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Ask Ed Slott: Roth IRA Help?
Thursday, January 17, 2013

I've been reading Ed's book, The Retirement Savings Time Bomb and I am finding it very helpful.  I would like to follow his basic advice to get as much of my retirement funds as possible into a Roth IRA.I'm confused, though, because it's not always clear to me whether a particular bit of advice is intended for people who are still working, or for those already retired and drawing money. 

Is it possible to transfer money out of my retirement plan and into an IRA and/or Roth while I am still employed?  Or is such transfer of funds possible only AFTER I retire and start taking distributions from the plan? And when Ed says something is permitted, I assume he means only that the IRS permits it:  am I right that the employer's PLAN might NOT allow some things even when the IRS does?

Transferring funds out of a plan while you’re still working, known as in-service distributions, varies depending on the type of plan and the particular options under your plan.  Ask your plan administrator or read the summary plan description to see if an in-service distribution is available.

You are correct when you say that a plan may not always allow what the tax code allows.

I am so scared of unwittingly doing/not doing something critical.  That deadline for RMDs is looming ominously close for me, yet I'm still getting a salary.  And I'm afraid to stop working, because I believe that my ability to contribute funds to a Roth ends with the end of being employed:  is that correct? 

You need compensation from employment to make a Roth IRA contribution. If you stop working but are married and your spouse has compensation, you can use your spouse’s compensation to make spousal Roth IRA contributions.

Is there some place where I can get a coherent written statement of all the "rules" that apply to my plan?  

Yes. It’s called the summary plan description.  You should be able to get a copy of it from your benefits department or your company may have a copy of it online on your employee benefits web site.

Maybe you can direct me to one of your "Master Elite" advisors in the vicinity of Morristown/Mendham/Chester, NJ, preferably someone with expertise specifically in both the TIAA-CREF system and the dictates of NJ re its public college employees?

Please check our website, www.irahelp.com for a list of our advisors. Check the “Elite” tab and then choose “Find an advisor”

I am looking for info on how to calculate my Social security payment if I stop working early.  I'm 56 and may be able to stop working at 58.  Can you advise on how the SSA calculates the payments at 62 and 66?

Here's how I'm thinking that my income will change over the time when I retire at 58 and start collecting SS at 66.  I currently make $100k per year. At 58 I plan to withdraw  $60k per year from my 401(k). I believe I will still pay Social Security tax on that income. I also believe that the SSA calculates the payout at age 66 based on the last 3 years of income or is it on the 3 consecutive highest years of income?

That is my question.  Will the last 8 years of income at a lower level affect my SS payout? Can you help me with this planning question?

While we do not provide help with Social Security issues, this is a great question, and we shared it to let our readers know that some of our trained advisors do have expertise in this area.  Please check our website, www.irahelp.com for a list of our advisors. Check the “Elite” tab and then choose “Find an advisor”

Did the 2012 tax act effect conversions to Roth IRAs for individuals or couples who’s MAGI is too high to contribute to a Roth directly?  Does this loophole appear safe for a while longer?  Thanks! 

There is no income limit to convert IRA funds to a Roth IRA or to convert 401(k) funds to a Roth 401(k). The 2012 tax act did not change this rule. It also did not change the fact that there are income limits for making Roth IRA contributions. For 2013, the ability to make a Roth contribution begins to phase out at $178,000 if you are married filing joint and at $112,000 if you file single.

(4) Comments
Taxpayers who separate from service in the year they will become 55, or are already 55, can start taking distribution from their 401-K without being subject to the 10% early distrbution penalty. Therefore, in most cases, you should not rollover a 401-K to an IRA if you are between 54/55 and 59 1/2, unless your 401-K plan does not permit you to take distributions in this way. Also, before doing anything, check with your HR department to determine if there is employer company stock in your 401-K plan, which is often put there by the company as its matching contribution. If there is company stock, and if it has appreciated over the years by 25% or more in value, then get the "cost basis" from HR, and look into the NUA (Net Unrealized Appreciation) provisions of the tax code, because this can save you a significant amount of taxes. (J K Lasser, Your Income Tax, has an excellent discussion of these provisions.)
Posted by DAVID Z | Sunday, January 20 2013 at 10:32AM ET
Social Security benefits are calculated based upon the highest 35 years of earnings (adjusted by a "PIA" factor). If you worked < 35 years, then the formula uses -0- in the calculation. SS benefits at 62 are 75% of those at 66. Retirement planning often suggests in many cases the advantage of waiting until 70, if you can, because there is an automatic, guaranteed "bonus" of 8%/year, or 32% at 70, by waiting after age 66. This is better than the ROI that can be obtained on most investments, and it is guaranteed. Many advisors suggest this approach, and withdrawing funds from your IRA until you are 70, especially if you are in the 15% income tax bracket. Also, during this period, converting to ROTH IRA if you do not need the money in any year. You can go to www.ssa.gov and use their calculator to project your SS benefits. Most tax advisors and financial planners can also help you with this process.
Posted by DAVID Z | Sunday, January 20 2013 at 10:40AM ET
SS benefits are not subject to social security taxes. Also, usually social security benefits are taxed on only 85% of the benefits (or even less in lower income situations). The Social Security Administration has many booklets on the myriad of different aspects of Social Security benefit situations, and a fantastic website with a zillion FAQ's (Frequently Asked Questions).
Posted by DAVID Z | Sunday, January 20 2013 at 10:45AM ET
Great one to read a very good one out here great stats,great images great content Ilove your post keep updating such content for we readers.
Posted by jane g | Wednesday, May 15 2013 at 2:24AM ET
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