“We can never obtain peace in the outer world until we make peace with ourselves.” ~ Dalai Lama
As we move forward after the recent election cycle, and news of a potential COVID-19 vaccine, it’s an appropriate time to shift back to more basic financial planning questions. These are broad answers to four FAQs that may require additional discussion to address your unique situation but it’s a great place to being the conversation.
What’s the Difference Between a Traditional IRA and a Roth IRA?
To understand the primary difference between an IRA and a Roth IRA it may be helpful to think of the classic candy Now and Later™. With a Roth IRA, you pay taxes on the money you put in now; with a traditional IRA, you pay taxes on the money later, at withdrawal. Roth IRA owners must be 59½ or older and have held the IRA for 5 years before tax-free withdrawals are permitted. In both traditional and Roth IRAs, your money grows tax-deferred while it’s in the account.
To help pick between the two, it’s helpful to consider whether you think tax rates will be higher or lower in the future. You can always ask your advisor whether adding a Roth IRA to your retirement mix makes sense. Each type of account has distinct advantages, though there’s bad news for high earners—some aren’t eligible for a Roth IRA because there are income limits (just under $139,000 for tax year 2020 for singles and $206,000 for those married filing jointly). Either way, saving for your future is a wise move.
How Can I Make Sure I’m Not A Burden to My Family as I Age?
It’s not always easy to think about our mortality. Having the tough conversations now, thinking about any care you may need later in life, as well as an up-to-date estate plan that clearly expresses your wishes, is an incredible gift to your loved ones—and to yourself. It’s hard to put a price on peace of mind.
As outlined in last week’s column, you can begin by researching the cost of long-term care—assistance with the activities of daily living, like bathing and eating—at websites like genworth.com/costofcare. This can give you an idea of how much you may want to consider setting aside for these costs, or if you’d like to know more about long-term care planning options.
My Company Might Offer Me Early Retirement. Should I Take It?
With many companies looking to trim costs, this is happening more often. If applicable, discuss these two questions with your Certified Financial Planner professional when determining if a buyout is right for your situation.
- Are you financially prepared to replace your paycheck?
- Are you emotionally ready to move on to the next chapter?
It’s a personal decision and you may want to take the package and continue working in another capacity. However, you should keep in mind that if you’re offered a buyout and don’t take it, there’s a chance you could be managed out in a less advantageous way down the road.
I Have Some U.S. Savings Bonds That Have Reached Maturity. What Do I Do with Them Now?
U.S. savings bonds are different from corporate or municipal bonds you hold in a brokerage account that is usually cashed in automatically at maturity. With a U.S. savings bond, you’re giving the Treasury Department a no-interest loan by not cashing in the mature bond. If you have a physical bond—not an electronic one—take it to your bank, ideally one where you have a long-established account. If that’s not possible, you’ll have to provide a government-issued form of photo ID and you’ll be limited to cashing $1,000 worth of savings bonds. There are a few exceptions, but in general, the person whose name is on the bond is the only person who can cash it in, and that person will owe taxes on the interest earned. If you plan to give the mature bond proceeds as a gift to someone, note that you’ll have the tax liability upon cashing it in. Your other option is to transfer ownership to someone else. You can find the form for transferring a physical savings bond at treasury.gov.
“Hey, Siri” or Google can provide answers to many questions. If you have concerns about financial planning issues, it is suggested that you speak with a professional to obtain answers that pertain to your unique situation and encompass various implications and avoid unintended consequences. Stay focused and plan accordingly.
The opinions expressed are those of the writer as of November 11, 2020, but not necessarily those of Raymond James and Associates, and subject to change at any time. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.
“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239–389-1041, email email@example.com. Website: www.raymondjames.com/Darcie.