© 2020 Arizent. All rights reserved.

How to defuse your client’s tax time bomb: Retirement Scan

Register now

Our daily roundup of retirement news your clients may be thinking about.

How to defuse your client’s tax time bomb
Retirement savers are advised to include tax strategies when creating a distribution plan to avoid a hefty tax bill when taking withdrawals from retirement accounts, according to this article on Kiplinger. To achieve tax efficiency, clients should consider holding their assets in three "tax buckets.” The first bucket consists of accounts that provide tax-free distributions, such as Roth 401(k) and Roth IRA, while the second bucket holds savings and investments, such as bank and brokerage accounts that trigger a tax bill every year. The third bucket includes tax-deferred accounts, like traditional 401(k) and traditional IRAs, which are funded with pretax dollars.

4 ways retirees botch their Social Security benefits
Clients are advised to determine their full retirement age and know the best time to file for Social Security benefits to make decisions that will make the most of the benefits, according to this article on CNBC. Clients should also avoid filing early and ensure that they pay taxes when applicable. Up to 85% of their benefits will be subject federal income taxes if their combined income (the sum of their adjusted gross income, nontaxable interest and half of your Social Security benefits) exceeds a certain threshold.

Should I open an IRA for my child?
Parents should encourage their child to sock away his or her earned income in an IRA instead of a savings account, according to this article on Motley Fool. IRA contributions and investment growth in the account are tax-deferred, but distributions will be taxed upon withdrawal. A Roth IRA offers no upfront tax deduction on the contributions, but distributions will be tax-exempt.

Can a state-sponsored 401(k) plan expand access to retirement savings?
A state-sponsored 401(k) plan such as the plan established by Massachusetts can be a good option to enable more workers to build their nest eggs, writes Alicia H. Munnell, director of Boston College's Center for Retirement Research in an article on MarketWatch. Such a plan allows bigger contributions than an IRA, the employer can offer a match and workers will get the protections under the Employee Retirement Security Act of 1974, writes the expert. However, an Auto-IRA approach can be better approach, as it will require all employers with no plans to participate and enroll their employees automatically.

Rising interest rates have made this investment attractive again
Money market funds are becoming attractive investment options for retirees and clients approaching retirement, thanks to rising interest rates, according to this article on CNBC. "Money market funds are more like insurance than they are an investment. You have ready access to cash that's worth a dollar a share, give or take a bit," says an expert. "Its job isn't the return."

For reprint and licensing requests for this article, click here.