Your Wealth Questions

Your Wealth Questions

Tax Question: Best Option Based on Tax Bracket

Q: I have maxed my Roth IRA and have $700 going into my 403(b).  However, my dilemma is that I am at a 15% bracket right now due to my deductions which I will not have in retirement.  Therefore, my bracket will be around 25-28%. That's why I am not sure it makes sense to max out the 403(b) now and then pay a much higher tax when taking it out.  Would you still move forward with maxing out the 403(b)?


A:  We are not a CPA firm nor do we provide specific tax advice; however, I would probably suggest establishing a brokerage account with your inheritance. Here's why:

When you retire and withdraw money from your retirement plan, the whole withdrawal will be taxed at your ordinary income rate. Withdrawals from a brokerage account should provide better tax management and any gains would be taxed at your long term capital gains rate assuming you held the positions longer than one year. 

So, if you expect to be at a higher tax rate in retirement, the brokerage account provides more flexibility. 

Inheritance Question: Investing a Lump Sum

Q: I have recently received $50,000 in the sale of my father's home.  I am trying to decide whether it is best to max out my 403(b) with the school district or place it in an after-tax account.  I currently have a Roth IRA and I am maxing out that account. I also put $700 per month in my 403(b).  I am four years away from retirement at age 60, will have TRS pension, and due to my current deductions I believe I am in a lower tax bracket now than I will be in retirement.  I had planned to fully fund the 403(b) and use the additional money from my father's estate to supplement my income. Would it be better to invest it in an after-tax account?


A: Generally, we recommend contributing to your retirement plan up to the match and then funding a Roth IRA if your income level allows.  Any additional savings can be applied to your retirement plan until you meet the maximum amount. If you are already maxing out both of these options your best bet would be to fund a taxable/brokerage account. You might also consider paying down any debt you may carry.

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Retirement Planning - Decisions about Social Security and Pension Income

Q : I am planning on retiring and trying to decide whether to take the monthly pension or 50/50. I will be 62 and taking my Social Security early. The amount of my Social Security will be $1560. If I take the monthly pension, the amount will be $2,869. The 50/50 would be $239,728 to be invested and a monthly amount of $1,435. My question is which scenario would be the best for me to take?


A : Happy New Year to you, and thanks for reaching out with your question.


This is a scenario that we run into with clients on a regular basis. One thing that is always important to consider is what financial resources do you have available and what is your monthly income need? So it looks like the two options are:


1)      Pension + Social Security Income of $4,429


2)      Half Pension + Social Security Income of $2,995 AND investable assets of $239,728


From a mathematical standpoint, the pension payout option is about 7.2% which is a great income rate. The math is $1435 X 12 = $17,220, then divide by $239,728 = 7.18%.


For option 1, do you have any other investable assets? Brokerage Accounts? Cash Savings Accounts? If so, and they are adequate to provide for emergency reserves and any one-time (or periodic) larger purchases then this option may be attractive. If, however, you have little to no other assets, then you may want to consider option 2.


For option 2, this would allow you to have a bucket of assets to draw from…either in a monthly income fashion or “as needed” liquidity.


The overarching question here, however, is how much income do you need to live on? That will be the first step in determining which option to take.


Please let me know if you have any questions at all. I’m happy to discuss this further with you.


General Finance Question - Protecting Assets

Q: I have saved a considerable amount of money for my 33 year old daughter to provide for her retirement and/or medical help if her cancer returns. Is there any way to completely protect the money from a spouse during marriage? Protect even from a judge's intervention in case of divorce?


A: Yes, there are ways to protect the savings you have compiled for your daughter’s retirement and medical treatment should she have a relapse.


If you are open to it, I would suggest you come by our office to sit down with an advisor and our Trust & Estate attorney, Bill Cibulas, so we can discuss your specific situation and options that make the most sense for you.


We offer a free one hour consultation, so there would be no cost associated with this informational meeting.

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