Advise Finance, LLC
Certified Financial Planner
Rose was born and raised in China, but educated in the US. Consequently, she enjoys the best of both worlds. She aims to incorporate that philosophy into her practice and provides her clients with the same privilege. Rose was the first American Certified Financial Planner(tm) practitioner who ever won the annual international financial plan competition twice (2014 & 2016), sponsored by the Global PlanPlus Award. Additionally, Rose has been frequently interviewed and quoted by major financial media sources, such as The Wall Street Journal, Kiplinger, Forbes, US World News, Reuters, CNBC, Chicago Tribune, and InvestmentNews. You can see a clip of her interview with the local TV, WBIR, about teaching kids of financial literacy.
Besides having the general knowledge of financial planning, Rose has two other distinctive designations: 1) RICP®--Retirement Income Certified Professional, which gives her the expertise to help retirees during the retirement in issues such as safe income withdrawal, Social Security and Medicare planning, long-term care, etc, and 2) CDFA®--Certified Divorce Financial Analyst, which allows her to assist attorneys and clients to achieve the best possible equitable settlement and at the same time to avoid typical financial and tax pitfalls. Rose Swanger is passionate about promoting financial literacy. Her personal goal is to help Americans get their financial houses in order, one community at a time.
BS, Medical Technology, Georgia State University
MBA, Financial Planning, California Lutheran University
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Advise Finance, LLC
As any financial professionals may advise you: not to touch the 401(k) for any loans as it’s your only future savings. If you feel the pain of owning debts now, can you picture yourself debt-laden at the retirement age when you have no other sources of income?
As frustrating as it may be right now, the first step is to get your financial house in order: 1) Know your budget or cash flow: Automate your savings. Purposely make it a habitual effort by setting 15% of your pay to another checking/savings account, then direct the rest of income to other living expenses. After a while, you will see the needs from the wants, and you are not going to live from paycheck to paycheck. 2) Without knowing the interest for the student loan, it’s tough to advise. However, if you think your loan interest is high, then find out your credit score and possibly refinance through a private lender. 3) Make an extra payment toward the highest interest loan or the small balance loan. Your personal loan balance is smaller than the student loan, and you may want to make extra payments to pay that off first, such as pay twice a month, instead of the monthly payment only. Once it’s done, use the same strategy to pay off the student loan. Meanwhile, keep up the good work of saving towards your retirement in the 401(k). Best!
Great question! First of all, it’s never too late to start a saving for yourself, especially with the company’s 9% matching. That’s the free money to you. Take it! Given your age, your full retirement age for the social security benefit is 66, which means you still have 12 years to save. If you love the job too much and postpone the claiming to 70, not only you will get a bigger payout (132% social security increase) but also an extra four-year savings. Assuming 6% return, if you stash away $18K per year (2016 IRS limit for the 401(k) deferral), you will have $462K savings by age 70, and that’s not including your employer’s annual matching. So, the long-winded answer to the first part of your question is please do fund your 401(k) if you’re eligible.
Secondly, when you stated you took a cash pension, I assume you took a lump-sum payout, instead of a lifetime annuity. Yes, you could roll over to a traditional IRA, or you can convert to the Roth. Keep in mind; you may not want to do a lump-sum conversion. That move could push you to another higher tax bracket. What I would do is to consult with a CFP® to see what other better options are there for you. Best!
Depending on how debt-averse you are, you can either pull all of your resources together to get the new house free and clear, but you may have fewer resources for living expenses and emergency use, or you can use a combination of your savings and IRA money for the down payment. Say, the new mortgage company requires a 10% down payment, which is $14k. You can take $7k out of your savings and another $7k out one of your IRAs, assuming both are traditional IRAs.
Keep in mind that the more money you take out from the traditional IRA, the more tax you need to pay. Furthermore, if you are already claiming the social security, any money out of a traditional IRA will be added into your adjusted gross income (AGI) and cause the social security benefit to be taxed. To be more precise, since you’re filing as a “Single,” and if your income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your social security benefits. More than $34,000, up to 85% of your benefits will be taxable.
First thing first, did you ask your husband if he maxes out his 401(k) contribution each year? Furthermore, if he’s above 50, he has an additional age catch-up amount of $6k to contribute. The beauty of the 401(k) is: the more you contribute to the 401(k), the less income shows on a W-2, and the less tax you have to pay.
Usually there are not many options for the active wage earners to deduct their income. So, depending on your status for the new employer, if it’s W-2 employee, there may not be much deduction opportunities for you. On the other hand, if you’re a 1099 independent contractor, you could set up your own retirement plan to save for the future as well as reduce the current tax liability. I would consult with both CFP for the retirement plan recommendations (SIMPLE, SEP, or Solo 401(k)) and CPA for tax savings comparison.
I would fund the Roth IRA through the two-step conversion as the traditional IRA will not do you any good. It may further cause you tax pain during the retirement. Not only the withdrawal from a traditional IRA may raise your adjusted gross income to get your social security benefit to be taxed, but also not withdraw what you’re supposed to at age 70 ½ will result you a 50% tax penalty.
I assume you’re making the Roth IRA contribution through conversion each year. If you wait to withdraw after age 59 ½, there’s no tax, no penalty for either the principal (the amount of your contribution but converted each year) or the earning. That’s the beauty of owning a Roth IRA. Furthermore, based on the current tax code, there’s no age limit on when you should withdraw from Roth. This alone can be quite useful for minimizing the tax burden during the retirement as the withdrawal amount from the Roth will never raise your adjusted gross income to cause your social security benefit being taxed or the Medicare Premium B and D premiums to be raised. Great job!