2 strategies to simplify taxes in retirement: Retirement Scan
Our daily roundup of retirement news your clients may be thinking about.
2 strategies to simplify taxes in retirement
Instead of making quarterly tax payments, retirees have the option of having the payments withheld from their Social Security and pension benefits, according to this article on CNBC. Retirees who reach the age of 70 1/2 may use their required minimum distributions to cover their tax liability. Those who take this option should advise their custodian to withhold enough to cover their taxes so the IRS will treat the withheld amount as payment. Moreover, they should remember that an RMD is considered a taxable income. “People forget to account that the RMD is taxable and must be included in the tax calculations,” says an expert.
Why your client's pension is doomed
A study by policy group Wirepoints has found that pension liabilities in 28 states rose faster than their economies by more than 50% from 2003 to 2016, according to this article on The Wall Street Journal. Some 12 states even saw their pension liabilities increased more than twice as fast as their GDP during the period, the study found. State lawmakers are to blame for the trend, as they allow the benefits to be under-funded, according to government unions.
When is the best time to convert my traditional IRA to a Roth?
Doing a Roth conversion can be a smart financial move for clients who are in a low tax bracket, according to this article on MarketWatch. Converting traditional IRA assets can trigger a taxable event, and doing it while in a lower tax bracket allows clients to save on taxes. This is because the tax bill will be lower than when they take mandatory distributions in retirement and they are in a higher tax bracket. A Roth conversion is not recommended to clients who intend to leave their IRA assets as a legacy to lower income heirs or a charitable donation.
11 ways to make your money last longer in retirement
Downsizing or moving to a less expensive location is one way for retirees to prolong the life of their nest egg, according to this article on Motley Fool. Seniors who also want to make their savings last longer should pay off or avoid incurring debt, consider taking on a job in retirement and reduce their transportation costs. Making the most of senior discounts on big ticket purchases, creating a distribution plan and contributing to a health savings account are other strategies to prolong their retirement savings.
Forget retirement - many baby boomers are starting small businesses instead
A survey by Guidant Financial has found that more baby boomers opt to run their own small business in retirement, according to this article on Forbes. More than 50% of small business owners are entrepreneurs in the above-50 age bracket, with one third of all the small business owners in the 50-59 age bracket. Small business owners aged 60 to 69 make up 17% of all entrepreneurs, while 4% are at least 70 years old.