February 2020
Retirement Articles This Week
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You Can Still Set Up An IRA Or SEP For 2011
It's not too late! Most online brokerage firms allow you to set up an IRA or Sep IRA right on their home page. Then simply add your bank routing and account information and fund your account. April 17th is the deadline this year.
Wise Owl
Did You Turn 70 1/2 Last Year?
You can delay your first MRD until April 1st of this year.
The tax law states that you must start taking mandatory payouts (MRD) from traditional IRAs (but not from Roths) no later than April 1 of the year after the year you turn 70 1/2. So if you turned 70 1/2 in 2011, the deadline is approaching. Call your IRA or 401k provider...they will have the calculation for you.
iRA Deadline This Year...April 17th
Taxpayers will have until Tuesday, April 17, to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday. April 17th is the deadline for making your 2011 IRA contribution.
Thrift Savings Plan (TSP) Options At Retirement
What do I do with TSP when I retire? FedSmith provides TSP income options:
(1) Set up monthly withdrawals from TSP, (2) Create an annuity with TSP through MetLife, or (3) Rollover TSP to an IRA
If you leave your money with TSP once you retire, you can create income by taking monthly withdrawals. The pros are: you continue to enjoy the low fees that TSP offers, and you can change the amount of your monthly check every January. The cons are: you can only make changes to your monthly check in January. Imagine you’re retired and receiving a monthly check from your TSP account. You have an unexpected emergency and need to repair your roof, or you need to buy a new car, or your daughter is getting married and you have the pleasure of assisting with the wedding costs. You call TSP and ask them to send you a lump sum check. Guess what! They will not allow it. Your choices are to make a change to your monthly withdrawals in January or be forced to take the entire balance out of your TSP account. What if you want to stop your withdrawals? Let’s assume you are receiving a monthly check from TSP and come September, you realize you do not need this much income from TSP, because you are simply paying the tax and depositing the remainder into your bank account. And, the very next payment will dump you into a higher tax bracket. So you call TSP and request that they stop your monthly withdrawals until January of the next year. And guess what? That is not an option. So you see, for many retirees scheduling monthly withdrawals from TSP may be a great way to supplement your income, for others, they do not want to live within the restrictions of TSP.
The second option you have is to create a lifetime annuity from your TSP through a MetLife annuity. The pros are: you can have a guaranteed payment over your life as well as a joint life with your spouse or someone that has an insurable interest with you. If you are worried about the volatility in the market causing you to run out of money during your retirement, you can be worry free because MetLife can guarantee income over your lifetime. The cons are: it’s an irrevocable decision.
The third option is to rollover TSP into an IRA. The pros are: you have more choices than the 5 funds offered through TSP, you can have more flexibility as to how you take withdrawals, and you can manage the IRA yourself or have a professional manage it for you. The cons are: you may not have the knowledge or experience to know how to manage the IRA, the choices available may be overwhelming and you may find yourself taking on more risk than you are comfortable with, and you will very likely be paying higher fees than those of TSP.
GM Moves From Pension To 401k
General Motors Co. plans to freeze its U.S. pension plan for longtime white-collar workers and give all salaried employees annual bonuses but not pay raises in an effort to hold down expenses, officials announced Wednesday.
The Detroit-based automaker said roughly 19,000 salaried workers hired before 2001 will move from a traditional pension with guaranteed payments to a 401(k)-type plan with contributions based on salary and bonuses. Employees hired after 2001, which represent about 30 percent of the company’s salaried workforce, already are in that defined contribution plan.
Questions On The 1099-R
You may have received a 1099-R in your January mail if you did a distribution from an IRA or rolled over a 401k or 403b employer plan into your IRA.
What the 1099-R tells you:
Box 1 of the form shows the total amount of your retirement fund that was distributed. The more important amount to you right now is in box 2a, the taxable amount. For direct rollovers from one qualified plan to another, that amount is generally zero.
Also check box 7, the distribution code. A letter or number should be here, explaining to the IRS exactly why your retirement money was taken out and just what was done with it. Direct rollovers to another qualified plan are coded with the letter "G." This includes transfers to another company's 401(k) plan, a tax-sheltered 403(b) annuity, a government 457(b) plan or an IRA.
YTD Market Returns....Your 401k Should Be UP
Annuities May Be Coming To Your 401k
Very few 401k or 403b plans offer annuity or systematic withdrawal plans once you retire or leave the plan. The employer plans were really designed to save money-not withdraw. In many cases you'll have to roll the funds over to a IRA in order to create a regular income stream. Look for some gradual changes:
Rules proposed by the Treasury and Labor departments last week will encourage more employers to offer an annuity option in 401(k)s and other retirement plans.
Visit the RetirementThink Income Annuity Basics.
American Airlines...Retirees May Get Reduced Benefits
American Airlines is misleading its employees when it said not to worry about their pensions, a federal agency said on Thursday.
The Pension Benefit Guaranty Corp. said the airline itself has estimated that 13,000 current or retired employees will have their pension cuts.
“American Airlines is telling their workers and retirees not to worry, but they should,” said J. Jioni Palmer, PBGC’s director of communications. “American said nothing’s been decided yet, but didn’t even bother to pretend that it was trying to preserve its employees’ pensions.”
Government Retirement Benefits...A Pretty Good Paycheck
About one of every 125 retired federal civilian workers collects more than $100,000 in benefits annually. They include physicians, postal workers and presidential candidate Newt Gingrich, according to data obtained by Bloomberg News under the federal Freedom of Information Act.
The list of former federal employees collecting more than six figures also includes former Vice President Dick Cheney ($125,976 for 28 years of work, including as a Wyoming congressman, White House chief of staff, and defense secretary). Cheney didn’t respond to a message requesting comment.
Gingrich, the former House speaker, receives a pension of $100,200 after 20 years in Congress, according to the data. He has argued as a Republican presidential candidate that government employees ought to shoulder more of the burden for planning their retirements. His campaign spokesman, R.C. Hammond, didn’t respond to a request for comment.
Courtesy of BusinessWeek.com