Our daily roundup of retirement news your clients may be thinking about.
Clients who have assets in an IRA but want to reduce the costs may want to roll the money into their 401(k) plan if their employer allows such transfer, according to this article on Los Angeles Times. Many 401(k) plans offer investment options that have very low costs and are inaccessible to retail investors. If this is not an option, clients may want to transfer their IRA to a custodian that offers computerized investment services for a minimal fee.
Investors should assess their portfolio's asset allocation and fees when their target-date fund investments reach their maturity date, so they can decide whether to stick to their investing plan or reinvest the assets, according to this article on The Wall Street Journal. TDFs factor in just the investor's age and exclude other important factors, such as pension and Social Security. Those who hold TDFs in a 401(k) plan may keep the investments, transfer the assets to other options within the plan or to an IRA, or reinvest the assets in real estate or alternative investments. “It can be a good idea to look at alternatives such as immediate or deferred annuities or individual fixed-income holdings that align income to the individual’s needs,” says an expert.
A tax-efficient withdrawal strategy is to start with the least tax-friendly investments and tap into the most tax-efficient ones, according to this article on Morningstar. This means taking required minimum distributions first, then taking distributions from taxable accounts and tax-deferred accounts, ending with a Roth account. Retirees who have no need for their RMDs may want to donate the funds directly to a qualified charity to avoid taxes on the amount. Managing a tax-efficient portfolio can be a challenge, so hiring a tax professional is recommended.
A survey has found that 56% of respondents with savings in a defined contribution plan claimed that they were on track to "retire with the lifestyle they want," with almost 70% saying they can save enough to cover their retirement needs, according to this article on Bloomberg. However, the survey suggests that these retirement savers may be too optimistic about their golden years, as they overestimate their future returns. Clients who are unsure about their retirement security should consider living below their means to improve their prospects, says a financial planner.
Vermont, Connecticut, Minnesota and Oregon are among the states that impose state taxes on retirement benefits, according to this article on Kiplinger. Other states that are least tax-friendly for retirees are Montana, California, Nebraska, New Jersey, New York and Utah. Some of these states also charge property taxes and are likely to raise tax rates to address their financial problems.
