admin, Author at Peak Financial Freedom Group

Did You Make a Qualified Charitable Distribution this Year?

Written on March 15, 2019.

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 31^st, 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

Written on March 11, 2019.

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?

Written on March 8, 2019.

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!

Written on March 5, 2019.

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 31^st, except for your first one, which you can delay until April 1^st 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

Written on March 1, 2019.

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.

Your Tax Burden in Retirement

Written on February 26, 2019.

Even in retirement, taxes are a guarantee. Your Social Security benefit, capital gains, and retirement account distributions can all be taxed, leaving you with less retirement income than you planned on receiving. Your tax burden is important to consider when planning for retirement, and can be your most significant expense. Here is how common retirement income sources are taxed.

While you will gain a new source of income in retirement through Social Security, it could also add to your tax burden. There are many reasons why you can’t rely solely on Social Security in retirement, so you will probably have other sources of income. Half of your Social Security benefit is taxable if your adjusted gross income, nontaxable interest and half of your Social Security benefit equals over $25,000 for individuals and $32,000 for couples. If these equal over $34,000 for individuals or $44,000 for couples, up to 85% of your benefit can be taxed.

You may sell an investment to add to your nest egg. Investment dividends, as well as investment sales can be taxed. Investments held for less than a year are taxed at ordinary incomes tax rates. Investments held for over a year are taxed at the long-term capital gains rate, which is 15% for individuals with an income of over $39,375 and couples with an income of over $78,750, and 20% for individuals with an income of over $434,550 and couples with an income of over $488,850.

Distributions from retirement accounts count as income, and are required after age 70 ½. If you turned 70 ½ in 2018, you must take your first required minimum distribution (RMD) by April 1^st of this year and going forward, you must take RMDs by December 31^st. If you delay your first RMD, you might need to take two withdrawals in the same year, resulting in a larger tax burden. At 70 ½ you also lose the ability to defer tax on new IRA contributions, unless you are still working or have a Roth IRA.

Keep in mind that your Social Security benefit, capital gains, and retirement account distributions can be taxed in retirement. Factoring in taxes as an expense in retirement will help you create a better plan with fewer surprises. Rather than wait until retirement to deal with new tax burdens, start strategizing now to avoid them when possible.

Don’t let your tax burden derail your retirement goals. Let the professionals at Peak Financial Freedom Group help you create a retirement plan that minimizes your taxes. Click here to schedule your no cost, no obligation review today so you can start strategizing as soon as possible.

Why $1 Million in Savings may not be Enough

Written on February 22, 2019.

They say age is just a number, but the same probably shouldn’t be said of retirement preparation. While $1 million may seem like a substantial nest egg, it may no longer be enough if you want to retire comfortably. In the past, many people set a goal to have a million dollars to retire on, but in today’s world it may not get you where you need to be for retirement. Healthcare costs and inflation are just a few of the retirement expenses that can eat up savings. Everyone’s retirement goals and situation are unique, and preparing for retirement might not be as simple as saving for a specific number at all. It’s worth taking a more in depth look at your finances and future needs to make sure you’re saving enough for retirement, and creating a comprehensive plan that fits you.

As Americans continue to live longer than previous generations, their retirement savings have to stretch further. It’s important to consider that health care costs tend to rise as we age. According to research from Fidelity Investments, The average 65-year-old couple retiring now can expect to spend roughly $280,000 of healthcare alone during retirement, which is up 75% from 2002. As Medicare most likely won’t cover all of your expenses, it’s important to anticipate a high cost of healthcare as you age. Health Savings Accounts, long-term care insurance, and Medicare Advantage plans are ways you can save for healthcare costs in retirement.

You know what $1 million is worth now, but what about in 20 years? Inflation erodes the value of savings, and will continue to do so after you retire as you start relying more on your savings for income. On average, the inflation rate is about 2.5% a year, and can spike. To get a sense of how you should save, make a retirement budget that includes how much you need to cover expenses and funds for leisure activities you’re looking forward to, multiply it by 25-30, and then adjust for inflation. Unfortunately, the rising cost of living could leave you with effectively half the money you thought you had saved from your retirement years. Low-risk investments, bonds, and annuities are some of the ways you can protect against inflation in retirement.

You can’t predict how retirement could be different in 2030, but you can create a solid plan for retirement. While saving for retirement is necessary, it’s not the only thing you need to do to prepare. High healthcare costs and inflation can eat up your savings in retirement, possibly making $1 million insufficient. A comprehensive plan looks beyond an arbitrary number to your unique retirement goals and situation.

At Peak Financial Freedom Group, we will work with you to create a comprehensive retirement plan that takes costs in retirement into account. Click here to schedule your no cost, no obligation financial review to take the first steps towards a retirement plan that’s more than just a number.

Is Now the Time to Convert to a Roth IRA?

Written on February 19, 2019.

Roman poet Horace penned the famous phrase, “carpe diem” – seize the day. Could 2019 be the year to seize the Roth? A Roth IRA can be a valuable asset in retirement because qualified distributions are not taxed, unlike distributions from a traditional IRA. Roth IRAs are also not subject to required minimum distributions, (RMDs) so funds can continue to grow tax free, and the remaining balance can be passed onto a beneficiary. If lowering your tax burden or passing on tax free wealth is a retirement goal, you may want to consider converting to a Roth this year.

A Roth IRA conversion is a significant decision, as conversions are now irreversible. Also, you will have to pay taxes on the conversion, and the bigger the conversion the more you pay. However, you don’t have to convert the entirety of the funds at once. The market volatility at the end of 2018 might have reduced the value of your IRA, in which case a Roth conversion now would mean a lower tax burden. Market performance this year is an important factor to consider if you’re thinking about a Roth conversion.

It’s also important to consider that the Tax Cut and Jobs Act lowered tax rates – and that these lower rates probably won’t be around forever. Most will see tax hikes come 2025. If you expect to pay higher taxes in the future for this reason, or others such as relocation or increased income level, a conversion now could be the move, as distributions from a traditional IRA will be taxed at those higher levels later on. This is also important to consider if you plan on passing on your retirement account to a beneficiary, as higher taxes in the future means a higher tax burden on your beneficiary.

2019 could be a good year to make the conversion. If your IRA sustained losses in the recent bout of market volatility, or you are worried about your tax burden in the future, converting to a Roth could help to minimize the damage by allowing funds more time to grow tax free, as they are not subject to RMDs or taxes if they are withdrawn. A Roth IRA could be a very valuable asset in retirement strategies for high-income earners, especially if you want to lower your tax burden or pass on tax free wealth to a loved one. Will you seize this opportunity in 2019?

Before making an important financial decision like a Roth conversion, talk to the professionals at Peak Financial Freedom Group. We can help you create a comprehensive plan that makes the most of your retirement accounts. Click here to schedule your no cost, no obligation financial review.

Retirement Strategies for High-Income Earners

Written on February 15, 2019.

For the high-income earners and savers, retirement planning can look different – and more complicated than for others. Maybe you don’t just want to get by in retirement – maybe you want to travel and pursue passions – as well as leave behind a legacy to your loved ones. Reaching these goals requires strategy and planning. Saving in the years leading up to retirement, considering a Roth IRA, and deciding on the best time to start taking Social Security can be important parts of a strong retirement plan.

Building a cash stockpile in the years leading up to retirement can be a good strategy to help survive volatile markets. A stockpile can help you ride out the storm so that investments have the time to rebound. Also, a period of dedicated saving before retirement can help you adjust to a lower-cost lifestyle after you retire. And, living more off of cash in retirement might put you in a lower income tax bracket. In addition to lowering your tax burden, this can make a Roth IRA conversion a good option.

Converting a traditional IRA to a Roth can be a good strategy for those who have saved a significant amount in their retirement accounts. You can pay tax on the conversion to roll over a traditional IRA into a Roth, and then enjoy tax-free withdrawals later on. This strategy can make sense for those who are focused on their legacy, because Roth IRAs pass on tax-free income. The best times to convert are years where your income tax bracket is lower than usual, and before tax rates increase. You can convert in parts if you don’t want to cause your taxes to spike because of a large lump-sum conversion. Keep in mind that conversions are now irreversible.

Whether you should wait to take Social Security or not depends on individual circumstances. You will receive 75% of your full benefits if you take them at 62, 100% if you take then at your full retirement age, which is 65-67 depending on when you were born, and 132% if you wait until 70. Retirement goals, life expectancies, and tax burdens are all factors to consider. One thing to consider is that taking benefits earlier will allow you to defer distributions from other investments, which can help you contribute to a legacy.

Saving in the years leading up to retirement, converting to a Roth IRA, and deciding when the best time to start taking Social Security is can be important aspects of retirement planning for high-income earners and savers. Strategizing and planning now could make for a great retirement later on.

The professionals at Peak Financial Freedom Group can help you come up with a retirement plan to make the most of what you’ve earned. We will work with you to create a comprehensive plan that takes your retirement and legacy goals into account. Click here to schedule your complimentary review.

Important Gifts for Your Valentine

Written on February 12, 2019.

What are you getting your spouse for Valentine’s Day this year? Flowers? Chocolates with weird fillings? How about a bigger Social Security benefit, or an insurance policy that could secure their financial future? Whatever you decide to give your loved one this Valentine’s Day, it’s also the perfect time to sit down and talk with your spouse about your future to make sure you’re both on the same page and have a solid plan in place.

For some couples, communication is an issue. It’s not always fun to have tough conversations, but when it comes to things like finances, Social Security and insurance, it’s important to have an open and honest discussion. Although sitting at a fancy restaurant on Valentine’s Day may not be the ideal time to talk about these things, you should consider setting some time aside to go over your financial plan so that you’re both on the same page when creating a retirement game plan.

Who said Social Security can’t be romantic? If you’re married, Social Security spousal benefits can be a great way to increase your joint earnings in retirement. The spousal benefit will kick in if one spouse’s benefit is less than half of the other’s. For instance, if one is entitled to $1,500 per month, and the other $400, the latter is entitled to an additional $350 per month. Usually the spouse wishing to receive the spousal benefit must be at least 62 years old and must draw their own retirement benefit first. Spousal benefits can be reduced if claimed before full retirement age. As with regular Social Security benefits, spousal benefits can be reduced is claimed before full retirement age, however, there is no upside to waiting until 70 to claim benefits.

Insurance may not seem like a romantic gift, but it could be the most practical one: Life insurance and disability insurance could save your family from a lot of anxiety in the event of your passing or becoming disabled. It’s important to discuss how much income your family would need in order to sustain its current lifestyle, and look into insurance policies that suit your particular needs. Making sure that your family will always be financially protected could be the most loving gift.

So, this Valentine’s Day, while consumers are spending $2 billion on flowers, $1.7 billion on candy and $4.3 billion on jewelry, according to the National Retail Federation, consider investing in something more impactful – you and your spouse’s future. If you get a plan together now for the lifestyle that you want to live in retirement, you can be sure that you will accomplish your retirement goals together.

At Peak Financial Freedom Group, we know that we’re not just helping you plan for you financial future, but your spouse’s and family’s as well. Let us help you create a comprehensive plan that takes all your loved ones into account. Click here to schedule your complimentary review.

Author: admin