When an HSA-first strategy makes sense
Maxing out contributions to a health savings account before contributing the maximum amount to a 401(k) plan could be a better strategy for some retirement savers, writes an expert on finance website Morningstar. That's because the benefit of tax-free withdrawals could outweigh the benefit of an employer's match, writes the expert. "A 401(k) plan will beat an HSA if left to retirement. However, reality intrudes when withdrawals are made from the 401(k) to pay for things like medical expenses and a participant in a 401(k) is slammed with taxes and penalties."
Tax Reform changes to recharacterizations and Roth IRA 2018 contribution limits
Workers will have a longer period under the new tax law to repay their outstanding 401(k) loan after separating from their employer, writes an expert for Forbes. However, the new law now prohibits investors from undoing their IRA conversions, a move that was allowed under the old rules, writes the expert. Although the change is "relatively insignificant from a tax revenue standpoint, it could have a bigger impact on financial planning."
Retirees, break free from low yields
Retired investors should not rely too much on high-quality bond funds to generate the needed income, as these investment types do not produce substantial yields, according to this article from Kiplinger. To enhance their portfolio returns, retirees should find ways to reduce their fund fees and avoid unnecessary risks. A financial planner says that investors should choose bond funds to minimize their exposure to market volatility and get some predictable income. “It’s not about getting as much return as you possibly can.”
How to generate the income you need in retirement
Clients will be better diversifying and rebalancing their investment portfolio to generate their needed amount of income after they retire, according to this article on MarketWatch. They may also want to consider earning returns from interest and dividends or from selling shares, avoid tapping their principal and cut expenses during a downturn. Clients should also look for tax-saving strategies, such as moving assets to a Roth IRA and selling after owning them for more than a year to trigger long-term capital gains tax rates, which are lower than the short-term rates.
Immediate vs. deferred annuity: Which is best for you?
Clients who want to annuitize their retirement funds for guaranteed income in the golden years may choose between immediate and deferred annuity products, according to this article on personal finance website Motley Fool. A deferred annuity is a great option for clients who have extra money to save after contributing to a retirement plan, as the product allows them to defer taxes on the money and get supplemental income after they retire. An immediate annuity is recommended for seniors who are about to retire and want to create a guaranteed income stream in the golden years.