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The Educated Investor – April 2019

F E A T U R E D  A R T I C L E

Good Window of Opportunity for Roth IRA Conversions:

The Roth IRA is a powerful tax-favored retirement option since it can offer a hedge against future tax-rate increases. But beyond tax planning considerations, Roth IRAs have several important advantages over traditional IRAs:

 

1. Unlike a traditional IRA, a Roth IRA distribution is tax-free if you’ve had the account open at least five years, and reached the age of 59½, become disabled or died.

 

2. You can make contributions to your Roth IRA after age 70½, depending on whether you fall within the earned income limits.

 

3. Roth IRAs are not subject to the traditional IRA rules for required minimum distributions at age 70½.

 

The Internal Revenue Code allows IRA owners to convert significant sums from traditional IRAs to Roth IRAs. But you have to follow these important rules (among others):

 

• The ability to contribute tails off at higher incomes. For 2019, the eligibility to make annual Roth IRA contributions is phased out between modified adjusted gross income (MAGI) levels of $122,000 to $137,000 (unmarried individuals) and $193,000 to $203,000 (married joint filers).1

 

• The conversion is treated as a taxable distribution from your traditional IRA. Doing a conversion likely will trigger a bigger federal income tax bill and possibly a larger state income tax bill. However, today’s lower federal income tax rates might be the lowest you’ll see in your lifetime, and the tax benefits of avoiding higher taxes in future years may extend to family members after death.

 

Many tax experts suggest that the best reason to convert some or all of your traditional IRA to a Roth IRA is if you believe your tax rate during retirement will be the same or higher than what you are paying currently. Since you’re no longer allowed to reverse a Roth IRA conversion, it’s important to understand the tax ramifications. Talk to your tax advisor before taking any action.

 

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Traditional vs. Roth IRA: High-level Comparison

 

Here is a simplified comparison of IRA rules and tax benefits. Remember, tax laws are complex and subject to change. Consult a tax advisor about your individual situation before taking action.

Sources: 1. Bill Bischoff, “How the new tax law created a ‘perfect storm’ for Roth IRA conversions in 2019,”
MarketWatch.com, Jan. 16, 2019. https://www.marketwatch.com/story/how-the-new-tax-law-creates-a-perfectstorm-for-roth-ira-conversions-2018-03-26
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.
Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
© 2019 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legaladvice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.

 

Balancing Act: Income, Expenses and Withdrawals
In projecting what you’ll need to save in order to generate enough retirement income, it helps to (1) prepare a realistic household budget and (2) understand what types of expenses you’ll have once you stop earning a regular paycheck.

Types of Expenses

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Sensible savers will plan to cover all must-have expenses before they consider splurging on nice-to-have items. You’ll also need to factor inflation into your expense projections: certain sectors of the economy, such as health care, have seen prices rise much higher than everything else.

How much should you take out of your savings?

Retirement brings with it many unknowns, including how much you can spend each month from the so-called “three-legged stool” of Social Security, retirement plan and personal savings. Withdrawal amounts depend on how much you’ve saved and the expected return on your current investment mix and age, among other factors.

 

Much research has focused on what percentage of account value retirees can take each year so that the money won’t run out — assuming various rates of inflation. Some analysts suggest that 3.0% to 4.0% is a sustainable withdrawal-rate range in the early years of your retirement. A 4% withdrawal rate is considered sustainable except in cases where inflation creeps above 5%. But withdrawal rates of 5% or higher are risky, especially when inflation approaches 4%.2 Depending on the size and health of your nest egg and the growth rate of your expenses, you may be able to adjust this rate in future years.

Order of withdrawals can make a difference

Deciding which of the “three legs of the stool” to spend first depends to a great extent on tax laws. Most people know that delaying taking Social Security payments until age 70 can mean higher payments later; they may not realize that a portion of Social Security income is taxable at ordinary tax rates, which currently is set at a maximum 37%.

Remember that tax issues and IRS rules on qualified plan distributions can be very complicated. For example, although your money can grow tax-deferred inside a 401(k) or pension account, once you take a withdrawal, the entire distribution is hit with your ordinary-income tax rate and possible penalties if you’re under age 59½. On the other hand, selling stocks you hold in a taxable account means that only your capital gains will be taxed at the current maximum of 20% (depending on your income). Some think it’s best to take money first from regular taxable investment accounts and let tax-deferred accounts continue to grow.

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Not everyone agrees with this strategy, though. Depending on your circumstances, some think it makes sense to withdraw money from your IRA and 401(k) before spending down your taxable assets. “The idea is to let the assets that will be taxed at the lowest rate accumulate for the longest time,” says Robert Carlson, author of The New Rules of Retirement: Strategies for a Secure Future. For example, if you think income tax rates will be higher in the future, you may want to spend down your taxable assets sooner. Consider enlisting the assistance of online tools or retaining a financial planner to tailor the order of withdrawals to your specific needs and tax situation.

Sources: 1. Withdraws from qualified plans prior to age 59½ may be subject to a 10% IRS penalty. Account values are subject to income tax upon distribution. This discussion is not intended to show the performance of any fund for any period of time or fluctuations in principal value or investment return. Periodic investment plans do not ensure a profit nor protect against loss in declining markets.
2 . Gerstein Fisher, “What’s a Sustainable Withdrawal Rate for a Retirement Portfolio?” Seekingalpha.com, May 1, 2018. https://seekingalpha.com/article/4168085-sustainable-withdrawal-rate-retirement-portfolio.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.
Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

Sun-Dried Tomato, Spinach and Quinoa Salad

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INGREDIENTS

Salad
1 cup quinoa, rinsed in a fine-mesh colander
⅓ cup oil-packed sun-dried tomatoes, drained and chopped
2 cups roughly chopped fresh spinach or arugula
⅓ cup sliced almonds
¼ teaspoon olive oil
Salt, to taste

Lemon dressing
2 tablespoons olive oil
2 tablespoons lemon juice
2 cloves garlic, pressed or minced
1 teaspoon Dijon mustard
½ teaspoon salt
Pinch of red pepper flakes
Freshly ground black pepper, to taste

INSTRUCTIONS

1. To cook the quinoa: Combine the rinsed quinoa and 2 cups water in a medium saucepan. Bring the mixture to a boil over medium-high heat, then decrease the heat to maintain a gentle simmer. Cook until the quinoa has absorbed all of the water, about 15 minutes, reducing heat as time goes on to maintain a gentle simmer. Remove from heat, cover, and let the quinoa rest for 5 minutes, which gives it time to fluff up.

2. Meanwhile, to prepare the dressing: Whisk together the olive oil, lemon juice, garlic, mustard, salt and red pepper flakes. Season to taste with freshly ground black pepper.

3. To toast the almonds: Warm ¼ teaspoon olive oil in a small skillet over medium heat until shimmering. Add the almonds and a dash of salt and cook, stirring frequently (beware, these burn quickly!), until they are golden and fragrant. Transfer the toasted almonds to a medium-sized serving bowl to cool.

4. Once the quinoa is done cooking, fluff it with a fork and then transfer it into your serving bowl. Drizzle all of the dressing on top and toss to combine. Add the chopped sun-dried tomatoes and wait a few more minutes to add the spinach so it doesn’t wilt completely. Toss again, season to taste with additional salt and pepper, if necessary, and serve immediately.
Remember that asset gifts are not limited to children. Generally you can also give adults up to $14,000 a year as well (to as many people as you like) — and it can be in cash, investments, or property such as land or a piece of artwork (consult a qualified tax advisor for details). Keep in mind, however, that the IRS considers the value of the gift — its cost basis for purposes of computing gift tax — to be its value at the time that it’s given, not when you originally purchased or invested in it.

https://cookieandkate.com/2016/sun-dried-tomato-spinach-quinoa-salad-recipe/

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