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Spring Cleaning Your Retirement Accounts

Written on April 16, 2019.

By the time you’re ready to retire, you’ve probably had a number of jobs over the course of your working life. In fact, according to the Bureau of Labor Statistics, Americans hold an average of 12 different jobs by age 50. This means that it’s likely you also have more than one 401(k) account, leaving you with a few options for spring cleaning your retirement accounts; rolling over your old 401(k)s into your IRA or 401(k) at your current job, leaving it where it is, or cashing out. If you’re looking to spring clean your finances, you might want to address your old 401(k)s.

If you left a job and had less than $5,000 in your 401(k) account, you may not have been allowed to keep it in that account. But, if you weren’t prompted to move it, you may have forgotten about relatively small sums to money in different accounts. This can become an issue when people don’t know how much they’re paying in fees in their 401(k) account. Even a small difference in fees can add up over time to significant amounts of money. You can compare the fees between multiple accounts to determine whether or not to consolidate funds.

You may want to rollover funds from old 401(k)s to make it easier to manage your money. For example, if your contracts at your old company are no longer current, or your investment portal changes, it can mean more paperwork to keep track of. You’ll need to assign beneficiaries to all your retirement accounts, and remember to update all of them in the event of divorce, death, or another life-changing event. If you are no longer able to directly handle your financial affairs as you get older, reducing financial clutter can make it easier if you’re thinking about how to pass on a retirement account.

You can roll over your old 401(k) into a traditional or Roth IRA. The transfer to a traditional IRA is simple, as both contributions were made pre-tax. But, if you roll it over into a Roth IRA you must pay tax on the funds and may have to increase withholding or pay estimated taxes to account for the liability. If your 401(k) was a Roth account, you will not pay tax on the funds you rolled over into a Roth IRA.

If your finances need some spring cleaning and you’re unsure of which option for your old 401(k) is best, contact the professionals at Peak Financial Freedom Group. We can help you create a retirement plan that help you make the most of what you’ve earned. Click here to schedule your no cost, no obligation financial review today.

Caring for Aging Parents

Written on April 12, 2019.

Baby Boomers are sometimes referred to as the “Sandwich Generation,” because many spend time and money care for both their children and aging parents. In fact, according to the Pew Research Center, one in eight middle-aged Americans cares for at least one child and parent in their house. Aging parents who require expensive medical care and ongoing long-term care can become a financial burden, especially as Americans continue to live longer. There are ways to use these costs to lower your taxes and help fund long-term care expenses.

If you care for a parent and provide more than half of their support, you can no longer claim the $4,050 personal exemption for your parent. But, you can still claim them as a dependent if they do not file jointly with a spouse, you paid more than half of their support for the calendar year, they lived with you all year or are a qualified relative, and their gross income was less than $4,150.

You can also deduct what you paid for a loved one’s unreimbursed medical costs if it exceeds 7.5% of your adjusted gross income. The threshold used to be 10%, but for the 2018 tax year has been reduced to 7.5%. These costs can include dental treatments, health insurance premiums, transportation to medical appointments, and qualified long-term care services. Long-term care insurance is expensive, and there are long-term care myths, but most policies are tax-qualified so if you itemize consider deducting premiums. The amount you can deduct rises with age: Those 40 and under can deduct up to $420, and those 71 and over can deduct up to $5,200.

You can count long-term care services as medical expenses if they were required for a chronically ill person and prescribed by a licensed health-care practitioner. For example, if your loved one requires care because of a specific medical condition such as Alzheimer’s, these expenses can qualify. But, general household services cannot be deducted, even if they are performed by the same employee giving personal care services needed because of a chronic condition. If you hire an in-home caregiver and want this deduction, you should get a letter from your loved one’s doctor documenting that the care is necessary.

If you’re not sure if taking the standard deduction or itemizing and taking these deductions is better for you, consult the professionals at Peak Financial Freedom Group. Taxes can constitute your biggest expense in retirement, and we want to try and help you minimize them. Click here to visit us online and schedule you no cost, no obligation financial review today.

Do You Need to File a Tax Extension?

Written on April 9, 2019.

Doing your taxes might be complicated, but thankfully filing for an extension can help give you some more time to prepare. There are many decisions to be made when preparing your taxes, such as whether you should itemize or take the standard deduction, and finding out how new changes to the tax code affect you.

If you need more time to figure these things out, simply fill out an IRS Form 4868. This is the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, and you can submit it either in paper form, online, or through a tax software program. It’s free and most people who request an extension are granted one. If you’re granted an extension, the new deadline is October 15^th. Americans living abroad automatically have a six month extension.

While it’s easy to get more time to file your taxes, this doesn’t mean you get more time to pay your taxes. You still have to estimate how much you owe in taxes, and pay that full amount by April 15^th. April 15^th is also the last day to contribute money to an IRA, so if you have an IRA don’t forget about this important deadline. If you don’t send a payment by April 15^th, you could get hit with a penalty, even if you didn’t realize you owed the IRS money. For the 2018 tax year, if you fail to pay less than 80% of what you owe in taxes, you will owe an additional penalty of 5% of the amount you owe per year, compounded daily. You would normally incur the penalty if you failed to pay 90% of what you owe, but because of the changes to the tax code, the IRS is being more lenient for the 2018 tax year only.

Note that the penalty for failing to file your taxes is much more severe than the penalty for failing to pay. The penalty for failing to file or request an extension is 5% of the unpaid amount per month, up to 25%. So, even if you cannot pay your taxes by the deadline, you should definitely still file or file for an extension to avoid this steep penalty.

Doing your taxes can be stressful, and tax minimization strategies can be complicated. If you need more time to consult a professional as to what deductions you’re qualified to take, whether you should itemize or take the standard deduction, or how the changes to the tax code affect you, contact the professionals as Peak Financial Freedom Group. Click here to schedule your no cost, no obligation financial review.

How to Pass on a Retirement Account

Written on April 5, 2019.

Estate planning is complicated: The fair decision may not actually be the most practical one. What does this mean? It means that even if you divide up your estate equally between your beneficiaries, they could get hit with unequal tax burdens. So, good estate planning requires more than just good intentions. If you plan on leaving a legacy, you should take each of your beneficiary’s finances into account when dividing up your assets.

Estate planning is so crucial because when a beneficiary inherits an investment account, they also inherit income tax liability. When someone inherits an IRA, they will owe federal and possibly also state taxes on the funds for as long as they make withdrawals. When someone inherits a taxable investment account, they pay taxes annually on interest and dividends in addition to capital gains. When it is passed on, unrealized gains are eliminated for the beneficiary, allowing the beneficiary to inherit the account with no income tax liability.

These facts matter even more if the beneficiaries are in different tax burdens. For example, if one beneficiary is in the 35% tax bracket, and another is in the 10% bracket, the first could end up with tens of thousands less than the second if they inherit equal amounts from an IRA because of their different tax burdens. To minimize taxes, the first beneficiary could inherit assets from taxable accounts, and the second could inherit IRA funds. On face value, these might be unequal amounts, but when each beneficiary’s tax burden is taken into account, the overall tax burden and the difference between what each end up with could be significantly reduced.

If you want to take on the tax burden instead of leaving it to your heirs, you can convert to a Roth IRA during your lifetime. Considering the relatively low tax rates and recent market volatility, you might be considering if now is the time to convert to a Roth IRA. That way, funds can continue to grow tax free in the account, even after it is passed onto a beneficiary.

Discussing how you will distribute assets with your beneficiaries can help avoid conflict between them if it appears that one is receiving more than the other. Explaining the complexities of tax burdens and taxable accounts versus tax advantaged accounts can be a good idea if you’re distributing your inheritance unequally.

Most importantly, be smart about your estate planning so that what you’ve earned gets passed on to the people who are important to you. The best plan isn’t always the simplest, so consult the professionals at Peak Financial Freedom Group. We can help you divide your retirement accounts and assets among your beneficiaries. Click here to visit us online and schedule you no cost, no obligation financial review today.

Saving for Retirement While Reducing Your Taxes

Written on April 2, 2019.

This tax season will be the first time Americans are filing under the new tax code, adding complexity, and possibly stress, to the already complex and stressful filing process. But, like with most things in life, a little preparation goes a long way. As you prepare for retirement, you’ll want to think about ways to decrease your tax burden and save money for the future. Maxing out your retirement account contributions, saving in a Health Savings Account, and taking advantage of deductions are some ways to help lower your tax bill.

You can lower you tax bill and save for retirement by maxing out your traditional 401(k) or IRA. The 401(k) contribution limit was raised to $18,500 for 2018, and to $19,000 for 2019. Those over 50 can contribute an additional $6,000. The limit for combined employer and employee contribution is $55,000. You can contribute up to $5,500 to an IRA for 2018, and up to $6,000 for 2019. Those over 50 can contribute an additional $1,000. If you haven’t maxed out your contribution yet, you can still do so by April 15^th. So, if you have an IRA don’t forget about this important deadline.

You can use a Health Savings Account to help you save for the rising cost of healthcare in retirement, and there are benefits to pairing your IRA with a Health Savings Account. Your money is not taxed when it goes into or comes out of a Health Savings Account if you withdraw it to pay for qualified medical expenses not covered by insurance. You can let the funds grow in the account tax-free for as long as you want. If you wait until you are 65, you can spend the funds on anything you want without incurring a 10% penalty normally incurred for spending on something other than a qualified medical expense.

If you’re nearing the age where you’re thinking of selling your home, you know what a valuable asset it is. There are a few ways to use your home to decrease your tax burden: You can take a standard deduction for home-business expenses instead of calculating each individual expense. You can take a $5 deduction for every square foot of office space, up to 300 square feet. If you installed alternative energy equipment such as solar panels, geothermal pumps, and wind turbines on your property, you can take a tax credit worth 30% of what you spent on the equipment and installation.

At Peak Financial Freedom Group, we understand the value of the money you’ve worked so hard to earn. Let us help you create a comprehensive retirement plan that makes saving for retirement easier by taking your tax burden into account. Click here to schedule your no cost, no obligation financial review.

Lifelong Learners: Set Up a 529 Plan for Yourself

Written on March 29, 2019.

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

Written on March 27, 2019.

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.

Click To Read Full Publication

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

Written on March 25, 2019.

Most people know that April 15^th 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 15^th. 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 15^th.

Note that you still have to make an IRA contribution by April 15^th 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 15^th 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 1^st and April 15^th.

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

Written on March 22, 2019.

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 15^th 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

Written on March 19, 2019.

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.

Author: admin