Part-time retirement and its impact on income

Earlier this month, I was included in a Financial Planning magazine article, written by reporter Martha White, which detailed how working part-time in retirement can alter a client’s overall financial plan. The piece covered elements such as Social Security, health care costs, portfolio changes, and the impact that working in retirement can have on taxes.

Upon entering retirement, it is typical that an individual or couple drops down one tax bracket. However, I explain that for those that choose to work during their golden years, if their income is higher, the taxes they pay will therefore be higher.

So, what strategies can you use to lessen your tax hit if you choose to work during retirement?

• Take advantage of all qualified plans:
• Maximize 401(k) contributions
• Check to see if you qualify to get a tax reduction on an IRA
• Don’t convert to a Roth IRA if you are close to retirement and/or in a tax bracket which is 25 percent or higher
• Consider an annuity

To read the full article for more insight, click here—Financial Planning, November 2013 Issue.

What NOT to do in retirement

Earlier this summer, Michael Piershale was featured in a USA Today article by reporter Rodney Brooks that outlined the mistakes to avoid in retirement. Some of the tips for readers included keeping inflation in mind, evaluating how much is really spent in retirement, and assessing whether bonds in retirees portfolios is wise.

Michael weighs in on estate plans and says to be realistic about the “what ifs” and consider the implications of accounts going through probate if one spouse passes away. Click over to the full article here. 

How taxation impacts cash flow

During a recent podcast, Michael Piershale weighs in on retirement concerns and how individuals and couples can protect their assets during the remainder of their life as a retired person. A major concern among this demographic continues to be the impact of taxation on cash flow and certain assets. 

Michael explains the benefits on converting a traditional IRA into a Roth IRA as a strategy to consider for individuals in specific tax brackets, as it can be a wise tax-saving alternative. Watch the podcast to hear more:

Want more investment options than what’s available in your 401(k)?

Controversy continues to surround the investment options and fees associated with many of today’s 401(k) plans. The 401(k) is increasingly the sole investment vehicle people are utilizing for retirement planning; as such, the vehicle has been put under the microscope in recent years.

We recommend that some of our clients consider using a little known maneuver called an in-service rollover to escape a plan with high fees or lack of investment options. For retirees hoping to take full advantage of their last few years of saving before retirement, the in-service rollover can be an opportunity.

Mike on FOX Business discussing in-service rollover

The in-service rollover allows people at the age of 59 and a half (and sometimes even younger) who are still working to roll money from their 401(k) into an IRA without paying tax now, a move that offers more investment options. The rules are complicated, but for a pre-retiree who is eager to take advantage of a larger basket of investment choices, it’s a good fit. 

A Potential Tax Trap for Heirs

A disadvantage of retirement accounts is that they cannot be re-titled into a trust account. Doing so will cause immediate taxation of the entire account. Therefore, there is no estate planning document that directs the distribution of retirement assets. Instead, this is done by a beneficiary election form that often names a different heir then is named in the trust document, which causes serious problems for the heirs. 

To complicate things further, different types of retirement beneficiaries are subject to different IRS rules. For example, children are not allowed to roll the parents IRA over to their own IRA, but can establish another tax-sheltered account called an Inherited IRA.

Michael talks Inherited IRAs on Fox Business

Using trusts as beneficiaries can subject the retirement money to trust tax brackets in some states, which can trigger significantly high taxes. Leaving money to a charity through a retirement account beneficiary form can create powerful tax savings for other heirs since the charity gets retirement money tax-free, whereas heirs that are named persons do not.

Coordinating beneficiaries with estate plans is an important step toward successfully passing money to heirs with minimum tax consequences.