Springtime in Wisconsin

Springtime in Wisconsin requires next-level planning, just like retirement. You can enjoy both a lot more when you’re prepared. So, you check the weather forecast and make your plans. But, you also throw an umbrella and a winter coat in the car, just in case. That’s the insurance aspect of retirement planning. Many people cheerfully set aside some of the more cumbersome details of retirement planning because they intend to work well past their full retirement age. They love their jobs, they enjoy their co-workers and they depend on that paycheck to meet their budget. While the work ethic is admirable, it is also not enough. Just like unexpected snow showers can wreak havoc on your golf game during what had been forecasted to be a lovely spring day in Wisconsin, unplanned shifts can impact your working life. You may become incapacitated by injury or illness, you might have to step in and care for a spouse, parent, or adult child, you could find your job outsourced or your company sold and your position redundant. Just like you dress in layers when you head out on an April morning, prepared for sunshine or snow, you can protect your retirement with careful planning. Have you purchased Long Term Care insurance? Today’s policies provide for far more than nursing home care and they are far less expensive if you can purchase a group plan through your employer. Are you maxing out your retirement plan options? Beyond your 401(k) or 403(b), are you investing in an individual retirement account? Have you considered a Roth IRA, in which you pay taxes upfront so you can withdraw tax free? Roth’s can be extremely helpful when it comes to meeting your budget in retirement, especially if you end up retiring sooner than you had planned. Are you meeting the employer match in your 401(k)? Those matches are part of your benefits and, if you don’t take… | Read More »

Backdoor Roth Conversions

Due to their income limits, Roth IRAs might seem like they are not a viable option for higher earners seeking to minimize the income taxes they will need to pay in retirement. Fortunately, there’s a reasonable solution. Roth IRA’s have become a popular method of preserving retirement income because investors in them pre-pay the income tax on them, and the funds are then allowed to grow tax free. Since you’ve already paid taxed on them, you don’t have to take Required Minimum Distributions and you can withdraw without penalty after five years. But, they do have limitations. For 2021, if your modified adjusted gross income (MAGI) is higher than $140,000 if you’re single ($139,000 for 2020) or $208,000 if you’re married filing jointly ($206,000 for 2020) or a qualifying widow or widower, you can’t contribute directly to a Roth IRA. You can, however, open a Roth IRA through a “backdoor”, which sounds somewhat unseemly but it’s perfectly legal. You don’t dodge the taxes, you pay them upfront. The “backdoor” option requires you to first invest in a traditional IRA and then roll the funds over into the Roth. You will pay taxes on the funds you roll over, but you won’t have to pay them when you withdraw from the Roth. You can rollover all or part of your traditional IRA because you won’t have to worry about contributions limits either. For 2020 and 2021, you can contribute $6,000 each year ($7,000, if you are age 50 or over) to a Roth IRA. With a backdoor Roth IRA conversion, these limits don’t apply. One thing to consider when you weigh your IRA rollover options, though, is that those funds will count as income and may kick you into a higher tax bracket for the year in which you convert them. If you think a Roth IRA might be a good option for you, it is a good idea to sit… | Read More »