Archive for Retirement

Roth IRA/401(k)?

Income tax rates, established under the 16th amendment in 1913, move like a pendulum in a clock. The movement is extreme at each end from ultra high top rates (94% in 1945) to low top rates (24% in 1929). Over all the years the average top rate has been 58% (this does not include state, city or local taxes). At the end of 2016 the top rate is 39.6% plus the 3.8% Obamacare surcharge for a grand total of 43.4% at the federal level. The new Trump administration is proposing 3 rates of 12% – 25% and a top rate of 33%. Think long term in your life. If these lower rates do take place then over time a “regression to the mean” states that rates have to rise in the future (during your retirement years).

One of our goals, at Founders Group, is for each client to have 80% – 100% of their retirement income to be TAX FREE for life. It takes time and planning. It cannot be done at the last minute.

My question to you ……… wouldn’t it make sense to sock money away in tax free investments when rates are low, today, and then harvest the money when tax rates are higher in your retirement years??? There are a few fantastic vehicles to accumulate money for tax free retirement income. For the “do-it-yourself” crowd there are Roth IRAs or Roth 401(k) plans. The problem with both is there are so many strings attached (how much you can contribute, when you can take monies out, etc). Here is some information on Roth’s:

You can take money out of your Roth IRA anytime you want. However, you need to be careful how much you withdraw or you may get stuck with a penalty. In order to make “qualified distributions” in retirement, you must be at least 59 ½ years old, and at least five years must have passed since you first began contributing.

You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason, but you’ll be penalized for withdrawing any investment earnings before age 59 1/2, unless it’s for a qualifying reason. Money that was converted into a Roth IRA cannot be taken out penalty-free until at least five years after conversion.

Not sure whether the money will be counted as contributions or earnings? Well, the IRS view withdrawals from a Roth IRA in the following order: your contributions, money converted from traditional IRAs and finally, investment earnings. For example, let’s say your IRA has $100,000 in it, $50,000 of which are contributions and $50,000 of which are investment earnings. If you withdraw $60,000, the IRS will consider $50,000 of that to be contributions and $10,000 to be earnings. So any penalty would apply only to the $10,000.

There are more sophisticated vehicles that magnify a Roth program and make Roth’s look like child’s play. These programs have been around since 1913 and require education and guidance by a professional adviser.

Keep More of Your Savings

Keep More of Your Savings

People in their 60s should already be planning ways to minimize taxes in their 70s. Investors can pull money out of tax-deferred retirement accounts without penalty after turning age 59 ½ . Yet many choose to let their investments grow sheltered from taxes as long as possible, which can trigger higher taxes when mandatory distributions kick in. Ironically, tax-deferred growth creates its own tax problem if you do it too well.
Most people tend to delay taxes as long as possible, but this can backfire when it comes to RMDs. “It just pushes all the taxes farther and farther down the line and then they get this huge tax bite later.” “Unfortunately, it’s too late at that point.”
But it’s not too late for retirees in their 60s when withdrawals are penalty free, RMDs haven’t yet kicked in and disbursements are likely to be taxed at a lower rate because the recipient is no longer working. Or consider converting part of your traditional IRA each year to a Roth IRA. You’ll owe income taxes on the amount converted, but it may be at a lower rate if you’re retired.

IRA Distribution Mistakes to Avoid

Required Minimum Distributions for Clients

The required beginning date for RMD’s is generally April 1, following the year the client turns age 70 ½, but after that the RMD’s are due by year end. If an RMD is missed, it is essential that clients immediately make up the missed RMD and file Form 5329 with the taxes to report the missed distribution and request that the penalty be waived.

Multiple Accounts subject to RMD’s

Clients often have multiple IRA or plan accounts that are subject to required minimum distributions. The RMD for each IRA should be calculated separately, but the total RMD for the IRA group can be taken from any one or combination of IRAs in that group. This is a special aggregation rule for IRA’s. For other IRA Distribution Mistakes to Avoid, please see link to view the entire article by Ed Slott in December’s 2015 Financial Planning magazine.

Dental Aid

Dental care can take a huge bite out of retirement income. Resources for free or low-cost treatment include:, which provides services to medically at-risk patients; dentistry from the, which organizes volunteer dentists and hygienists to provide free care; and, which lists free or charitable clinics. Some dental schools also provide low cost care.


The Labor Department is considering a proposal that would bar investors from using options in individual retirement accounts.

The main premise is to protect (more nanny state influence) to buy inappropriate investments. (This administration thinks you are too stupid to make your own decisions).

This change is to take place in January 2016. True there are individuals that go out on a limb and could lose all their retirement money by taking options to an extreme (we could say the same thing to those that gamble, smoke, drink excessively etc). Options do play an excellent role in prudent investing. For instance, since the beginning of this year all our clients were hedged against a massive market drop (which has started).

None of them lost any money due to the option hedge. The strategy is a form of insurance. Next, I expect this administration to outlaw auto and homeowner’s insurance since people lose a lot in premium payments and rarely collect on that “bet”- madness. Better contact your representations if you want to keep this freedom.