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Ask A QuestionIf you have a specific question please contact me at: askjanjaffin@aol.com. I will make every effort to answer the question in a prompt manner. If I determine that the question is worthy of interest to other visitors, I will publish it on my site. I will never divulge your last name or e-mail address.
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Retirement on the RunNote: This is the actual untouched question I received. Dear sr
my friend have a criminal case pending in the USA ,he does not return to the US to face it , now he wants to receive his retirement money but we will like to know if it is true that he can not receive anything until he will return to the USA and face his legal situation .He is USA citizeen
Please answer me back ASAP
Yolanda from South America
AnswerYolanda,
Although I am glad to give retirement advice, this is a situation that requires legal advice from a lawyer. I would also suggest that you check out the following web site: www.socialsecurity.gov/onlieservises/ Click on the "Do you Qualify for Benefits?" link, and I think you will find some valuable information.
Good luck to you, you are probably going to need it.
Jan Jaffin
Retirement on the Run-ReplyDear Mr. Jaffin
thanks for your advice on the social security matter. He is allready contacting an Attorney to clear up his legal situation.
You are doing a great job and I thank you one´s more time
Yolanda
IRA Contribution LimitsDuring 2009, I worked for 2 months for a company that offered a 401k. During that time, I contributed $1927. Then, I went to work for another company that does not offer a 401k. I am 54 years of age. How much can I contribute to my IRA?
Also, my wife worked for a company that offered a 401k, again, for 2 months. She contributed $1267. She did not work for the rest of the year. She is 45 years of age. How much are we allowed to put into her IRA?
Thanks,
Lance from Kansas City, KS
AnswerThe simple answer to your question is, you may both contribute to a Traditional IRA for 2009 (up to April 15, 2010). Taxpayers age 50 and over are allowed to contribute an additional $1,000 as a "catch-up" contribution. Therefore, since you are over age 50, you can contribute $6,000, and since your wife is under age 50, she can contribute $5,000.
The question is whether you can deduct the IRA contribution from your taxes. The answer to that depends on your modified adjusted gross income for 2009. I am assuming you are married, filing jointly. If so, since you both had a qualified retirement plan available to you during 2009, if your MAGI is $89,000 or less, you can have a full deduction. If your MAGI is more than $89,000, but less than $109,000, you can have a partial deduction If your MAGI is $109,000 or more, you may not deduct any of your contribution. If you are in the $89,000 to $109,000, there is a formula in IRS Publication 590, which will tell you how much you may deduct.
For a Roth IRA, generally you both may contribute to a Roth IRA as long as you had taxable compensation for 2009, and your modified adjusted gross income is $176,000(married filing jointly). The limits are the same as for a Traditional IRA, $5,000 each, plus an additional $1,000 for taxpayers age 50 and over. Please remember, you cannot contribute the maximum amount to a Traditional IRA and Roth IRA, you may only contribute a TOTAL of $5,000 each (plus the $1,000 catch-up for yourself).
The key here is that you are able to contribute to a Traditional IRA, regardless of your income or availability of a Qualified Retirement Plan.
Social Security Outside the StatesJan,
I'm an American citizen working abroad for over 20 years.I have heard that I can't get Social Security benefits unless I spend 6 months in the US every 5 years.Is this true?If so is there any way around the rule?I was told that missionaries make a point of spending 6 months in the US every 5 years because of this.
An American Abroad
AnswerI am happy to tell you, you have been misinformed. United States citizens can receive the social security benefits they are entitled to regardless of where they live, unless, of course, it is a country where the United States does not send money, such as Cuba and a few other countries. But there is no six month rule.
Age 61 1/2 and Laid OffJan,
I am 61 ½ years old and just received notice that I will be laid off on December 30, 2009. I believe that the Social Security Administration averages the last few years of your employment in order to determine your monthly benefit. For the past 3 years I have made about $77,000 and I am worried that if I find a new position it will not pay that much and if I wait until I am 66 ½ to retire my monthly benefit will be reduced substantially. Should I retire now while my income is high and work part time to supplement my income or take a lower paying job? I currently have roughly $220,000 in all of my retirement accounts.
Thanks for your opinion,
Coy from Mineral Springs, NC
AnswerCoy: You are facing a difficult decision. According to the Social Security rules, your social security benefits are actually based on your lifetime earnings. Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most money. They then apply a formula to those earnings to arrive at your basic benefit, and that is the amount you would receive at full retirement age. There is a worksheet on line at www.socialsecurity.gov to help you determine your benefit amount. This means if you continue working past age 62, the additional earnings could actually increase your benefit.
I encourage you to talk with a financial advisor about your retirement accounts to determine how best to invest those funds for your retirement needs. There are some excellent variable annuities with lifetime income guarantees you can consider. If you don't currently have a financial advisor, I suggest contacting a local bank or brokerage firm and ask to speak with a retirement specialist. The financial advisor can assist you in determining whether you currently have sufficient funds to go ahead and retire or whether you may want to continue to work a few additional years so you will have the money to do what you desire in retirement.
Good Luck!
Out of the Country, Out of Luck?Here's a question I'm sure you've never encountered.
I am 50 years old. I worked in the USA from 1987 - 1995. During this time period I was employed and contributed to a 401k plan along with my employer. In 1995 I moved to Europe (Greece) with my family and have since been employed in the private sector (no affiliation with USA what-so-ever).
My question is as far as the 401k plan I left behind (worth $40,000 now) what can I do about it other than wait out my retirement? Can I contribute to it from where I am?
Nick from Greece
AnswerDear Nick: From your e-mail, it sounds like you are a non-US citizen. Generally, qualified retirement plans, such as a 401(k) are non-transportable (i.e. they cannot be rolled over to a qualified plan in another country). Your first course of action should be to obtain a copy of the Plan document and review the options available at termination of employment. If you have the option of taking a full withdrawal, you may be subject to U.S. as well as Greek taxes, and of course, you would have to pay the 10% early withdrawal fee if you take the funds before age 59 1/2.
As far as the ability to contribute to that 401(k) from where you currently are, you would not be able to make additions to it unless you are still employed by the same company and are being paid in U.S. dollars.
My advice would be to review your 401(k) plan document and then consult a tax adviser to determine the tax implications of taking a full withdrawal if that option is available to you. Otherwise, waiting until after age 59 1/2 may be your best course of action.
Good luck, and if your circumstances differ from what I surmised from your e-mail, please give me more details, and I will try to be of additional assistance to you.
Out of the Country, Out of Luck? (follow up)Thank you Jan,
By the way, I am a US citizen (dual
citizenship). I dont think that changes anything from what you described
though. Are you aware of any list of overseas tax advisors? There must be
since there are US resident employees who work for US companies here.
Nick from Greece
AnswerDear Nick:
You are correct, the dual citizenship alone
does not change anything. The only way you would be able to roll your 401(k) to
an IRA is if you have a US residence.
As far as a tax advisor, I would recommend
you go into a local bank or brokerage firm and ask to speak with a Financial
Advisor. Most banks have Financial Advisors who can assist with matters such as
these.
Good luck!
Should I Convert?I’ve been hearing and seeing a lot about “Roth IRA conversions” recently. I think taxes will be increasing in a year or so, and am thinking about converting my traditional IRA to a Roth IRA now, so I can take tax-free distributions when I retire in about 7 years. My taxable income this year will be approximately $110,000 and I am currently age 61. My questions are: 1) am I too old to think about an IRA conversion and 2) should I think about “converting” my IRA this year or wait until next year?
Fred from Milwaukee, WI
AnswerFred: Your thinking about taxes increasing in a couple of year unfortunately is probably pretty accurate and given your time horizon for needing to access your IRA, a conversion to a Roth IRA is probably a good idea for you. However, you will not be able to convert to a Roth IRA this year (2009), because you cannot qualify for the conversion since your income is over $100,000. However, beginning next year, 2010, anyone will be able to convert to a Roth IRA regardless of income or filing status. As you are making the decision whether or not to convert to a Roth IRA, keep the following factors in mind:
- The tax bracket you anticipate being in after you retire – the higher you think your tax bracket will be, the more you will benefit from the conversion.
- Whether or not you have funds set aside to pay the income taxes when you convert. Remember the amount you convert will be added to your income in the year you convert, and you should always pay the taxes due from non-IRA funds. The advantage of converting in 2010 is that you will be able to spread the taxes due on the converted amount over 2 years, the 2011 and 2012 tax years.
- The time horizon before you will need to access the IRA funds. Since you do not plan to use your IRA during the next 7 years and you are over age 59 1/2, you are in a good position for a conversion.
Stretch IRAI've heard about "stretch IRAs" for my children. I would like to set one
up for each of my two boys, but I don't know if there are any special
qualifications or who can set them up for me. Can you help?
Javon from Atlanta, GA
AnswerJavon: A "stretch IRA" is not a special kind of IRA you can set up for your children. It is terminology used to indicate the IRA is a "beneficiary IRA," and can be "stretched" over the life of the beneficiary. Setting up a beneficiary IRA is the best way to achieve maximum tax deferral after the death of the IRA owner. At the IRA owner's death, any beneficiary can open a
beneficiary IRA and "roll over" the proceeds to an inherited IRA. Of course a spouse has the option of either rolling over the proceeds into his/her own IRA or a beneficiary IRA (if the spouse is under age 59 1/2, it is often a good idea to open the Inherited IRA so that he/she can take distributions when
desired without the 10% IRS penalty).
The owner of the beneficiary IRA would then begin taking Required Minimum Distributions the year following the IRA's owner's year of death. No matter what age the beneficiary is, the 10% IRS penalty will not be assessed on withdrawals from a beneficiary IRA, only
ordinary income tax on the amount withdrawn will be due. The beneficiary may withdraw any amount they desire, but they are required to take their Required Minimum Distributions based on their (the beneficiary's) life expectancy. Please remember to name your children individually as
beneficiaries, and not your estate or some other entity.
Too Old for a 401(k)I am in my late 60s and semi-retired. I work part-time to supplement my income. My manager keeps bothering me to do the 401k, but times are tough, and I figured I was too old for it to do me much good anyway. What do you think?
Della from Detroit, MI
AnswerDella: Actually now is a great time to continue saving for the future, and even in your late 60's, you could have another 20 to 30 years in retirement. You are fortunate to have access to a 401(k) to be able to save pre-tax dollars. Saving pre-tax means you will be able to save more with less money coming out of your take-home pay. In addition, if your employer matches a percentage of your contributions and you contribute at least the percentage that is matched, you will double your contributions and potential growth on that amount. That means if you contribute 5% and your employer contributes 5%, you will have an additional 5% of your salary working for you instead of being retained by your employer.
Unless you need every dollar you earn just to cover basic living expenses, such as food, clothing and shelter, you should make every effort to contribute the maximum amount possible to your 401(k), because even if you are age 67 or 68, you could still have many productive years ahead. In addition, if you receive a bonus at year end, consider contributing at least a portion to your 401(k), rather than perhaps spluring on that big screen TV so that you can live more comfortably when you are no longer able to hold even a part time job.
I Need More MoneyI am 63 years old and I have taken early retirement from Social Security. I work part-time to supplement my income, but I am only allowed to make so much a year, and that can get tough. If I were to participate in the 401K at my job, would I be able to take what I contribute off of my earnings to stay under the SS cap?
George from Accokeek, MD
AnswerGeorge: That's a good question, and I certainly empathize with your
situation. I had to go to my tax advisor to get the answer. I am sorry to have
to tell you that contributing to your 401(k) will not reduce your earnings for
social security purposes.
Where to Get an AnnuityI'm going to be retiring soon and I'd like to purchase an annuity. I don't have a financial advisor, so where's the best place to get the service I need?
Cynthia from Punta Gorda, FL
Answer
Cynthia: First of all, you should certainly seek the advice of a professional prior to
purchasing an annuity. An annuity, especially a variable annuity, can be quite
complex and has many features that many people find confusing. You should
interview several financial advisors before entrusting one with your savings.
There are many ways to begin your search, such as a referral from a trusted
friend, your local bank, an insurance company you may currently utilize for
other products, a local brokerage firm. Whichever method you use to select your
financial advisor, do your homework and make sure the firm and advisor are
working for you and not just selling products.
Early Retirement Without PenaltiesI’m 54 years old and have just been laid off from my company. Since I have a substantial pension built up, I would like to retire early and enjoy traveling with my spouse. I know if I roll my pension over to an IRA and begin taking distributions before I am 59 ½, I will have to not only pay taxes on the withdrawals, but a 10% IRS penalty also. Any suggestions?
JW from Seattle, WA
AnswerJW: I am sorry you were laid off, however, I applaud the fact that you have accumulated enough in your pension that you are able to retire early and enjoy what you have worked so hard to build. One suggestion I have is to explore setting up a 72(t), otherwise known as “substantially equal periodic payments.” This technique will avoid the 10% penalty, however, just be aware you will need to continue these payments without alteration until the later of 59 ½ or 5 years. Consult your financial advisor to get all the specifics of this alternative and full details.
Stay Put or RollI am age 55 and have been laid off by my company. I'm not sure whether I
will go back to work or retire early. Should I roll my 401(k) over to an
IRA now or leave it with my employer?
Debbi from Austin, TX
AnswerDebbi: A lot of people are facing this dilemma today due to the high unemployment
rate, and the decision of what to do with retirement money is not always
clear-cut. There are reasons to roll the money over to an IRA and reasons
you may wish to leave it with your former employer. One reason to leave it
with your former employer is that anyone separating from "service" after
reaching age 55 is allowed to take distributions from a qualified retirement
plan without the IRS 10% penalty.
If you need to access any of the money
and it is rolled into an IRA, you would need to meet certain conditions to
avoid the 10% penalty. You may want to consider rolling a portion of the
401(k) into an IRA, and leaving a portion in the 401(k) in case you need to
access any of the money for living expenses. Of course, there are
conditions that may allow you to take distributions from your IRA without
the 10% IRS penalty, and I have covered some of those conditions in a recent
article.
Copyright © Ask Jan Jaffin Indialantic, FL
askjanjaffin@aol.com
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