SHOW NOTES: 2020-06-18 MiM

Listen to Show Audio

Last Week’s Question of the Week: A Power of Attorney for Property conveys your medical wishes and decisions. True or False?

ANSWER: False.

HOST: What suggestions do you offer to our listeners for understanding our retirement plans at work and how should we be working to maximize them?

KLAAS FINANCIAL: This is a big area that we work through with clients who are serious about their retirement planning. What is important to realize is that we are halfway through 2020, believe or not! So, this is an excellent time to assess those retirement funding goals and see how you are tracking. First, we look at what plans they have available to them:

  • Do they have a 401k, a 403b or 457 plan? If not, do they have an IRA they can contribute to? What we are trying to find are ways that we can put away the most amount of money into retirement accounts, either pre-tax or post tax. Maximize contributions when possible!
  • Is there a match to your contributions? Perhaps your employer offers a match up to 3%…which means that you need to save at least 3% to receive the free money! Don’t miss out on free money!
  • So, what are the limits of how much you can put away each year? This is a really good question as everyone should be working towards maximizing contributions as close to the limits as possible. If you are under 50 years old and saving into a 401k or 403b, in 2020, you can contribute up to $19,500, plus an extra $6500 for those who are over 50, for a total of $26k that you can put away this year. Remember that when you add money to your employer’s retirement plan that you can generally only do this through payroll deductions which needs to be done by December 31st every year, unlike an IRA where you have until April 15th every year to make the contribution for the prior tax year. Note: This year everyone has until July 15th to make an IRA contribution as a result of the CARES ACT.
  • It is a fact that many people start saving for retirement later than they would like. So, the catch-up provisions that I just mentioned are critical. If you don’t have an employer retirement plan, you could be saving into an IRA, and if you are over 50 you can put away $7000 in 2020, which is $6000 per year with a catch-up of an extra $1000.
  • If you don’t have any retirement accounts open, perhaps you have an after-tax investment account in which you can put away dollars for part of your retirement account vs. spending them.
  • Finally, since we are halfway through the year, please look at how much you have put away so far, look at the number of pay periods left and then adjust the contribution so you can possibly put away as close to the max as you can.

HOST: So, midway through the year, what else should we be assessing and addressing?

KLAAS FINANCIAL: We would suggest that you look at your level of debt and your budget, as it is a good time to possibly re-adjust things. Starting with the basics:

  • Do you have any credit card debt? If so, what can you do to eliminate it as fast as possible?
  • Do you have a mortgage? Does it make sense to consider a refinance? Rates are looking great right now, so you may wish to give your current lender a call and check on rates to do this. Car loan? Maybe time to pay this off?
  • Do you have 3-12 months of emergency savings put away? If not, keep working on this goal, because cars need repairs, roofs need to be fixed at the least opportune times on a regular basis and you should be prepared.
  • Did you receive a promotion at work? Congrats if you did! Did you get a pay increase with it? If so, look at increasing your contribution by another 1-2% towards your retirement.
  • Are you putting money into an IRA for a non-working spouse? Something to consider.
  • Have you considered the future tax benefits of putting money into a Roth 401k or Roth IRA?

  • HOST: So, if I receive an inheritance this year, what do I need to know? How do I handle this?

    KLAAS FINANCIAL: It depends on your own situation. You should probably first sit down with a financial planner who can look at how this can help you with your future retirement planning. Things to know:

  • Just as we said earlier, first addressing your emergency savings, and then your debt makes the most sense. Always make sure that your financial house is in order first.
  • If the funds that you received are from an IRA account, they should probably be transferred into an inherited IRA (also known as a “beneficiary IRA”.) so that you can spread taxes over a period of time (10 years if you are not the spouse of the deceased). You will have to pay income taxes on IRA or other pre-tax accounts that you inherit as you take distributions from these accounts. If you cashed out an IRA that was left to you, say a $50,000 account all at the same time, you would have that amount added to your taxable income for the year, which may land you in a tax bracket you don’t want to be in.
  • If you receive funds from a life insurance policy these are not income taxable.
  • If you receive funds from an annuity, some of these proceeds may be income taxable.
  • If you inherited stock or real estate, you will likely receive a stepped-up basis, meaning whatever the value of the asset was on the date of death will be your new cost basis. Good to know: If the estate value of the deceased is not over $11.58 million, then the estate will not pay estate taxes.

  • HOST: Sam from our Money in Motion Listener Corner asks: “How can I estimate how much social security benefit I will receive when I turn 62?”

    KLAAS FINANCIAL: Social Security has a great website: Go to that website and set up an account. They have a retirement benefits planner that will allow you to estimate your benefits at each age from 62 (the earliest you can receive them); to age 70 (when you receive the highest amount) and will also provide figures on earning limits if you plan to work while receiving Social Security benefits. You can also apply for retirement benefits on this same website.

    This Week’s Question of the Week: In 2020, if you have earned income of $50,000 and you are 49 years old, how much can you put into your 401k plan at work?

    Listen to Show Audio

    Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.