Pension Maxima Investment Advisory, Inc.
Bonnie Yam is a Chartered Financial Analyst and an Enrolled Agent. She graduated from Smith College with a BA in Mathematics and Economics. She received an MBA in Finance from University of Chicago. Before starting her Qualified Plan business seven years ago, she was a Financial Manager for Time Magazine, New York and a Hedge Fund Research Analyst for Cheetah Investments, Hong Kong.
Bonnie has extensive experience in investment management, investment fiduciary and investment education. She is a member of ASPPA, NATP, CFA Institute and NYSSA.
Bonnie and her team specialize in qualified plan consulting for new and existing plans. Her goal is to help plans maximize retirement savings and attain positive retirement outcome. In the past 15 years, she has worked with companies big and small, and collectively, her and her team have been able to help companies control cost, increase plan effectiveness, and help employees save.
Bonnie assists small business owners in maximizing their business value through five steps of value maturation. Business owners need to assess their personal readiness, business attractiveness, and business readiness. Bonnie and her team incorporate personal financial planning, business planning, business de-risking, exit strategies in conjunction with tax strategies to help business owners maximize their cash out value.
BA, Mathematics & Finance, Smith College
MBA, Finance, University of Chicago
Assets Under Management:
Pension Maxima Investment Advisory, Inc. is an investment adviser that is registered with the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940 and has made notice filings in those states where required to do so. Pension Maxima Investment Advisory, Inc. does not offer its services to residents of any jurisdiction in which EBS is not currently registered and/or is not a notice filer, unless exempt. The information provided is intended for use by citizens and residents of the United States only. It is not directed to any person residing in, any citizen of, or any form of organization operating under the authority of any country or jurisdiction in which Pension Maxima Investment Advisory, Inc. is not registered as an investment adviser, unless exempt.
A lot of people choose to keep the mortgage even though they can afford paying it off early. One main reason is the tax write-off. Let's say you pay $3750 in mortgage payments, half of that is interest, so $1875. That interest is deductible off your income from Schedule A. Assuming your tax level is 28%, your tax savings from interest rate deduction is $525. That is real money to you regardless of what happens to the market.
I think your bigger question is how to get more "safe" return from your savings. If you are very risk adverse, I would recommend a high credit, low duration (less than 1 year) municipal bond fund. Depending on your state, that can fetch you 2% to 3% after tax (but subject to AMT). It is triple tax free (Federal, State and Local). It is also very liquid. Unlike a CD, you can cash out anytime.
I hear that it is about one year, but even just 3 months, you should see improvement. You need to make sure you pay on time and do not use more than 30% of available credit. Also call the Consumer Credit Counselling Service (CCCS) and take a class there. Some major national credit companies view successful completion of CCCS program as an acceptable credit history. (Helps mitigate negative history.)
Withdrawal from profit sharing account is treated as ordinary income. Whatever you withdraw will be added to your total income for the year. I would try to time my withdrawal so I would not bump up my tax rate too much. Let's just assume that you are at the cusp of the 15% income bracket or income at $37,950 (for single).
Here is the tax impact on the $100,000 withdrawal:
Income Bracket Additional Withdrawal Tax Rate Tax
$37,950 to $91,900 $53,950 25% $13,475.0
$91,900 to $191,640 $46,070 28% $12,899.6
Total Additional Tax $100,000 $26,374.6
The question is how can you minimize the tax bite? If you are buying a house, you would be incurring mortgage payments. Since mortgage interest is tax deductible, you would be able to write off some of the additional tax bite.
Example (totally hypothetical):
Additional Income from withdrawal: $100,000
Mortgage Interest Deductions: $50,000
Additional Income after deductions: $50,000
Additional Tax (probably 25%): $12,500 (still a lot better than $26,374.6)
I am just illustrating the calculations. You should get more exact calculations by consulting a tax accountant. My guess is if you have additional cashflow somewhere else, it would make sense to do the withdrawal in two installments, but again, I have no numbers to based off on for the calculations.
The five-year clock starts from the first taxable year for which a contribution was made. The account was 5 year old, but when was the first contribution made? Is the real estate asset the first contribution? Has it satisfied the 5 year rule?
In addition, you must meet one of the following requirements:
- 59½ or older
- Distribution to beneficiary or estate after your death
- Withdrawing up to $10,000 to buy your first home
This is a very complex issue. The best thing is to consult a lawyer. A quick answer to that is "Yes". You can name the trust as one of the beneficiaries to your current 401(k). However, you might want to set it up as a "look through" trust so your child can continue to stretch the required minimum distributions over his or her life expectancy. There are a few procedural requirements to be met. Besides that, watch out for who else you name as primary beneficiaries outside the trust and also the successor beneficiary of the Special Needs Trust. That can potentially shorten the stretch to just 5 years or the age of the oldest beneficiary.