SJK Financial Planning, L.L.C.
Wes started his career as an insurance agent for his family’s independent insurance agency in Fort Worth, Texas, where he was born and raised. He owned several businesses over the years in the financial services and other industries.
After working decades in the insurance and financial services industry, Wes eventually left the insurance field to commit to financial planning and investment advising. Wes founded SJK Financial Planning, where SJK represents the initials of his children.
Wes graduated with a bachelor's degree in Business Administration from the University of North Texas majoring in Financial Planning. In addition to being a Certified Financial Planner™ Professional, Wes is a Life Underwriters Training Council Fellow (LUTCF). Wes is also an active member of the DFW chapter of the Financial Planning Association.
In his personal life, Wes has raised three children and seen them through college. He has been active in church, school, and professional organizations all his life. Wes enjoys the outdoors participating in backpacking, hunting, fishing, canoeing, and camping. He likes to cook, garden and read. He has a passion for old movies and is a Turner Classic Movie fan.
BA, Risk Management, Insurance, & Financial Services, The University of North Texas
Assets Under Management:
Wes Shannon, CFP
A great question, that leads to a very useful strategy I have used with my clients, but it is a complicated strategy. You can convert from a traditional IRA, Rollover IRA, any amount each year to a Roth but you will have to pay taxes as ordinary income on the amount converted. So your limit is based upon how much you want to pay in taxes. I find it is best to do a comprehensive review of the client's tax returns to properly identify what marginal tax bracket the client is currently in and how much more income can the client realize before moving into the next tax bracket. Remember, that for people over 65 on Medicare that their Medicare premiums are determined by their income so not only can the conversion increase income taxes but also possibly increase Medicare premium. The third concern is that the taxable amount of Social Security benefits is determined by income so the Roth conversion will also affect that calculation. So it is possible that a Roth conversion will increase three things: 1) Income taxes; 2) Medicare premiums; 3) Social Security amount taxed. So you can see that it is a calculation that will require some expert tax advice. The good news is the IRS allows you to change your mind about the conversion and "back-it-out" before you file the next year's tax return (including extensions). So if you do a conversion and find out that it is costing more than you considered you may undo part or all of the conversion.
With regards to the Required Minimum Distributions (RMD), the IRS does not allow the Roth conversion to satisfy the present year's RMD. So it is a two step process; first, withdraw the RMD and calculate the new marginal tax rate and determine the amount available to the next tax bracket; then do a Roth conversion. The Roth Conversion will reduce the amount of your traditional IRA therefore, future RMD's will be reduced because of the reduction in the IRA balance but the Roth conversion doesn't reduce the present RMD.
Never use 401(k) or any retirement funds to pay off student loans. The government was willing to loan you money for your education but no one will loan you money to retire on. Most likely you are getting a tax deduction on some of your student loan interest. Unless you are 59 1/2 years old, you will have to pay the penalty tax on your 401(k) withdrawals.
For the do-it-your-selfer, I would recommend using a Vanguard Fund. If you are serious about attaining financial independence, which it seems you are. I recommend you go to the xyplanningnetwork.com and find a registered investment adviser. Vanguard published a white paper a few years ago that said working with a competent wealth adviser can make as much as an additional 3% on your lifetime earnings.
Call the annuity insurance company and ask them to provide ALL of the options for annuitization. I would think a period certain or life with cash refund might work the best. After you get the options come back and post a new question with that information.
These sound like fixed annuities which are not securities but purely insurance contracts and the broker most likely is an insurance agent. In a way he is telling the truth. The fees are built into the interest rates they pay the annuity holder. Just like a bank's CD rates. The bank makes loans at 4% and pays 1% on CD's the spread is what the bank works on and could loosely be considered the fee. A fixed annuity is the same way, the insurance company is paying 3% to your mother but they are using her money to invest at 5% or 6%.
Variable annuities are security contracts and come under securities laws and insruance laws. They have fees deducted from the investment accounts and those are disclosed. Variablie annuities are invested in "outside" funds not owned or operated by the insurance company. Fixed annuities are totally invested with the insurance company.
If the 3% is adequate and is guaranteed there isn't much to do. Be aware that at your mother's death the money will pass directly to the beneficiary of the annuity contract and will not go through her will. You may want to check who the beneficiaries are and if that is still what your monther wants. Also check when the annuitization dates are for the contracts. This is a maturity date that upon reaching the insurance company will annuitize the balance (pay monthly lifetime payments and keep all of the principle) make sure the contracts do not annuitize.