Retirement Planning

You Could Be Hit with Penalty for an Early IRA Withdrawal

Published on: February 20, 2020 | By McCulloch & Miller, PLLC

Most financial experts would agree that it is rarely, if ever, a good idea to take an early withdrawal from a traditional IRA or Roth IRA. This is due in part to the high cost of penalties that can hit an account holder for an early withdrawal (not to mention losing out on years of potential earnings).

Early distributions from IRAs—before you reach 59½—typically are hit with a 10% tax penalty, and you may owe income tax on it. The IRS uses the penalty to discourage IRA account holders from dipping into their savings before retirement. However, the penalty only applies if you withdraw taxable funds, says Investopedia, in its new article entitled “Early Withdrawal Penalties for Traditional and Roth IRAs.”

If you withdraw funds that aren’t subject to income tax, there’s no penalty for distributions taken at any time. The issue of whether the funds are taxable depends on the type of IRA. Early distributions from traditional IRAs are the most likely to incur significant penalties. That’s because you make contributions to this type of account with pretax dollars. These are subtracted from your taxable income for the year, which will decrease the amount of income tax you'll owe. As a result, since you get an upfront tax break when you contribute to a traditional IRA, you have to pay taxes on your withdrawals in retirement.

How Can I Retire Without Paying a Mortgage?

Published on: February 13, 2020 | By McCulloch & Miller, PLLC

Admit it: Whether you're 35 or 65, the prospect of retiring without a mortgage is an attractive one. No more monthly mortgage payments to your home lender means extra money to spend on having fun in retirement. After years of punctual principal-and-interest mortgage payments, it's the least you deserve, right?

An increasing number of Americans are still carrying a mortgage when they hit retirement. According to a 2019 report from Harvard's Joint Center for Housing Studies, 46% of homeowners ages 65 to 79 have yet to pay off their home mortgages. Back in 1990, that number was just 24%.

Kiplinger’s November article “7 Ways to Retire Without a Mortgage” says that there are a few wise ways to retire without a mortgage. Let’s review these seven ways to retire sans (without) a mortgage.

What Don’t I Know about My Roth IRA?

Published on: January 15, 2020 | By McCulloch & Miller, PLLC

New research from TD Ameritrade finds that many individuals are confused when it comes to Roth IRAs — accounts that are funded with post-tax money. Consequently, many people are leaving cash on the table, when it comes to maximizing this savings strategy.

CNBC’s recent article entitled “Not knowing these Roth IRA truths can cost you” explains the biggest things that investors typically don’t know about Roth IRAs. They include not knowing how to decide between a Roth IRA and Traditional IRA, along with the fact that you can contribute to a 401(k) and a Roth IRA.

You’re allowed to contribute to a 401(k) and a Roth IRA. Many workers get their retirement savings education from their employer. Those employer-provided plans are usually 401(k) plans, and you generally want to contribute enough to that account to get the employer match. However, what 60% of investors incorrectly think is that you can only contribute to a Roth once you reach your 401(k) maximum, according to TD Ameritrade’s research. It’s okay (and smart) to be contributing to both a Roth IRA and a 401(k) at the same time. You don’t have to hit the 401(k) max to contribute to a Roth IRA.

Some Surprising Facts about Retirement

Published on: January 13, 2020 | By McCulloch & Miller, PLLC

Check out some often-overlooked retirement planning facts of life that everyone should be aware of.

It’s crucial to have a plan for your retirement, so let’s get educated. There are some facts you might not know about retirement, like the way in which your Social Security benefit can be taxed and how to factor in travel expenses.

Kiplinger’s recent article entitled “5 Surprising Facts to Know About Retirement” gives us five important facts to learn about retirement.

How Do I Incorporate My Business into My Estate Planning?

Published on: January 9, 2020 | By McCulloch & Miller, PLLC

“Running and owning a business is just like raising a child: Both are investments in the future, and both require a lot of time, resources and effort to raise successfully. One can argue that you would treat your business like you'd treat a child; you'd want it to succeed even after you've passed on or retired.”

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about having it continue after you retire or pass away.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that estate planning and getting their affairs in order happens when they’re older. While that’s true for the most part, it’s only because that’s the stage of life when many people begin pondering their mortality and worrying about what will happen next or what will happen when they're gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one's mortality to the worry list at the earlier stages in your life.

I’m Between 55 and 64, How Do I Boost My Retirement Savings?

Published on: January 2, 2020 | By McCulloch & Miller, PLLC

“If you're between 55 and 64, you still have time to boost your retirement savings. Whether you plan to retire early, late, or never ever, having an adequate amount of money saved can make all the difference, both financially and psychologically. Your focus should be on building out—or catching up, if necessary.”

It’s never too soon to begin saving. However, the last decade prior to retirement can be crucial. By then you’ll probably have a pretty good idea of when (or if) you want to retire and, even more important, still have some time to make changes, if need be.

If you discover that you need to put more money away, Investopedia’s article “Top Retirement Savings Tips for 55-to-64-Year-Olds” gives you several time-honored retirement savings tips to consider.

Can a Reverse Mortgage be “Reversed?”

Published on: December 23, 2019 | By McCulloch & Miller, PLLC

There are many rules about reverse mortgages, including what happens at the end of the mortgage. What if the children decide they want to undo the reverse mortgage and buy out their parents, so the home can be kept in the family?

Let’s start by understanding what a reverse mortgage is, and how it works. This is a way for seniors to tap the equity in their homes. It’s usually done to generate cash, sometimes to pay for care and other times to supplement retirement accounts. However, the rules are a bit complex, says nj.com’s recent article, “Can we undo a reverse mortgage to keep the home?”

One of many common misconceptions about reverse mortgages is that the bank owns the home.

Planning for Medical Expenses During Retirement

Published on: November 18, 2019 | By McCulloch & Miller, PLLC

The unknown about spending in retirement is not just whether it will be higher or lower, but when during the course of retirement, you’ll be spending more or less. If you downsize, housing costs will decrease, but if you travel more, recreational spending will rise.

According to a recent article from Investopedia, “How to Plan for Medical Expenses in Retirement,” healthcare is likely to be the biggest expense in retirement. A survey from Fidelity Investments found that a 65-year-old newly retired couple should budget about $285,000 for medical expenses in retirement. It is better to have the money set aside than to be surprised by the cost. That number also does not include long-term care. Depending on where you live, those costs can range from $18,720 for adult day care services to $100,375 for a private room in a nursing home.

Despite saving and preparing for retirement their entire lives, many retirees aren't mentally or financially prepared for these types of expenses. A survey by HSA Bank found that 67% of adults 65 and older thought that they’d need less than $100,000 for healthcare. However, Fidelity calculated that males 65 and older will need $133,000—and females, $147,000—to pay for healthcare in retirement.

Why Your Business—and Your Family—Needs a Succession Plan

Published on: November 14, 2019 | By McCulloch & Miller, PLLC

The succession plan works for your business in the same way an estate plan works for your personal life. It protects the business, outlining your wishes and plans for it to continue, or sets up a means of passing it to the next owners, whether they are family members or buyers.

Business owners who plan to use the proceeds from the sale of the business to fund their retirement have the right idea. However, with only 25% of private business owners actually having a succession plan in place, those retirement plans may not work the way they thought. Without a plan in place, the owners, their businesses and their families are at risk.

The Houston Business Journal’s recent article, “Three tips to employing establishing a strong succession plan,” takes up this matter for discussion.

Why 59 ½ is A Milestone to Celebrate

Published on: October 11, 2019 | By McCulloch & Miller, PLLC

Those who happily enjoy senior discounts at national parks, fast food restaurants and movie theaters will tell you that turning 59 ½ is no big deal. Chances are at 59 ½, you’re still enjoying good health, working productively and wise enough to know you’re a bit smarter than you were back in the day.

59 ½ is around the time that people wake up to the idea that hey, they really are getting older. With that realization, they need to embrace the financial benefits of their age and there are more than a few, according to the article “What Should You Do When You Turn 59½?” from Kiplinger. Here are some of the advantages, and also a few to-do items.

Review Your 401(k). At age 59½, you reach the magic age when you can start taking money out of your retirement accounts without penalty. That’s not to say it’s time to drain your accounts, but it does give you more options.