adjustments for 2014

Rules changes for IRAs, 401(k)s & other savings vehicles.

 

The IRS has made minor adjustments to retirement plan limitations for 2014. As inflation has been tame in 2013, these COLAs aren’t dramatic; as a result, some retirement plans won’t see any next year. Here is a roundup of the changes for 2014.

  1.  Not much change here: the 2014 contribution limit is still set at $5,500, with an additional $1,000 catch-up contribution permitted for those 50 and older.1

The AGI phase-out ranges affecting your ability to deduct traditional IRA contributions have been slightly adjusted north:

* Single & head-of-household filers covered by a workplace retirement plan: $60,001-70,000

* Married filing jointly, you contribute to a workplace retirement plan: $96,001-116,000

* Married filing jointly, spouse contributes to workplace plan, you don’t: $181,001-191,000. 1,2

The limits on eligibility to make Roth IRA contributions have been adjusted. You can make a full Roth contribution in 2014 if your adjusted gross income does not exceed these limits:

* Single & head-of-household filers: $114,000 (phase-out range is $114,001-129,000)

* Married filing jointly: $181,000 (phase-out range is $181,001-191,000) 1,3

  

401(k)s, 403(b)s, most 457 plans & the federal Thrift Savings Plan. Contribution limits on these plans are unchanged for 2014. You will be able to put up to $17,500 in these accounts next year if you are younger than 50, and $23,000 if you are 50 or older (thanks to the catch-up contribution).2,4

 

If you participate in more than one of these defined contribution retirement plans – for example, you contribute to a 401(k) and a 403(b), or two 401(k)s – you should know that the total contribution limit for both employee and employer contributions across all such accounts in 2014 is the lesser of: a) 100% of your compensation, b) $52,000 if you are younger than 50, or c) $57,500 if you are 50 or older.5

With regard to 401(k)s, the above limits apply to both traditional and “safe harbor” versions.5

 

SEP & Simple plans. In 2014, the maximum allowable compensation used in the calculation of SEP-IRA contributions increases $5,000 to $260,000. The threshold for an employee to be included in a SEP plan remains at $550 for 2014 (that is, an employee is eligible if he or she receives at least $550 in compensation from your business for the year). SIMPLE plans see no changes to contribution limits next year: the maximum plan contribution remains at $12,000 for 2014, with catch-up contributions still limited at $2,500.2,6

 

Profit-sharing plans. The 2014 deferral limit is $17,500, the catch-up contribution limit is $2,500, the compensation limitation is $260,000, and the maximum contribution amount across multiple plans is the lesser of a) 100% of your compensation, b) $52,000 if you are younger than 50, or c) $57,500 if you are 50 or older.4,5

  1.  Next year, the dollar amount used to figure out the maximum account balance in an ESOP subject to a 5-year distribution period increases by $15,000 to $1,050,000. There is also a $5,000 rise in the dollar amount used to determine the lengthening of the 5-year distribution period – it is $210,000 in 2014.2,4

The dollar limitation used to define a key employee in a top-heavy plan increases. This limit was set at $165,000 for 2013. Next year, it rises to $170,000.2,4

 

Income limits for the saver’s credit are slightly increasing. This federal tax credit is offered to low-income and middle-income workers saving for retirement. In 2014, you will be eligible for the credit if your AGI doesn’t exceed these thresholds:

* Married filing jointly: $60,000

* Head of household: $45,000

* Married filing separately & single filers: $30,000 3

Keep these retirement plan adjustments in mind as you think about your financial moves for 2014.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 – bankrate.com/financing/retirement/new-irs-rules-for-retirement-plans/ [11/1/13]

2 – irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions [10/31/13]

3 – blogs.marketwatch.com/encore/2013/10/31/irs-releases-2014-limits-for-401ks-iras/ [10/31/13]

4 – irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$17,500-to-their-401%28k%29-plans-in-2014 [11/4/13]

5 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—401%28k%29-and-Profit-Sharing-Plan-Contribution-Limits [11/1/13]

6 – irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Participation [2/13/13]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. This information should not be construed as investment advice. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Alan Aizin is a Representative with FSC Securities and maybe reached at http://www.theretirementgroup.com.

 

SOCIAL SECURITY CLAIMING STRATEGIES

SOCIAL SECURITY CLAIMING STRATEGIES

 

 

What is your “magic number”? Roughly half of retirees claim Social Security benefits at age 62, as soon as they become eligible. Some people delay benefits and postpone using their retirement savings as an income source. Others apply out of necessity; their financial situation leaves them little choice.1

These factors aside, what if you have a choice? If you wait a few years to apply for Social Security, how much more income might you realize?

Could you wait until age 66? The Social Security Administration has made 66 the “full” retirement age for people born during 1943-1954. If you were born in this period and you apply for Social Security at age 62, you will reduce your retirement benefit by 25% and your spouse’s by 30%.2,3

That alone might convince you to wait. In addition, there are claiming strategies that may bring spouses much greater cumulative lifetime Social Security income, and they depend on one spouse waiting until age 66 to apply for benefits.

That may be the time for a file & suspend strategy. This tactic positions a married couple to receive maximum Social Security benefits at age 70, with one spouse being able to claim some benefits at age 66.

 

An example: Terry was born in 1947 and Teresa was born in 1951, so full retirement age is 66 for both of them. Terry files his claim for Social Security benefits at age 66, but then he elects to suspend his $2,000 monthly retirement benefit. Doing that clears the way for Teresa to get a $1,000 monthly spousal benefit when she reaches 66; she can do this by filing a restricted claim for spousal benefits only at that time.4

 

So while some spousal benefits are rolling in, Terry and Teresa have both elected to put off receiving their own Social Security benefits until age 70. That allows each of them to rack up delayed retirement credits (8% annually) between 66-70. So when Terry turns 70, he is eligible to collect an enhanced benefit: $2,640 per month instead of the $2,000 per month he would have received at age 66. At 70, Teresa can switch from receiving the $1,000 monthly spousal benefit to collecting her enhanced benefits.1,4

 

Variations on file & suspend. There are other ways to do this. For example, 66-year-old Terry could initially apply for Teresa’s spousal benefits as Teresa applies for her own benefits at 62. Terry thereby gets $800 a month while Teresa receives her own reduced benefit of $1,200 a month. At 70, Terry foregoes getting the spousal benefit and switches to receiving his own enhanced benefit ($2,640 a month thanks to those delayed retirement credits). If Terry lives to age 83 and Teresa lives to age 90, their total lifetime Social Security benefits will be $1,043,520 under this strategy, as opposed to $840,600 if they each apply for benefits when they turn 62.1

 

Widows can also use a variant on the file-and-suspend approach. As an example, Fran is set to receive $1,400 monthly from Social Security at age 66. Her husband dies when she is 60. She can get a widow’s benefit of $1,430 at 60, but instead she claims her own reduced benefit of $1,050 at age 62, then switches to a widow’s benefit of $2,000 at 66 (her husband would have received $2,000 monthly at age 66). By doing this, she positions herself to collect $112,000 more in lifetime benefits.1

 

Postponement can also be used to enlarge survivor benefits. Let’s go back to Terry and Teresa: if they each start getting Social Security at 62, Teresa is looking at a $1,650 monthly survivor benefit if Bob passes away. But if Terry waits until 66 to claim his benefits, Teresa’s monthly survivor benefit would be $2,640.1

 

Details to note. The file-and-suspend strategy is only allowable if one spouse has reached full retirement age. In order for you to claim a spousal benefit, your husband or wife has to be getting Social Security benefits. Applying for Social Security before full retirement age with the idea that your spouse can collect spousal benefits at 62 has a drawback: you are reducing both of your lifetime retirement benefits.5

 

Only 29% of respondents in a 2012 AARP survey knew that waiting until age 70 to apply for Social Security would bring them their maximum monthly benefit. Congratulate yourself for being in that group, and consider the long-range financial merits of claiming your benefits years after age 62.6

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

1 – http://www.smartmoney.com/retirement/planning/strategies-to-max-out-social-security-benefits-1329243329517/ [3/2/12]

2 – http://www.ssa.gov/retire2/retirechart.htm [11/15/12]

3 – http://www.ssa.gov/retire2/agereduction.htm [11/15/12]

4 – http://www.investmentnews.com/article/20121105/BLOG05/121109984 [11/5/12]

5 – www.nextavenue.org/article/2012-08/how-avoid-making-social-security-mistakes [8/6/12]

6 – http://www.aarp.org/about-aarp/press-center/info-02-2012/new-aarp-survey-shows-many-unaware-of-social-security-claiming-strategies.html [2/29/12

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.