Top 10 Retirement
Retirement: that sweet period of respite between work and death. If you do it right, this can be the greatest time of your life. I’m here to help you retire large.
There are a lot of tricks the greasy government uses to get its hands on your blood money. And blood money it is. You’ve poured years of your life into your retirement fund. I aim to help you keep more of it.
If you’re not ready for retirement, congratulations. Enjoy the remaining years of youth and beauty you have remaining. If you start planning for retirement early, you’ll be prepared to keep your money, like your skin, wrinkle free, when old age lands.
Here are our top ten tips to keep you from parting with your hard earned cash.
1. Early Withdrawal Penalties
A distribution from your IRA or 401k before 59 and half years old will take a ten percent penalty. You’ll be paying taxes on it too. That’s like getting punched in the ear and kicked in the shin at the same time. Hilarious, but it really hurts.
So, unless you need the money to keep yourself alive before sixty, you should leave it in the fund. Simple.
2. Required Minimum Distributions (RMD)
Whether you can spend it or not, your enemies at the IRS are going to start making you take distributions after 70 and a half years old unless you’re still employed. These distributions are going to be taxed. There isn’t a lot you can do here from within a traditional retirement package. You can do what Randy did and run a little business after retirement. It will keep you feeling young; give you a hobby and an income. Just make sure your business is something you enjoy doing. Randy fishes. Don’t make your retirement about doing people’s taxes. The point is to relax.
3. Don’t Take Large Distributions in One Year.
The money from your traditional retirement account is subject to tax at the time of distribution. If you take too much in one year, it can push you into a hire tax bracket. You’re older now. Take small nibbles. You’ll live longer.
4. Distribution Withholding
Most distributions are subject to 20% withholding by the IRS in anticipation of a tax penalty, unless you’re at the age of 59 and a half. In the case of an IRA, this might be lowered to 10%.
This is yet another reason to leave your money to grow a little longer. When you start a retirement plan, it’s long term. Think like the tortoise, not the hare.
5. If You Ever Have Tax Losses Consider Converting to a Roth IRA
Roth IRAs are the real smart play. You can use tax penalties to offset income that arises when you convert traditional IRAs or 401ks to Roth accounts.
When you convert to a Roth account, you pay tax on the amount of the conversion, but believe me it’s worth it. These sexy beasts grow entirely tax free and there is no tax on distributions.
SPEAKING OF ROTH IRA’s and ROTH 401K’s these next five tips are exclusively for you masters who’ve already caught on.
6. Roth IRAs are Exempt from RMDs
You don’t have to take distributions. If you want to let it grow, grow it will.
7. “Designated” Roth 401ks Must Take RMDs
Yeah. Tax code is confusing. “Designated” 401k accounts have to take distributions. These are part of your employer plan. That’s what designated means.
If you don’t want to take money out, we’ve covered this. Roll the 401k into a Roth IRA when your reach 70 years old.
8. Distributions of Contributions Are Always Tax Free (Unless the Government Changes Things)
Distributions of contributions to a Roth IRA are always tax-free. No matter your age. You pay the tax up front. You don’t pay it twice.
9. Early Distributions of Roth IRA Earnings
Before you get too excited by the prospect of drawing money from your Roth IRA remember that you have to be 59 and a half years of age or older and you have to have had the Roth account for five years or longer. Slow and steady wins the race.
10. Delay Your Roth Distributions
Because they aren’t the most tax efficient funds while they are invested, you have another reason to let your ROTH grow as long as possible.
Tax-free accounts are the best way to earn income in the US if you use them right, but using them right is a matter of being patient while your money grows.
This has been another money matter at Money Matters.