The Asset Advisory Group
CERTIFIED FINANCIAL PLANNER
Growing up, money was very mysterious to Danielle Seurkamp. The people around her had very different relationships with it. On one hand, she saw a person who seemed to ignore it completely. It came and went, sometimes there was enough and sometimes there wasn’t. On the other hand, she saw someone who put tremendous value on it and prioritized it more than most anything else in life. Of course, she didn’t spend much time thinking about that as a child, but as she got older and started thinking about her own relationship with money she realized that these examples had made an impact. They helped her develop a sense of responsibility and to greatly value the peace of mind achieved by an awareness of her financial situation. They also taught her to hold on to the important things in life and to never define her means as anything more than a means to an end. Saving lots of money isn’t the goal; it’s the thing we do to achieve our goals.
Wanting to share the peace of mind that Danielle found by understanding her financial life, she pursued a career in financial planning. It allows her the opportunity to take care of people by eliminating just a little bit of life’s uncertainty. She enjoys helping people address the decisions everyone faces about how to best use assets and opportunities. Of course doing that involves spending a lot of time thinking about finances, but to be truly successful she has to spend just as much time thinking about the people themselves and how she can turn their resources into realized visions.
Danielle is grateful that her background taught her how much finances can impact day-to-day lives. That knowledge is what inspires her to help people enjoy today and be prepared for tomorrow.
MS, FInancial Planning, College for Financial Planner
For single individuals, Social Security is simpler. Benefits are based on their own earnings history and their monthly Social Security payments are calculated using their highest 35 years of earnings.
For married individuals, monthly Social Security benefits might be based on their own earnings history or it could be based on the earnings history of their spouse. Individuals can only take benefits on their spouse's record once the spouse has filed for his or her own benefits.
Up until now, you hadn't filed for benefits, so your husband's only option was to collect monthly benefits based on his own earnings record. Once you file, he will qualify for the spousal benefit which is equal to 50% of your benefit at your full retirement age. If 50% of your benefit is higher than 100% of his own benefit, he is allowed to switch to the higher payment amount.
There are numerous factors that can impact the amount of a person's spousal benefit. If a person files for spousal benefits before his or her own full retirement age, they will not receive 50% of their spouse's payment. They will receive a reduced amount. At 62, the spousal benefit is reduced to 32.5%.
If your husband receives a government pension, that would also reduce the amount of spousal benefits for which he would qualify.
I recently heard this said as well and I wouldn't put too much stock in it. What I heard claimed a person should not retire one month or even one day before they are 70. Broad financial advice like this is good for headlines but it can be very misleading if you take it as gospel. The sentiment that we should be retiring later because life expectancies are longer is valid, but certainly not universal.
Individualized planning is the best way to determine if you are ready to retire. Absent that, a rule of thumb to know if you have enough is to multiply your investment portfolio by 4% or 4.5%. That is considered a safe amount to take out of your portfolio each year. Combine that with Social Security or any other retirement income you expect to receive and decide if that will be enough to live on annually. If it is, then you're fairly well-positioned for retirement as planned.
For the first RMD only, your wife can take her RMD anytime between January 1st, 2018 and April 15, 2019. For every subsequent year, she would need to take the RMD between January 1st and December 31st. The RMD can be taken as one lump sum or taken out in multiple withdrawals throughout the year, just as long as the full amount is distributed from the IRA by the deadline.
Note that if you decide to postpone the first RMD to 2019, you will wind up having to take two RMDs in 2019 (the first RMD that you postponed and the second RMD which has to be taken out in 2019). For this reason, it usually does not make sense to delay the first RMD until the following year. If you do, you wind up with double the income in one tax year which is rarely beneficial.
RMDs from 401ks are the same, unless the person is still working at their employer when they turn 70.5, in which case they can delay the RMD until they retire.
This is just a thought, but you may consider leaving the entire $2,000 in the IRA. Even though you can only deduct $1,100, you can still make a contribution of $5,500 a year ($,6500 if you're over 50). The $900 that you can't deduct would be considered a non-deductible IRA contribution. You don't get an up-front break for this money, but the earnings will grow tax-deferred until you take the money out of your IRA. There are no income limitations for making a non-deductible IRA contribution.
If you decide to go this route, be sure to file Form 8606 to report the $900 non-deductible IRA contribution.
The 1040X is required with each return that you amend. This form will show your original return information and your amended return information side-by-side, as well as the net result of how much tax you'll owe as a result of the amendment (if any). When you mail your amended returns, you'll need to attach the original and revised first two pages of the 1040 and any other schedules or forms that are changed as a result of your amendment. The 5329 will also be required for each year you made excess contributions.
Be aware that you will continue to owe the 6% excise tax on those excess contributions every year until you take the money out of the Roths. I would consider recharacterizing your Roth contributions to non-deductible IRA contributions. Essentially, what that does is moves the money and earnings from your Roth contributions into an IRA. If you do this rather than just taking the Roth money out directly, you will avoid the taxes and a 10% penalty on the Roth earnings.
If you recharacterize your 2017 contribution before you file, you shouldn't have any problems for this year. Remember to file Form 8606 to report non-deductible IRA contributions.
This is a pretty tricky to correct, so it may be worth consulting with a tax professional for guidance.