You’re Retired! How to Use Your Accounts: Listener Questions, IRA, Roth, and 401K Management

2019/4/24

Retirement Answer Man

Frequently requested episodes will be transcribed first

IRA, Roth and 401K management can be confusing, that’s why I answer listener questions in the Practical Planning segment of this episode. This is the last episode of the How to Use Your Accounts series. You’ll definitely want to go back and listen to the entire series to help you familiarize yourself with the different types of retirement accounts and how to finally use them in retirement. Next month we’ll dive into how technology improves retirement. But for now, listen to these listener questions about account management in retirement. How to make money simple for someone in your life Peter Lazaroff joins me on the Hot Topic Segment. He recently wrote a fantastic book called Making Money Simple). Since graduation season is coming up, I highly recommend this book for any graduate. Many financial advisors and Wall Street bigwigs want you to think that saving money and building wealth is complicated, but that’s not true. It’s easy to make good choices with money if you can just get out of your own way. Peter teaches how to build a system that works around our human nature to complicate money choices. He shows that finding small sustainable habits that you can automate will lead to financial success. What do you do if you miss taking the RMD? One listener asks what would happen if you forget to take your required minimum distribution (RMD) one year. You really don’t want this to happen! The IRS imposes a 50% penalty on the amount you didn’t take. For instance, if you have an RMD of $20,000 but you only took $10,000 the penalty would be $5,000. The first thing you need to do if you miss your RMD is talk to a tax advisor. Then take the distribution as soon as you figure out your mistake. Do it alone and maintain records. You will need to file the form 5329 for the year in which there was a shortfall either with your tax return or separately. If you missed it multiple years then you need to file a form for each year. The IRS has grated redemptions from this so it is important to keep records and let them know why it happened and how it was remedied. Are there any options for tax-free growth investments if your income is a bit higher than the Roth income eligibility? One listener is looking for options on tax-free growth investments. Since he lives in Minnesota he feels that the 403B isn’t his best option because the state loves to tax retirement accounts.

One option is a back door Roth IRA. The way to do this is to make a nondeductible contribution to an IRA and then immediately convert it to a Roth. Saving money in an HSA is a good option as well. When you save in an HSA this money is pretax. You can allow it to accumulate and even invest it. It comes out tax-free as well but it can only be used for medical expenses. However, if you keep a record of your expenses you can submit an expense for reimbursement several years later. One last option to ease the tax burden is to move to a different state in retirement. Basic retirement tax tips

Start diversifying your balance sheet between taxable, tax-free, and tax-deferred accounts as early as you can.
Dial in what it costs for you to live comfortably. You can better control your taxable income when you understand your costs.
Consider delaying taking your pension (if you have one) to do Roth conversions.
Consider taking distributions from tax-deferred accounts.
Move to a lower tax state.
Be charitable.
Build your balance sheet in a way to give you options. Maximize how you withdraw money.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN HOT TOPIC SEGMENT

[2:56] Peter Lazaroff discusses his new book Making Money Simple

PRACTICAL PLANNING SEGMENT

[21:17] What do you do if you miss taking the RMD?
[26:05] Mike wants to know how to hide his money from RMD’s
[27:56] Are there any options for tax-free growth investments if you are a bit higher than the Roth income eligibility?
[31:41] When does it make sense to roll over a traditional IRA to a Roth while still working?
[34:15] Basic retirement tax tips

THE HAPPY LAB SEGMENT