Need to Know: 5 Things You Can Do With An IRA That You Can’t With a 401 (k)

List of Retirement Plan distribution options

IRAs and 401 (k)s share key similarities: they are both retirement plans that can help you lower your tax bill, provide tax-deferred growth, and can serve as an income source later in life. However, there are also key differences between the two options, some of which may affect your financial planning decisions.

Here’s what you need to know:

1. IRAs allow you to make qualified charitable distributions.

If you are an IRA owner or beneficiary over 70 1/2, you can send up to $100,00 from an IRA directly to a charity without including it in your income. While you won’t get a charitable deduction, you will never have to report that income on your tax return, thus your tax bill won’t increase. In addition, a charitable distribution from an IRA can be used to offset all or part of your required minimum distribution.

2. IRAs allow you to take a penalty-free distribution for higher education expenses

Typically, distributions from a retirement account taken before age 59 1/2 are subject to both income tax and a 10% early distribution penalty. However, there are some exceptions, including using your IRA to pay for higher education expenses for yourself or other family members. Note that this is only true of IRA distributions taken before age 59 1/2. If you try to do the same thing with funds from a 401 (k), you will end up with a large tax bill.

3. IRAs allow you to take a distribution whenever you want.

While funds retirement accounts are meant to be used during retirement, sometimes circumstances arise that necessitate an early distribution. Taking an early distribution from a 401 (k) plan can be complicated and dependent upon your specific plan’s rules. Access to 401 (k) funds are limited and are not guaranteed under the law.

Conversely, you can usually take a distribution from an IRA whenever you want, even if it’s early (i.e., before age 59 1/2), regardless of the circumstances. While you will owe both income tax and a penalty, if you truly need access to the funds, you know you will have this option available to you.

4. IRAs allow for aggregate RMDs between multiple accounts.

People are now more likely to be maintaining multiple retirement accounts, usually because they have switched employers. If you have more than one 401 (k) and you are over age 70 1/2, you are required to determine the Required Minimum Distribution (RMD) for each account and take the appropriate amount separately from each account.

If you have more than one IRA and are over age 70 1/2, you still have to calculate an RMD for each IRA, but you can either combine or aggregate the RMDs you take without any penalty. Doing the same thing with a 401 (k) plan would subject you to a 50% penalty!

5. IRAs allow you to avoid withholding

You can’t avoid paying taxes, but there are often deductions, exemptions, and credits that will lower you tax bill. In those instances, it doesn’t make sense to further withhold from your retirement plan, since you would essentially be giving the government an interest-free loan.

If you have an IRA, you can opt-out of withholding — an option that isn’t available to you with a 401 (k).

Questions about what plan might be best suited to your financial goals? The Robin S. Weingast & Associates team can help! Contact us today to discuss what works for you.

 

Podcast of the Month: Commonly Missed Veterans’ Benefits

Calling All Veterans!

Veteran in front of a flagHave you or a loved one ever tried applying for VA benefits and been declined? VA Claims Agent Brian Byars has some great advice on how and with whom you can work to get your affairs in order and possibly get more benefits than you knew were possible!


Listen to the podcast here.

What Robin’s Reading: Long-Term Care Trends

Robin Weingast Reading RecsWhile our monthly podcast covers how to afford nursing home care, most Americans would prefer not to live in a nursing home if they require long-term care, according to The Associated Press-NORC Center for Public Affairs Research 2016 Long-Term Care trends poll

Although only 14% of the population was age 65 and up in 2013, by 2040, that number is expected to increase to 22%, which means it’s vital to understand trends in long-term care preferences and attitudes.

Key takeaways from the poll found that among adults aged 40 and older:

– People are slightly more confident in their ability to afford nursing home care, but a majority do not think that they are on the right financial track to afford nursing care home if needed.

– Nearly 4 in 10 believe that Medicare will cover their long-term care needs, even though this is not true for most Americans.

– Over 75% would prefer to receive long-term care in their own homes, and over 60% would prefer their family members to receive in-home care.

– One-third have done no planning for their long-term care needs.

– 72% support state paid family leave programs to help provide long-term care to loved ones and family members.

A majority favor policies that would help them save for long-term care, with tax breaks a preferred option.

Want to know more about trends in long-term care attitudes and financial tactics? Visit The AP-NORC Center’s long-term care project website at www.longtermcarepoll.org.

Need help planning for your long-term care needs? Contact the Robin S. Weingast & Associates team today to find out how we can help secure your future!

Resource of the Month: Fall Planning Tips

The days are getting shorter and cooler, which means the winter holidays are just around the corner. The holiday season is fun, festive…and expensive. That’s why this month’s resource is focused on how you can keep your finances on track while enjoying the holidays!


Questions about planning for the holiday season and beyond? Contact the Robin S. Weingast & Associates team today for a personalized, free evaluation of your financial plan!

Need to Know: 2018 Plan Limits Increased

As the world watches to see if the proposed tax plan will affect 401(k) contribution limits, the IRS released its updated list of 2018 plan contribution limits — and there have been increases to several limits.

Check out our chart below for what you need to know.

You can read more about the plan limit changes here.

Questions about how to plan for retirement in light of this news? Contact the Robin S. Weingast & Associates team to find out how we can help you!

 

Podcast of the Month: Social Security Success Tips

Robin Weingast Social Security Podcast

Social Security is an important part of your retirement puzzle, but do you know how to get the most out of it? Since it’s such a complicated and ever-changing program, this month’s podcast features sought-after Social Security Speaker Tim Kiesling who will provide you with some helpful tips to maximize your Social Security benefit!

Need to Know: What to do in the year before you retire

If retirement is going to be a reality to you in the near future, it’s important to make sure you spend the year leading up to retirement effectively. After working so hard to plan and save for the retirement you want, make sure you use your final year to ensure you can enjoy the fruits of your labor. Here’s a primer on what you need to do:

Determine if you retire when you think you can.
Everyone has an age in mind, but it’s important to make sure your dream matches up to reality. Analyze your spending habits and compare them to what you expect to receive annually from your various income sources — be sure to include Social Security, pensions, and annuities. What does that analysis tell you? How do you need to adjust based on the results?

Figure out how to handle your 401(k) or other retirement accounts.
Upon retirement, you generally have three options with an employer-sponsored plan. You can transfer the money into an IRA, leave your savings where they are, or cash out the account. Each option comes with associated pros, cons, and, in some cases, penalties. Make sure you understand the implications of each option.

Decide what to do with employer stock
Much like your retirement accounts, you will have options when it comes to employer stock. Again, each option has parameters, so it’s essential to fully understand each one.

Plan how to avoid penalties on early withdrawals.
Early withdrawals (typically considered before age 59 1/2) often carry a 10% tax penalty. But did you know there may be exceptions to this penalty? For example, if you leave a job after age 55 (or 50 for certain types of public employees), you can withdraw from that employer’s plan without penalty. This is just one example of the scenarios that may help you avoid early withdrawal penalties.

Decide on how your pension benefits will be paid.
Pensions can usually be paid out in one lump sum or as annuity payments (i.e., a regular sum of money on a regular basis that lasts your lifetime as well as the lifetime of your spouse). Understanding the tax implications of both options and exploring how the pension money might be used can help guide your decision.

Decide on when to start Social Security
Typically, you can begin receiving Social Security any time between the ages of 62 and 70. But it’s important to understand how your age affects your monthly income. You can walk through various scenarios on the Social Security website.

Line up health insurance
Your age will likely affect the health insurance options available to you — so it’s best to sit down and determine your health insurance scenario well in advance of retirement.

These are just a few of the key steps you should take in the 1-2 years leading up to your retirement. Planning for retirement can be overwhelming, which is why the Robin S. Weingast & Associates team is here to help. Contact us today so we can be sure you’re on the path to a happy and fulfilling retirement.

 

Resource of the Month: Annual Financial Review

It’s hard to believe it, but we’re approaching the end of 2017. So much can change in a year, which is why our Resource of the Month gives you a rundown on six financial things you should monitor annually to make sure you’re staying on track and that your financial plan has adapted to your life.