5 ways retirements plans are most likely to go off track: Retirement Scan
Our daily roundup of retirement news your clients may be thinking about.
The 5 ways retirement plans are most likely to go off track
Clients are likely to miss their retirement targets if they are helping their children and loved ones more than what they can afford, according to this article on Forbes. They will also go off their retirement track if they maintain a second home, carry a heavy debt or launch a new business. Couples also decrease the odds of having a secure retirement if one of the spouses dies. Having a spending plan is key to avoid outliving their nest egg in the golden years.
How 10 types of retirement income get taxed
Many seniors tap their retirement accounts to fund their travels and other expenses, only to find out later that they will owe state and federal taxes on these withdrawals, according to this article on Kiplinger. To avoid this, clients are advised to know how their retirement accounts are taxed, and plan to minimize the tax bite. "Finding tax-efficient investments is the key to successfully saving for retirement," says a financial planner.
Roth or Traditional: Keep the decision personal
As investors rush to contribute to an IRA this tax season, an expert says that choosing between a traditional IRA and a Roth IRA should be based on an individual's tax circumstances, according to this article on Morningstar. For example, "[i]f my rates are lower now, I would rather go ahead and put into a Roth, settle up with Uncle Sam," says the expert. "If my tax rates are higher now, but I expect them to be lower in the future, then I put my money into a traditional retirement account, get my deduction while I am working, and then take the money out when I am retired and my income is lower..."
If you received a 401(k) plan refund check, here’s what to do
A 401(k) plan may flunk IRS compliance testing if the participants receive a refund for some of their contributions, according to this article on CNBC. If this happens, clients are advised to ask their employer if it will make plan changes in the following year, such as converting to a "safe harbor" plan and setting up a profit-sharing contribution. They should also consult an accountant if they have already filed their tax returns, as they must have claimed a deduction for the contributions and will need to amend the returns to avoid issues with the IRS.
Millennials are saving, but they’re also making this big mistake
Although millennials are saving to secure their retirement, many of them make the mistake of avoiding stocks altogether, according to this article on MarketWatch. “The risk of the stock market is not the biggest risk in life,” says an expert, adding that it is a "necessity" in life. “If you look at risk in the overall context of life, you see that we take risk not because we like risk, but because we have aspirations. Aspirations are the engine, the driver of the train, and risk is really one of the cars of the train.”