March 2019 | Peak Financial Freedom Group

Month: March 2019

Lifelong Learners: Set Up a 529 Plan for Yourself

Whether you think of yourself as an old dog or spring chicken in retirement is up to you. Even if you don’t retire early, you still have many years ahead of you to enjoy your free time, or even discover a new interest. If you’d like to continue your education in retirement as part of pursing another career, or just to nurture an interest, you can fund it with a 529 plan.

If you’ve used a 529 plan to contribute to a child or grandchild’s education, you’ll be familiar with how the tax advantaged account works: Funds grow tax-free in the account, and can with be withdrawn tax free to pay for tuition, books, room and board, or other qualified education expenses. One former accountant took advantage of his 529 plan to study horticulture and conversation using the $5,000 he had saved. He retired at 62 and now runs a farm – talk about a career change!

Each state has its own plan, and it is worth comparing plans since some states offer different deductions, better investing options, and or lower fees. However, most states offer their residents a tax break for contributing to the state’s own plan. Even if you don’t allow much time for the funds to grow in the account, you can still take advantage of the rule that allows you to withdraw immediately and still qualify for a state tax deduction that same year. Michigan, Minnesota, and Montana, and Wisconsin have restrictions on this, however.

Keep in mind that you can’t benefit from both a 529 plan and the federal Lifetime Learning tax credit. The latter is worth 20% of the first $10,000 in tuition you pay per year. If you use the federal Lifetime Learning tax credit, you can pay additional expenses with a 529 account, but the withdrawals will not be tax free.

If you have leftover money in a 529 account originally intended for a child or grandchild, you can use it for your own education. Who said you can’t teach an old dog new tricks? Continuing your education is one way to use your free time in retirement, whether as part of pursuing another career, or just nurturing an interest you didn’t have time for while you were working. If you’re not ready to stop learning in retirement, consider using a 529 plan to finance your retirement goals.

If you have a unique set of retirement goals and aren’t sure how to go about creating a plan to achieve them, contact the professionals at Peak Financial Freedom Group. We can help you strategize so that you can finance the retirement you deserve. Click here to visit us online and schedule you no cost, no obligation financial review today.

 

Dan and Jim Win the 2019 Five Star Wealth Manager Award

Dan Ahmad and Jim Files are winners of the exclusive 2019 Five Star Wealth Manager award. Wealth Manager award winners are identified based on a rigorous research process and selected from among thousands of wealth managers for their knowledge, service and experience. Dan and Jim are part of an exclusive group of wealth managers who have demonstrated excellence in their field by satisfying 10 objective selection criteria.

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If You Have an IRA Don’t Forget About This Important Deadline

Most people know that April 15th is Tax Day, but they may not know that it is also the deadline to contribute to an IRA. Even if you file for a tax extension, you must send your IRA contribution by April 15th. Contributing to an IRA is one good way to save for retirement, so make sure your contribution isn’t forgotten in the busy period leading up to Tax Day.

You can contribute up to $5,500 a year to your IRA for 2018 if you are under 50. If you are over 50, you can contribute an additional $1,000. You can no longer contribute to a traditional IRA after you turn 70 ½, but you can contribute to a Roth IRA for as long as you live. Due to a unique set of circumstances, you might be wondering if now is the time to convert to a Roth IRA.

If you make more than $199,000, you cannot contribute to a Roth IRA. You can contribute to a traditional IRA no matter how high your income is. However, there are limits as to what you can deduct from your taxes: If you have a retirement plan through your employer and your income is over $73,000 as a single person, or over $121,000 as a married person filing jointly, you cannot take a deduction if you contribute to a traditional IRA.

In general, you must earn income in order to contribute to an IRA, but you can contribute on behalf of a nonworking spouse. The working spouse can contribute the maximum amount to both his or her IRA and the nonworking spouse’s IRA. If you want to take advantage of this, you must do so before April 15th.

Note that you still have to make an IRA contribution by April 15th even if you file for a tax extension, unless you are contributing to a SEP-IRA in which case you must contribute by your tax filing due date. As with a tax return, you must mail the contribution by April 15th and it’s immaterial as to when it arrives at your financial institution. Make sure to clearly indicate to which year your contribution applies, especially if you are sending your contribution between January 1st and April 15th.

At Peak Financial Freedom Group, we want to make saving for retirement as easy as possible. With so many nuances to the rules regarding retirement accounts, it helps to have a team of professionals at your side. Click here to schedule you no cost, no obligation financial review today.

How to Use Your HSA After You Turn 65

Do you have a Health Savings Account (HSA)? If so, you should note that the rules regarding HSAs change when you turn 65. It’s important to prepare for the rising cost of healthcare in retirement, and an HSA can be a good way to cover future medical expenses, both for you and your spouse. However, once you sign up for Medicare, you can no longer contribute to an HSA. So, here is how you can make the most of what you’ve saved in your account.

The benefits of an HSA are that contributions are not taxed, funds grow tax deferred, and can be withdrawn tax free for qualified medical expenses. You can also learn the benefits of pairing your IRA with a Health Savings Account. You can still contribute to your HSA for 2018 until April 15th of this year if you have not signed up for Medicare yet. Before age 65, you can’t use funds from an HSA to pay for non-medical expenses without incurring a 20% penalty. But, when you turn 65, you only have to pay taxes on withdrawals for non-medical expenses, and do not have to pay taxes on withdrawals for qualifying medical expenses. Qualifying medical expenses include Medicare Part B and Medicare Advantage plans, prescription drugs, a portion of long-term care insurance premiums, dental and vision care.

Unlike a flexible spending account, the use-it-or-lose-it rule does not apply to HSAs. One strategy you can use is to avoid withdrawing from your HSA before you turn 65, by paying in cash for medical expenses. If you keep the receipts, you can withdraw from your HSA to reimburse yourself years later. This way, the funds have more time to grow tax free, and you can delay withdrawing until after you are 65 and the funds used for qualifying medical expenses are no longer subject to tax.

If you are still working past the age of 65 and delay signing up for Medicare, you can continue to contribute to an HSA. People who have an employer match may choose to do this. You must also delay Social Security benefits in order to delay Medicare and must work for an employer with more than 20 employees.

Make sure you know the rules regarding using an HSA after the age of 65 before you turn 65. If you’re like most Americans, you will start receiving Medicare benefits when you are 65, and will no longer be able to contribute to an HSA. However, this doesn’t mean that your HSA can’t be a useful tool in retirement if you know how to make the most of what you’ve saved in your account.

Knowing ahead of time how to use your HSA when you turn 65 can help you create a retirement plan that take rising healthcare costs into account. Here at Peak Financial Freedom Group, we can help you prepare for retirement by arming you with knowledge and a comprehensive plan based on your individual needs. Click here to schedule your no cost, no obligation review today.

Don’t Let Market Volatility Ruin Your Retirement

Now that you’re nearing retirement, the term “market volatility” might stir up different feelings than it 30 years ago. Older workers and retirees understand that they have less time to make up for losses in their investments and to ride out future market crashes than they did when they were younger. And with life expectancies increasing, leaving your financial wellbeing up to the whims of the market seems like less and less of a good idea. We know that there will always be crashes, even if no one knows exactly when they will come, so why not develop a plan ahead of time?

After a crash, people may be tempted to sell their stocks if they panic, or need immediate funds. But in doing so, they ensure that they won’t see the stock appreciate when the market recovers. In order to keep this panic at bay, you can think of creating your portfolio around the idea of retirement income.

Creating reliable retirement income can be a good retirement strategy for high-income earners. The first step would be to create guaranteed retirement income with “safe” investments. The value of bonds and savings account are not seriously affected by the ups and downs of the market, and reliable paychecks include Social Security, annuities, and bond ladders. Certain annuities will also protect against outliving your retirement savings.

After covering your basic needs with safe investments, you can look to grow the rest of your savings more aggressively. You can think of the funds generated as “retirement bonuses.” These “bonuses” can be used for non-necessities like travel, spending of grandchildren, and the activities you want to enjoy with your free time in retirement. You can develop a withdrawal plan based on market performance, meaning decreased withdrawal amounts when the market drops, and increased amounts when it experiences gains.

It’s also important to create an emergency fund for events like unexpected medical expenses and home and car repairs. This fund will be separate from your first two funds, so if there is an emergency you will not have to disrupt the overall structure of your retirement plan by dripping into them.

The term “market volatility” probably doesn’t create good feelings if you’re nearing retirement or already retired. Developing a plan for periods of market volatility before they happen can help you weather storms.

You don’t know when the next crash is, but you can plan for it. Click here to schedule your complimentary review today, and let the professionals at Peak Financial Freedom Group help you create reliable retirement income, sources of growth, and an emergency fund for a rainy day.

Did You Make a Qualified Charitable Distribution this Year?

Did you make an IRA charitable distribution this year? If so, you’ll want to report it on your tax return. Charitable contributions are a great way to reduce your taxable income and build your legacy. Do you have a retirement account? Be prepared for your RMDs! After you turn 70 ½, you must take required minimum distribution (RMDs) from your traditional IRA, and you can transfer up to $100,000 per year to charity tax free to count towards your RMD. This is called a qualified charitable distribution (QCD), and there are a few things to know about the process of reporting it during tax time.

You must make a QCD by December 31st, which is also the deadline for RMDs, unless it is your first time taking one. The money must be transferred directly from an IRA to the charity, and the charity must cash the check before the end of year. This way, the contribution can be excluded from the adjusted gross income (AGI) whether you are itemizing or taking the standard deduction. Excluding the charitable contribution from your AGI allows more AGI-based tax benefits, resulting in lower taxes. Now that the standard deduction has increased to $24,000 for couples and $12,000 for individual filers, QCDs can especially help lower retirees’ tax burdens. The limit is $100,000 per person, so you and your spouse can each contribute that amount from both of your accounts.

Your IRA administrator doesn’t specify whether your contribution was a withdrawal or a tax-free transfer to a charity on your 1099-R. So, when you file your Form 1040, you report the total distribution amount, then the amount of that you kept, and then enter “QCD” to indicate the remainder, which is your charitable contribution. Also, keep a record from the charity documenting your contribution. Before contributing to a charity, make sure it is eligible to receive a QCD, meaning it is a 501(c)(3) charity and not a Donor Advised Fund or private foundation.

Qualified charitable distributions can be a good way to make the most of your RMDs. It’s important to follow proper procedures when making a QCD, and understand how it works to decrease your tax burden in retirement under the new tax code. Knowing about when to make a QCD and the process of reporting it is important for those 70 ½ and older who face taking required minimum distributions (RMDs).

If you want to make charitable giving a part of your retirement plan, contact the professionals at Peak Financial Freedom Group. We can help you throughout the whole process – from finding a qualified charity to specifying a QCD on your tax form. Click here to schedule your complimentary, no obligation review today.  

The Rising Cost of Healthcare in Retirement

We know life is like a box of chocolates – but what about retirement? Do you really know what it holds, or how much it will cost? It’s easy to budget based on your current lifestyle, but what about anticipating major unexpected costs? The truth is that as you get older, it’s likely you’ll have to spend more on healthcare. But the truth is also that there are things you can do to plan ahead for this. We always hear that healthcare costs are rising and Americans are living longer, so why not take these facts into account when planning for retirement?

According to the Employee Benefit Research Institute, a couple retiring at 65 will need to pay around $399,000 for healthcare costs in retirement. That could be a significant chunk of your retirement savings, and you never know when you might need serious medical attention. 23% of families over 75 experience a $400 or greater medical expense once a year. This can pose a major problem, as Americans between 65 and 74 spend about 77% of their income on housing, healthcare, food, transportation, and clothing. This doesn’t leave much wiggle room for major healthcare expenses, and transitioning into retirement is no small task.

Working longer can be a solution, but you might want to enjoy the benefits of an early retirement. Saving more is also an option, and specially saving in a Health Savings Account (HSA) account can be a good strategy. If you have a high-deductible health insurance plan, defined as one with an out-of-pocket maximum of $6,750 and a minimum deductible of $1,350, you can contribute up to $7,000 a year to an HSA for your family. There are also benefits to pairing your IRA with a Health Savings Account.

If you’re exceptionally healthy, you might not be as worried about high healthcare costs, but you might need to worry about outliving your retirement savings. Deferred annuities, or “longevity annuities” pay out a defined amount at a specific date in the future. Deferred annuities cost less than immediate annuities, because the money has more time to grow before payouts start. A deferred annuity can pay you for the rest of your life, and then continue paying your spouse if you are to pass away before him or her. This can be a good strategy to protect both you and your spouse from outliving your retirement savings.

Although it’s difficult, thinking about unexpected costs during retirement now can help you avoid bigger problems in the future. It’s not enough to create a budget based on your current lifestyle: As healthcare costs rise and Americans are blessed with longer lives, retirement planning becomes more complicated.

If you want help creating a comprehensive retirement plan, contact the professionals at Peak Financial Freedom Group. Click here to schedule your no cost, no obligation financial review so we can start helping you plan for the unexpected.

Are You Thinking About Buying a Second Home?

A home is one of the most significant purchases you’ve made in your lifetime, so you should take your time when thinking about buying a second one. The ability to rent the house, how you will use it, and its future value are all important things to think about. While many people have a favorite vacation spot in a scenic area, they can’t spend a significant amount of time there until they’re retired, and transitioning into retirement is no small task. And, the rules of Real Estate are a bit different for vacation homes, so there is still a lot of research for even the most experienced home owners to do.

First, you should consider what the primary purpose of the second home is going to be. Think about what your long-term goals are, and how buying a second home would help you achieve them. Is it a place for your family to gather? A place for you to enjoy a particular natural landscape? Or, is it a property you don’t see yourself visiting often and want to rent out? If you don’t expect to occupy it for more than a small portion of the year, you might want to look into if it could pay for itself. If it can’t, the cost and labor associated with maintenance could defeat the purpose. Assess how much of your time the house will take up and consider if that will make it more of a burden than an asset.

If you’re buying a second home as an investment, research how easily you can rent it, how it will appreciate or depreciate in value in the future, and the laws surrounding using real estate as an investment. For example, second homes in vacation destinations tend to be less susceptible to economic fluctuations, so don’t forget the classic piece of advice that real estate is all about ‘location, location, location.’ A unique residence in a desirable location can make for a great investment.

Since a second home requires a big financial commitment, you should look into how easy or difficult it would be to liquidate. If your financial situation changes and you need to sell, consider the desirability of the property. Remember that if market volatility forces you to sell, you may not be alone, which could affect prices and demand.

If you’re thinking about buying a second house, there are many things to consider; how you will use it and how much, its future value, and its potential to pay for itself are just a few. Second homes can be places for families to gather, lucrative investments, or a mix. They can also be a financial gamble, so learn the rules of real estate for vacation homes and think about how you would use the second home.

If you think a second home is part of your retirement plan, contact the professionals at Peak Financial Freedom Group before making the big decision. We can help you assess your financial situation and weigh the pros and cons. Click here to schedule your complimentary, no obligation review today.  

Have a Retirement Account? Be Prepared for Your RMDs!

If you’ve contributed to a 401(k) or IRA, you should prepare a strategy for your RMDs (Required Minimum Distributions). After many years of enjoying tax free growth, your retirement savings from non-Roth (i.e. traditional) accounts will eventually be subject to tax. Rather than be caught off guard, take control and learn the ins and outs of your RMDs so you can avoid penalties, and determine the best strategy for re-distributing your RMDs.

Required minimum distributions from your IRA, Simple IRA, SEP IRA, or retirement plan must begin at age 70 ½. You have to take an RMD from your traditional IRA by December 31st, except for your first one, which you can delay until April 1st of the following year. However, this means that you’ll have to take two distributions in one year, which could push you into a higher tax bracket, contributing to your tax burden in retirement. You can either withdraw the entire amount from one IRA, or spread it out over multiple accounts. The rules regarding RMDs for traditional 401(k)s are similar, except that you must take an RMD from each 401(k) you own, and you don’t have to take an RMD if you’re still working in your 70’s.

One reason why it’s so important to know the rules regarding RMDs is that the penalty for failing to take them is equal to 50% of the amount not withdrawn. So, the question becomes, what do you do with your RMDs? You can take an RMD in cash, but you can also transfer the funds to a stock or mutual find. You can’t roll over the RMD into another IRA, although you can reinvest it using a taxable account. You must take an RMD before rolling over funds from a traditional IRA or converting to a Roth. You can also donate up to $100,000 from an IRA directly to charity. This way, the donation doesn’t count towards your adjusted gross income.

It’s not necessarily true that all of your RMDs will be taxed. If you made a non-deductible contribution to your IRA, then part of every withdrawal will not be taxable. However, you must know and indicate which portion of the withdrawal was nondeductible. If you look at a Form 8606 you can see what percentage of your IRA is made up of nondeductible contributions. That is the percentage of each withdrawal that will not be taxed.

Your IRA and 401(k) are important components of your retirement plan, so make sure you have a strategy in place for withdrawing from them. Rolling over an RMD into a Roth, reinvesting it in stocks or mutual funds, and donating directly to charity are some options. There are many ins and outs of RMDs and high penalties for failing to take them, so don’t be taken by surprise.

The rules surrounding RMDs can be complicated, so contact the professionals at Peak Financial Freedom Group before you’re 70 ½. There are ways to minimize your tax burden, and put your RMDs to good use. Click here to schedule your no cost, no obligation review today.

Travel in Retirement Without Overspending

So you want to become a world traveler in retirement, but you’re also a responsible person who knows they need to support themselves for the next 30 years. You can take advantage of your newfound free time in retirement and rethink your destinations to maximize value. With careful planning and some creativity, you could fulfill your dreams of travel in retirement without overspending.

Setting a travel budget is one thing you can do to start your retirement off on the right foot, especially if you want to take advantage of your abundance of free time and make multiple, or extended trips. You can look at your retirement income, subtract essential expenses, then decide how much of the left over funds you want to put towards travel.

Consider the cost of vacations, as well as visits to family, and travel to special events like graduations and reunions you want to attend. If you look beyond Western Europe for a vacation, you’ll find that travel is much less expensive. Museums, food, and hotels in major cities in Western Europe can break the budget, while the cost of living, amenities, and entertainment in Southeast Asia and South America is much lower.

Just as important as choosing where to travel is choosing when to travel. You might want to push your ultimate dream vacation back a year or two in order to budget for it properly, or wait until you’ve sold your house. Alternatively, you can reduce the cost of a trip by scheduling it for the offseason. Airlines may offer deals, hotel rates tend to be lower, and as an added bonus, destinations tend to be less crowded.

Once you’re retired, your schedule will be more flexible. You can use this to your advantage by traveling on Tuesdays and Wednesdays, which tend to be the best days for saving money. Stretching out your vacation and living more like a local by renting a room instead of staying in a hotel, and making your own food instead of eating out can also help you get the most for your money. You don’t have to schedule vacation days in advance, so consider remaining on the lookout for sudden flight price drops. Make a list of places you would like to visit, and then look out for deals.

Enjoying your retirement doesn’t have to mean overspending. Planning and creativity can go a long way towards maximizing the value of your travel budget. Traveling in the offseason or in the middle of the week, and considering new destinations can help you fulfill your travel goals without overspending.

Before your plan your dream vacation, you have to plan for your retirement. At Peak Financial Freedom Group, we can help you create a retirement plan that accounts for your individual retirement goals. Click here to schedule your no cost, no obligation review today.

Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

DISCLOSURE:

All presentation data is provided and intended to be used for general educational purposes only and is not intended as a solicitation for you to buy or sell any financial product.  By contacting Peak Financial Freedom Group, you may be offered additional information regarding the purchase of financial products. None of the material presented is intended to give you, nor are the presenters engaged in giving you, specific tax, investment, real estate, legal, estate, retirement, or financial advice, but rather to serve as an educational platform to deliver information; nor is it intended to show you how the strategies presented can specifically apply to your own tax, investment, estate, financial, or retirement position, but rather to offer an idea of how these principles generally may apply. Consult with a qualified investment, tax, legal, and/or retirement advisor before making any decisions.

Stocks, bonds, or mutual funds have risks and can lose principal, even with a stop loss, and there are no guarantees of gains, as past performance is not indicative of future positive investment results. Hypothetical examples are used to explain concepts and are not indicative of potential results you could receive. The sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund a new portfolio and/or annuity may have tax consequences, early withdrawal penalties, or other costs and penalties as a result of the sale or liquidation. You can’t invest directly into a stock market index. A fixed index annuity with an income rider can protect your savings from losses and provide you guaranteed lifetime income, but you could incur surrender charges, gains aren’t guaranteed, you’ll pay a fee, and guarantees are backed by the financial strength claims paying ability of the issuing annuity company. If you place assets under management with our firm, we receive advisory fees for assets you place under management and commissions from insurance companies you buy products from. Seminars, radio shows, TV productions, book releases, magazine and book promotions are sponsored, promoted and paid for by Peak Financial Freedom Group, LLC.

Peak Financial Freedom Group LLC and Fiduciary Solutions LLC do not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by an unaffiliated third party, whether link to Peak Financial Freedom Group LLC’s web site or incorporated herein and take no responsibility therefore. All such information is provided solely for the convenience purposes only and all users thereof should be guided accordingly.

2019(1) and 2020(2) Five Star Professional Wealth Manager Award - Dan Ahmad and Jim Files have been nominated for and have won the 2019 and 2020 Five Star Wealth Manager awards. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. Once awarded, wealth managers may purchase additional profile ad space or promotional products. Award does not evaluate quality of services provided to clients. The Five Star award is not indicative of the wealth manager’s future performance. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future. Award winners represent an exclusive group of wealth managers who have demonstrated excellence in their field by satisfying 10 objective selection criteria. For additional information on the Five Star award, including a complete list of the 10 objective selection criteria and their research/selection methodology, go to https://fivestarprofessional.com.

Investment advisory services are offered through Fiduciary Solutions, LLC, a Registered Investment Advisor (CRD #148118). Insurance products and services are offered through PFFG Insurance Agency LLC, a licensed insurance agency (CA License #0N14103). Peak Financial Freedom Group, LLC is a financial planning and umbrella marketing organization, which enables the provision of multiple financial services under one brand. Peak Financial Freedom Group LLC, PFFG Insurance Agency LLC, and Fiduciary Solutions LLC are affiliated entities with common ownership and control. Jim Files is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD # 1620449) and is a licensed insurance producer with PFFG insurance Agency LLC (CA Insurance License #0F06511). Dan Ahmad is licensed as an investment adviser representative with Fiduciary Solutions LLC (CRD # 1491561) and is a licensed insurance producer with PFFG insurance Agency LLC (CA Insurance License #0732913).

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