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Author Topic: Knowing that “you get what you pay for”  (Read 1102 times)
The emperor has no clothes
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« on: May 23, 2020, 06:59:32 PM »

I am going to ask a few financial questions of our varied group. I will be talking to an “expert” soon in these regards. But, I would to armed with as much info as I can. So....I will be retiring soon and need to do something with my 401k. Actually, I guess I can leave it as it is. But I can’t take distributions out of it. I hope not to have to take money out. I think we are good with our pensions and my S.S. But in the event of an emergency or something I want the option. So my thinking is to roll it over into an IRA. As I understand it this can be done with minimal costs. My 401k is administered thru WellsFargo as well as that’s who we bank with. I will likely just do it thru them. I have been willing to take risks with my 401k and it has done me well. But now I want to be risk averse. I realize I’m likely to give up some money by doing so, but it where I’m at now. Does a mutual fund that invests in government bonds seem like a smart way to go ? Does an annuity make sense for our situation ?
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Bighead
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Madison Alabama


« Reply #1 on: May 23, 2020, 07:08:15 PM »

Rob the best thing to do would be go to your local WF bamk
And speak to one of their financial advisors. They dont make money unless you make money. I use a local Credit Union and and 2 retirement accouts with them as well as one with my job and one with the wifes. The local guy said this really isnt my thing but here is the way I would go and he hasnt been wrong.
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Willow
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« Reply #2 on: May 23, 2020, 07:11:18 PM »

It seems you are in a position similar to mine.  If your pension and SS income is enough to live on then your IRA is only needed for extraordinary expenses.

My advisor told me that at my age I should move toward low risk.  My thinking though was low risk means low gain.  As the IRA was not critical to my retired living I chose to stay with the high risk/high gain class of investments.

I'm now down about 38,000 since the plandemic panic started.  The original plunge took me down about 100,000 so it is recovering fairly quickly.  If Donald Trump is reelected in November I will be back to gaining again.
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The emperor has no clothes
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« Reply #3 on: May 23, 2020, 07:18:40 PM »

It seems you are in a position similar to mine.  If your pension and SS income is enough to live on then your IRA is only needed for extraordinary expenses.

My advisor told me that at my age I should move toward low risk.  My thinking though was low risk means low gain.  As the IRA was not critical to my retired living I chose to stay with the high risk/high gain class of investments.

I'm now down about 38,000 since the plandemic panic started.  The original plunge took me down about 100,000 so it is recovering fairly quickly.  If Donald Trump is reelected in November I will be back to gaining again.
"Don't count your chickens" I was down 80, now down 30. I choose low risk on the off hand he is reelected. (My heart can't take a 200 loss)
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Jersey mike
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Brick,NJ


« Reply #4 on: May 23, 2020, 07:32:59 PM »

I am going to ask a few financial questions of our varied group. I will be talking to an “expert” soon in these regards. But, I would to armed with as much info as I can. So....I will be retiring soon and need to do something with my 401k. Actually, I guess I can leave it as it is. But I can’t take distributions out of it. I hope not to have to take money out. I think we are good with our pensions and my S.S. But in the event of an emergency or something I want the option. So my thinking is to roll it over into an IRA. As I understand it this can be done with minimal costs. My 401k is administered thru WellsFargo as well as that’s who we bank with. I will likely just do it thru them. I have been willing to take risks with my 401k and it has done me well. But now I want to be risk averse. I realize I’m likely to give up some money by doing so, but it where I’m at now. Does a mutual fund that invests in government bonds seem like a smart way to go ? Does an annuity make sense for our situation ?

Professional advice is always a good thing, but it may cost you if you decide hire him/her. A licensed financial advisor is just that, an advisor. They recommend products and take a percentage on a yearly basis or an up front cost which can be high depending on the amount invested how you want to diversify.

A yearly 1% fee doesn’t sound like much but over time it adds up, but your advisor should be doing work throughout the year to watch out for your benefit. If you do well he does well. Do your homework before signing over your money. Get recommendations of possible, don’t just go with who your banking with.

As far as an annuity goes, that depends on how comfortable you are on SS and pension. Needs vs. wants...fun money? Do you have your wills squared away? Any life insurance with cash value? Will you need money for health insurance? What are your long term care plans and concerns? IMO if you can live squared away on pension and SS, currently have a nice amount in saving and/or checking (over $30k) and you can find an annuity with a guaranteed 6,7,8% compounded annual return you’d be in pretty good shape. It’s been a while since I looked into annuities, so something guaranteed may not be available anymore. SS and pension is nice but you need to have easy access for emergencies purposes without penalty.

No need to answer questions here, but just thoughts to ponder. Good luck.
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Serk
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Rowlett, TX


« Reply #5 on: May 23, 2020, 07:36:41 PM »

I choose low risk on the off hand he is reelected. (My heart can't take a 200 loss)




For the sake of ALL our retirements, I hope and prey "he is reelected". The utter devastation that would occur should "Poor kids are just as bright as white kids" Biden wins is unimaginable.....
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The emperor has no clothes
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« Reply #6 on: May 23, 2020, 08:03:43 PM »

I choose low risk on the off hand he is reelected. (My heart can't take a 200 loss)




For the sake of ALL our retirements, I hope and prey "he is reelected". The utter devastation that would occur should "Poor kids are just as bright as white kids" Biden wins is unimaginable.....

Sure didn't take long  Undecided
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f6john
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« Reply #7 on: May 23, 2020, 08:04:09 PM »

I choose low risk on the off hand he is reelected. (My heart can't take a 200 loss)




For the sake of ALL our retirements, I hope and prey "he is reelected". The utter devastation that would occur should "Poor kids are just as bright as white kids" Biden wins is unimaginable.....



Plus we still don’t know who will be Biden’s VP pick.
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Serk
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Rowlett, TX


« Reply #8 on: May 23, 2020, 08:06:38 PM »

I choose low risk on the off hand he is reelected. (My heart can't take a 200 loss)




For the sake of ALL our retirements, I hope and prey "he is reelected". The utter devastation that would occur should "Poor kids are just as bright as white kids" Biden wins is unimaginable.....

Sure didn't take long  Undecided



As to the original topic, I'm blessed or cursed I've got almost 20 years until I can retire, so I'm letting my stuff ride as is in the market..... And hoping "he" wins reelection so it will continue to grow.....

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Never ask a geek 'Why?',just nod your head and slowly back away...



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The emperor has no clothes
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« Reply #9 on: May 23, 2020, 08:11:01 PM »

Uh.....you might want to reread Willow's comment. (Like I said, "you get what you pay for") carry on  Wink
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Jess from VA
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« Reply #10 on: May 23, 2020, 09:39:25 PM »

First off, you absolutely want to roll your 401K into a (hopefully existing) Traditional IRA.  And you sure don't want to prepay tax to roll it into a Roth IRA

401Ks are administered by financial institutions which usually contain way more limited investment options (and often not great options either) whereas IRA's generally have nearly unlimited options.

The institutions which operate 401Ks are given pretty wide latitude in changing the rules about how they operate their 401Ks (whether you like it or not) (there is no contract that keeps them from changing rules at anytime), whereas IRAs are pretty strictly governed by federal law, and would require changes in law to alter operation.  The way this worked for me with a Federal TSP (same as 401K), they would only let me take my own money out on demand once (only), after that, I was required to set up the usual payment feature most do of so much per month or year (in accord with the rules that require you to take it out during your lifetime, using annuity tables).  I told the TSP people to suck my nuts, and rolled the whole thing into my existing Traditional IRA.  And note, the longstanding rule requiring us all to begin taking partial payments at 70 1/2 (both 401K or IRA), was just pushed back to 72 (don't remember about the half).

If a govt (investigative) agency wants all the details of your 401K, the 401K operator can just give it to them if they want to.  To get that information from an IRA, they need a valid subpoena/search authority granted by a judge.

I'm sure there is some good reading on-line about 401K vs IRA, and it would be worth your time doing some reading.  I made this decision in 2010, and haven't read anything since.

When I rolled mine over at retirement, I put every nickel in cash (and will never move it).  Lowest return, but least risky (or no risk at all).  Except for paying my house off, I have not needed it at all, and have not touched it.  I certainly could have made a bunch of money in the last 10 years, but I didn't need more money, I just needed to not lose any (like in 2008 and today).  Since the big KungFlu market shift, I did not lose a dime.  Although my conservative returns have gotten even more conservative. That peace of mind and lack of worry is worth a lot IMHO.  However, my investment plan only involves me and no one else; no one depends on me, and I am not trying to earn (in retirement) to put any kids through college, etc.

My two favorite investment outfits are Fidelity Investments and Wells Fargo.  I would have no reservations in rolling over a 401K to Wells Fargo.  My rollover was cost free.  If there is any cost at all, it will be from your 401K.  It seems unlikely there would be any cost at all swapping 401K to IRA all with Wells Fargo.

I am no financial advisor. I have often heard it said that when the market sucks, bonds are good; and when the market kicks ass, bonds suck.  But there are many kinds of bonds, and some always suck.  I've never had a nickel in bonds (though I was always widely diversified).

I would never fork over my life savings to buy an annuity.  Bankers and investment people don't get rich making overly generous deals trading your cash for their annuity.  Your money is yours, the annuity is only a promise to pay you money in the future.

(You didn't ask) but I also cancelled my life insurance when I retired.  My wife had left (shortly before) (and she was not given any right to ins. in our property settlement), and no one else depends on me.  And even with Fed Govt ins, the monthly premiums generally start really spiking up as you enter old age.  Even with a wife, it's worth looking at your entire position (savings, IRA, pension, social security) to see if policy premiums are worth it to you.  (And when I cancelled mine, I also felt a lot better about being married to an expert marksman in a house full of firearms - and this is only half a joke.)
« Last Edit: May 23, 2020, 10:10:24 PM by Jess from VA » Logged
f6gal
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« Reply #11 on: May 23, 2020, 10:04:37 PM »

About 3 years ago, I took my 401K out of TSP.  I placed 2/3 in an annuity (no risk and guaranteed income when you start drawing on it) and 1/3 into a moderate to high risk managed fund. The annuity offered an upfront bonus that made it more attractive, but there's vesting involved in collecting the bonus money.  In the recent downturn I lost nothing from the annuity.  I took a big hit on the managed fund; but, like you and Willow, much of that has been regained.  

I don't really think you should, but you can take distributions from your 401k without penalty once you reach age 59 1/2.
« Last Edit: May 23, 2020, 10:19:16 PM by f6gal » Logged



You can't do much about the length of your life, so focus on the width.
The emperor has no clothes
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« Reply #12 on: May 24, 2020, 04:38:47 AM »

First off, you absolutely want to roll your 401K into a (hopefully existing) Traditional IRA.  And you sure don't want to prepay tax to roll it into a Roth IRA

401Ks are administered by financial institutions which usually contain way more limited investment options (and often not great options either) whereas IRA's generally have nearly unlimited options.

The institutions which operate 401Ks are given pretty wide latitude in changing the rules about how they operate their 401Ks (whether you like it or not) (there is no contract that keeps them from changing rules at anytime), whereas IRAs are pretty strictly governed by federal law, and would require changes in law to alter operation.  The way this worked for me with a Federal TSP (same as 401K), they would only let me take my own money out on demand once (only), after that, I was required to set up the usual payment feature most do of so much per month or year (in accord with the rules that require you to take it out during your lifetime, using annuity tables).  I told the TSP people to suck my nuts, and rolled the whole thing into my existing Traditional IRA.  And note, the longstanding rule requiring us all to begin taking partial payments at 70 1/2 (both 401K or IRA), was just pushed back to 72 (don't remember about the half).

If a govt (investigative) agency wants all the details of your 401K, the 401K operator can just give it to them if they want to.  To get that information from an IRA, they need a valid subpoena/search authority granted by a judge.

I'm sure there is some good reading on-line about 401K vs IRA, and it would be worth your time doing some reading.  I made this decision in 2010, and haven't read anything since.

When I rolled mine over at retirement, I put every nickel in cash (and will never move it).  Lowest return, but least risky (or no risk at all).  Except for paying my house off, I have not needed it at all, and have not touched it.  I certainly could have made a bunch of money in the last 10 years, but I didn't need more money, I just needed to not lose any (like in 2008 and today).  Since the big KungFlu market shift, I did not lose a dime.  Although my conservative returns have gotten even more conservative. That peace of mind and lack of worry is worth a lot IMHO.  However, my investment plan only involves me and no one else; no one depends on me, and I am not trying to earn (in retirement) to put any kids through college, etc.

My two favorite investment outfits are Fidelity Investments and Wells Fargo.  I would have no reservations in rolling over a 401K to Wells Fargo.  My rollover was cost free.  If there is any cost at all, it will be from your 401K.  It seems unlikely there would be any cost at all swapping 401K to IRA all with Wells Fargo.

I am no financial advisor. I have often heard it said that when the market sucks, bonds are good; and when the market kicks ass, bonds suck.  But there are many kinds of bonds, and some always suck.  I've never had a nickel in bonds (though I was always widely diversified).

I would never fork over my life savings to buy an annuity.  Bankers and investment people don't get rich making overly generous deals trading your cash for their annuity.  Your money is yours, the annuity is only a promise to pay you money in the future.

(You didn't ask) but I also cancelled my life insurance when I retired.  My wife had left (shortly before) (and she was not given any right to ins. in our property settlement), and no one else depends on me.  And even with Fed Govt ins, the monthly premiums generally start really spiking up as you enter old age.  Even with a wife, it's worth looking at your entire position (savings, IRA, pension, social security) to see if policy premiums are worth it to you.  (And when I cancelled mine, I also felt a lot better about being married to an expert marksman in a house full of firearms - and this is only half a joke.)

Good info, thank you  cooldude
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The emperor has no clothes
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« Reply #13 on: May 24, 2020, 04:44:10 AM »

About 3 years ago, I took my 401K out of TSP.  I placed 2/3 in an annuity (no risk and guaranteed income when you start drawing on it) and 1/3 into a moderate to high risk managed fund. The annuity offered an upfront bonus that made it more attractive, but there's vesting involved in collecting the bonus money.  In the recent downturn I lost nothing from the annuity.  I took a big hit on the managed fund; but, like you and Willow, much of that has been regained.  

I don't really think you should, but you can take distributions from your 401k without penalty once you reach age 59 1/2.
I hadn't thought of splitting it up. Thanks for the idea. I had always assumed I could just leave my 401k alone and take out distributions when I wanted. But, ours evidently is set up for only removing the whole thing. At least that's what the Wells Fargo people told me.
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The emperor has no clothes
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« Reply #14 on: May 24, 2020, 07:31:54 AM »

Thank you Pluggy. I might just take you up on your offer.  cooldude
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Jess from VA
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« Reply #15 on: May 24, 2020, 07:47:37 AM »

I don't know your age, but although I didn't need my 401K (rolled over to IRA) at retirement (except to pay off my house, but I waited to do that until 62 when I got my social security retirement), I did not want to set up periodic payments (presumably for the remainder of my estimated lifetime), because you can never be sure if you might need a big chunk of your money for anything that might come up sometime before you hit 72 (when you must set that plan up by law).  And of course, since all that money is tax deferred, you also put off paying taxes on it.

I am not sure about the rules covering a situation where after you set up periodic lifetime monthly payments of X, you suddenly find yourself needing two or three years of that money right away.  So I have simply left it in a pile (less the house payoff) against that possibility.  Perhaps a decision to take periodic lifetime payments is revocable or alterable (probably so), but I didn't need the extra monthly income, so I didn't do it.

Now at 67, I have again begun wondering whether I should begin a lifetime periodic payment plan, not because I need the money now, but because the earlier I start it, the lower the monthly payment will be, and so will be annual tax liability on taking that money.  I'm still not doing it, but I'm thinking about it.

All of these decisions remind me of sitting at a blackjack table with 15 and the dealer showing a face card, and trying to decide if I should take another card.

Ultimately,  I am a solid (probably extreme) conservative in everything I think and do.  But even a liberal can be well served in conservatism in handling his retirement money.    Smiley
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The emperor has no clothes
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« Reply #16 on: May 24, 2020, 08:28:42 AM »

Jess, I hear you. I may be liberal by the standards around here. But, I’m pretty fiscally conservative. The house, vehicles, etc. are paid off. I mostly want quick, easy access in case of something happening or big trips.

Thank you all for the info. (It does feel like sitting at a blackjack table at times)
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Ramie
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2001 I/S St. Michael MN


« Reply #17 on: May 24, 2020, 09:55:55 AM »

If you have enough regular income you might want to look into an HSA if your eligible before you retire. 
https://www.aarp.org/retirement/retirement-savings/info-2018/health-savings-account-retirement-planning.html
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“I am not a courageous person by nature. I have simply discovered that, at certain key moments in this life, you must find courage in yourself, in order to move forward and live. It is like a muscle and it must be exercised, first a little, and then more and more.  A deep breath and a leap.”
carolinarider09
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Newberry, SC


« Reply #18 on: May 24, 2020, 01:24:27 PM »

When I retired, well in the months prior to retirement, the company I worked for had an arrangement with a consulting group. 

I called and spent some time chatting with a gentlemen who was retired (at least that is what he said) and was working at this "consulting" company sort of part time.  I don't remember specifics. He was very informative and asked what I thought were pertinent questions. 

What he asked me was what I needed from the money I was going to roll over to the investment.  I suggested that, based SS and other things an additional amount of X dollars would be sufficient each year. 

He suggested that I look for an investment that contained 60% to 70% in bonds and the rest in stocks.  He did make some suggestions about the type of bonds and stocks but it was general information. 

I ended up moving the money to a Vanguard 2015 fund. The fund met the requirements we discussed.  That was in 2017.  Since its inception it has returned, as of today a little less than the estimated amount of return which was 4%. 

I don't know much about Vanguar except that, so far, they have performed as expected, have no issues with using their website and I could, if needed, speak to someone there. 

All operations have been satisfactory. 

I believe I was lucky in that I believe I got advice from someone who did not have an iron in the fire.  He was there to provide advice and did not profit from my choices.  However, I could be totally wrong about that. 
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bassman
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« Reply #19 on: May 24, 2020, 01:58:41 PM »

Are you already collecting Social Security?  If not, it is worth about 8% per year for every year you delay collecting from ages 62 - 70
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carolinarider09
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Newberry, SC


« Reply #20 on: May 24, 2020, 02:30:14 PM »

Its also interesting that, when you turn a certain age, I think its 72 but could be wrong, it stops growing.  In addition, they will tell you, at some age, you have to enroll in Medicare (I think thats the term).

So, I reached a specific age and went to the Social Security Office, I forget why, and was told "I had to enroll in Medicare" because of my age.  So I did, not thinking anything at all about the consequences concerning the medical benefits where I was working. 

Turns out, it had a major impact on my employer provided medical coverage (again I forget the details).  So, to get the better heath care, I had to unenroll from Medicare.  Went to the SS office and it took four hours to complete the process.  It was not the paper work (it was on a computer) it was just that the process was unknown to the SS workers there. 

I was told no one had ever done that before. 

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The emperor has no clothes
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« Reply #21 on: May 24, 2020, 04:55:46 PM »

Thanks for your input guys.  cooldude The more info I have the better I will know what questions to ask of the "experts". My S.S. kicks out its first payment in the first week of July. I wrestled many months whether to delay it. All I can say is, I think I made the best decision for me and my wife. I understand I'm giving up a significant amount. Trying to weigh monetary concerns against lifestyle choices is very subjective. I'm comfortable with our decision. And as it gets closer things have just reinforced it.
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cookiedough
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« Reply #22 on: May 24, 2020, 09:03:31 PM »

my neighbor retired in 2019 age 63 at the time, best decision he said of  his life.  His wife is retiring later this year when she turns age 60.  I say go for it if you feel you are financially secure.  I am not a huge 401K investor probably should be but long long ago in the 1990's I lost what little I had working for GM at the time so left a bad taste with me putting some money away in my late 20's to see it pretty much all gone. 

If I was age 65 or so,  I would go conservative like in that Vanguard fund one mentioned or something similar that earns historically a 3-5% return consistently avoiding the highs and lows major swings in the stock market.    I only contribute the mininum 4% in my 401K so not going to retire on that for sure even with the company prior to May 8th (no longer company match due to covid 19) matching it dollar for dollar. 

My mother in law has an investor guy in Arizona who she thinks highly of her younger brother got her to him to invest all her money and all I hear from her is she has to watch her money and how she spends it for her investments lately not been good for her at age 78 now.  I have no idea how much she has but am guessing in next 10 years or less will find out since my wife will have to deal with the Arizona investor guy over the phone am sure one day and pretty sure she will not go with someone so far away and will put what money she has left in the bank locally.   Not like that does any good either earning .10 percent.... Angry
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shortleg
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maryland


« Reply #23 on: May 25, 2020, 01:45:25 PM »

  One thing about getting older is we find a way to sleep with one eye open.
This probably as some of us get older we are worth more dead than than alive.
  I guess you know where this is going.
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f6gal
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Surprise, AZ


« Reply #24 on: May 25, 2020, 03:49:11 PM »

Just one more comment.  While you don't have a tax penalty for withdrawing your 401k (after age 59 1/2), you will still have to pay taxes.  So be careful about withdrawing too much at once and throwing yourself into a higher tax bracket.  Your taxes are still deferred if you rollover to an IRA or other retirement fund. 
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You can't do much about the length of your life, so focus on the width.
Willow
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« Reply #25 on: May 25, 2020, 04:17:49 PM »

...  If you anticipate your RMD will be more than your present income, consider taking some money out of that IRA while your tax rate is low.  Your IRA balance will be less at age 72.  You will have a smaller RMD, and pay less tax on it.  And... You will ultimately keep more money.

LOL!  You're in a better position than I.  If your post retirement income is going to be more than your working income you have done very, very well in planning for retirement.
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mello dude
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Half genius, half dumazz whackjob foole

Dayton Ohio


« Reply #26 on: May 25, 2020, 07:31:43 PM »

Rstired folks need some additional planning.  At age 72, there is a required minimum distribution, RMD, that you must take from your IRA.  An IRS formula  takes your age and the amount in your IRA and determines what you must, as a minimum, withdraw.  A large required distribution at 72 can boost up your taxes.  If you anticipate your RMD will be more than your present income, consider taking some money out of that IRA while your tax rate is low.  Your IRA balance will be less at age 72.  You will have a smaller RMD, and pay less tax on it.  And... You will ultimately keep more money.

There is the additional option that with the IRA, you can decide to partially move some to a Roth and pay the tax on the moved money now.   So if you have it planned well, and do a partial move from the IRA to the Roth each year, first the Roth money long term is tax free and there is no min distribution requirement, you can invest that as long as you want. Then second if there is still $ in the traditional IRA, your required min distribution will be less along with the tax bill on that.
« Last Edit: May 25, 2020, 07:36:02 PM by mello dude » Logged

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F6Dave
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NUA
« Reply #27 on: May 26, 2020, 11:46:24 AM »

Anyone with company stock in their 401K should read about the IRS rules for 'Net Unrealized Appreciation'.  The NUA option lets you transfer your company stock 'in kind' (without shares being sold) to a taxable account.  You have to pay taxes on the cost basis of the transferred shares, but when you sell the stock at a later date you only pay tax on the appreciation at a much lower capital gains rate.  This can save a lot of money, because typically when withdrawing money from a 401K everything gets taxed as ordinary income, often double the cap gains rate.

I learned about this at a retirement seminar several years ago, but have found that few people other than finance guys know about the rule.
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