FTX Trading Ltd. and its affiliates have announced a plan to sell a subsidiary it acquired for $10 million to Coinlist for $500,000, court documents filed on Feb. 9, 2024 show. The latest motion, filed in the United States Bankruptcy Court for the District of Delaware, details the proposed sale in order to maximize the […]
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Half a million dollars might sound like a lot of money, but if you’re approaching retirement, is it enough?
If you have $500,000 in a pre-tax IRA and expect $2,000 per month from Social Security, you may have enough money to retire at age 67. A half million dollars is a relatively modest nest egg, but it can still generate a comfortable income depending on your standard of living. Here’s what to think about as you plan for retirement around these figures.
A financial advisor can help you build a comprehensive plan for retirement. Match with a fiduciary advisor today.
First of all, make sure to consider your health and longevity. Are you planning to retire at age 67 for health reasons or will you be healthy enough to continue working, if you need to?
As you hit your late 60s and 70s, your health may become more unpredictable. Even if you’re still in good health, your workday may become more tiring as time goes on. You may not be able to continue working after 67, regardless of finances. So while it’s worth considering whether you can continue to work beyond age 67, it’s also critical to think about how long your $500,000 may last in the event that you need to call it a career at 67. A financial advisor can help you decide when the right time is to retire.
The next question is how much money your portfolio will generate.
“Lower net worth situations typically imply less room for error,” Bryan M. Kuderna, founder of the Kuderna Financial Team told SmartAsset. “There’s always a lot to consider, but… removing variables to simplify the math means $500,000 over a 20-year hypothetical retirement equals $25,000 annual spend down.”
That’s the starting point: $4,000 per month in cash withdrawals and Social Security income.
While half a million dollars seems like a lot of money, it’s a rather modest retirement savings. A lot of your income will depend on how you invest this money and structure your withdrawals. For example, as Kuderna notes, you could keep everything in cash and withdraw about $2,000 per month for 20 years.
On the other hand, say you invest your entire portfolio in bonds. On average, modern corporate bonds tend to return about 4% per year. By doing so, you could reduce your withdrawals slightly and live indefinitely on about $3,666 per month in Social Security and interest payments. Or, if you’re willing to draw down on the principal, you could generate $4,800 per month over 20 years in combined benefits and withdrawals.
A lifetime annuity could generate a little more, giving you a combined income of about $5,300 per month in Social Security and retirement payments. The difference here is that it would last indefinitely, with no risk of exhausting the principal. And if you need help picking investments for your retirement accounts and want advice on annuities, consider speaking with a financial advisor.
Spending is a key component of retirement planning.
Depending on how you manage your money, you can probably expect an annual income between $48,000 (at roughly $4,000 per month) and $63,000 (at roughly $5,300 per month). More is possible if you invest for more aggressive returns, but that will mean taking on more risk.
Whether this income will be enough money is largely dependent on your spending.
Now, one of the green flags here is your Social Security income. A $2,000 monthly benefit at full retirement age means that you likely earned around $70,000 per year in your working life – not far off from what your combined retirement income.
But there are three major things to consider here.
First, taxes will take a bite out of this income. Your IRA is a pre-tax portfolio, so withdrawals are taxed as regular income, not capital gains. The IRS will tax you based on the tax bracket you’re in when you make your withdrawals.
Second, you must plan for inflation. While your Social Security benefits will be indexed for inflation – meaning they typically increase on an annual basis – cash and fixed-income assets such as the bonds and annuities discussed above are not. You may need to invest in assets that will provide a growth element to your portfolio and help you outpace inflation.
Finally, you may have to choose a more aggressive withdrawal rate, which could expose you to longevity risk – the possibility of outliving your money. Adhering to the standard 4% rule would mean withdrawing just $1,666 per month from your IRA in your first year of retirement and that may not be enough to meet your spending needs. An approach that generates about $3,000 per month in IRA income will get you closer to your likely pre-retirement income, but it will mean withdrawing 7.2% of your portfolio in year 1 of retirement, which is quite high. A financial advisor can help you figure out how much money you can afford to withdraw from your IRA.
Can you afford to retire? It depends entirely on how your portfolio is invested and your goals.
Building an IRA requires more planning than a 401(k), which is typically managed by a professional on your behalf. Here are a few tips and strategies for making the most of your IRA.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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The post I Have $500k in an IRA and Will Receive $2,000 Monthly From Social Security. Can I Retire at 67? appeared first on SmartReads by SmartAsset.
As the Bitcoin price has regained previously lost territory, following reports suggesting that the US Securities and Exchange Commission (SEC) would reject the long-awaited Bitcoin spot exchange-traded funds (ETFs), new developments have reignited hopes among investors.
Although the approval of these index funds is not expected to occur on Friday, sources indicate that the upcoming week may bring positive news.
FOX journalist Eleanor Terret reports that amended 19b-4 filings and last-minute phone calls regarding comments on S-1s and possible launch dates are expected in the coming days.
While approvals seem likely in the next week, according to Terret, the timeline ultimately depends on the SEC’s ability to review the comments and amendments submitted efficiently.
Terret describes the current situation as a meticulous process of “dotting the i’s and crossing the t’s,” emphasizing the attention to detail required for regulatory clearance.
On the other hand, crypto analyst Adam Cochran offers valuable insights into the potential impact of Bitcoin ETFs, as all signs point to the imminent approval of these investment products.
Cochran suggests that many may “overestimate” the short-term effects of ETF approval while underestimating its long-term implications. In the immediate aftermath, market flows may not witness a significant surge. However, Cochran believes that investment advisors will review their clients’ portfolios over the next year and recommend diversifying even a small percentage, such as 1%, into the ETF.
Cochran emphasizes that the Bitcoin price performance, with a remarkable 157% return in the latter half of 2023, will be a key factor driving investor interest.
Cochran envisions a gradual upward trajectory for the Bitcoin price, characterized by persistent growth and occasional market volatility.
Ultimately, Cochran’s long-term forecast indicates a potential Bitcoin price surge to $500,000 per coin, leaving sidelined investors regretfully waiting for a substantial market correction. Cochran further noted:
Also, ETFs result in spot buys, not leverage, which improves system health. And are long-term holders, less likely to sell volatility. So it creates a slow grind up of underlying market health. Like the best DCA you could ask for.
Crypto analyst Ali Martinez suggests that the pricing potential of a Bitcoin ETF may not have been fully realized, providing insight into the current state of the Bitcoin market.
Martinez points to a decline in the estimated leverage ratio across all exchanges, reaching a two-year low. This indicates that Bitcoin traders are adopting a more cautious approach, reducing their use of borrowed funds as they await regulatory clarity on the ETF.
Furthermore, Martinez emphasizes the significance of Bitcoin’s price above $41,800. According to Martinez, Bitcoin’s ability to maintain its position above $41,800 is crucial for establishing a bullish outlook.
This level is reinforced by approximately 2.41 million addresses holding over 1 million BTC, creating a substantial support zone.
The significant number of addresses with substantial Bitcoin holdings suggests a strong interest in maintaining the cryptocurrency’s value and provides a foundation for market stability. Martinez notes that the resistance levels ahead for Bitcoin appear relatively minor. This implies that fewer significant barriers are impeding potential price increases.
With reduced resistance, the market conditions become more favorable for stable or rising prices, further supporting the bullish sentiment.
Featured image from Shutterstock, chart from TradingView.com
Disclaimer: The article is provided for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.
You can’t avoid taxes when making a Roth IRA conversion, but there are strategies to reduce your tax burden if the circumstances are right.
When you convert money from a pre-tax account, such as a 401(k) or an IRA, to a post-tax Roth IRA, you must pay income taxes on the full value of the transfer. The advantage to converting to a Roth IRA is that withdrawals will be tax-free throughout your retirement. But this may only be worth it if your tax burden on the conversion doesn’t outweigh the benefit.
Need help minimizing taxes and planning for retirement? Get matched with a financial advisor today.
In general, you can move funds from any qualified retirement plan to a Roth IRA.
Unlike contributions, there are no household income limits on a Roth IRA conversion. This has led to what is called a “backdoor conversion,” in which high-income households contribute to a traditional IRA then convert that money to a Roth IRA. This is legal and effective, but if done repeatedly it will trigger some additional taxes known as the “pro-rata rule.”
While your 401(k) would incur taxes with each withdrawal made in retirement, Roth IRA withdrawals beyond age 59.5 are not taxed. Therefore, if you have time left for your assets to grow, or expect to have a higher tax rate in retirement than you do currently, converting to a Roth IRA may net you a more in retirement. However, if you are already very near retirement or expect to have a lower tax rate when you make withdrawals, the conversion may not be worth it.
Roth IRA conversions go one way. You can convert a pre-tax account to a Roth account, but cannot convert a Roth account to something like a traditional IRA or 401(k). This is particularly important because it means that you cannot unring this bell once you get your tax bill. Once you make a conversion, you must deal with the taxes.
Talk to a financial advisor to figure out a suitable strategy to maximize your retirement income.
Here, you have $500,000 that you would like to convert to a Roth IRA.
If you are holding this money in a Roth 401(k), then you will not owe any taxes on that transaction. These are both post-tax accounts, so you can execute a rollover or transfer with no tax event.
If you are holding this money in a pre-tax account, such as a 401(k) or IRA, it gets more complicated. When you move this money, you will add the full value of the transfer to your taxable income for the year. Here, for example, you would add up to $500,000 to that year’s AGI.
As a result, it’s often wiser to make a large conversion in staggered, smaller amounts so as not to trigger a huge tax bill and higher tax brackets in a given year. Converting $500,000 in a single year could potentially push your total AGI into the highest federal tax bracket (37% in 2023, plus any applicable state and local taxes). However, if you have time to spread the conversion out over, say, five years, adding $100,000 each year to your AGI may keep you in a lower tax bracket. Depending on how you file taxes and the corresponding thresholds, you could save tens of thousands of dollars with this strategy.
A financial advisor can help you determine the best strategy for your assets.
Beyond that, the biggest issue is when you anticipate retiring.
A Roth IRA is one of the most useful tax-advantaged retirement accounts on the market, but that value depends largely on having enough time to make big, untaxed gains. If you plan on retiring in the next few years, you probably won’t see much in tax-free Roth gains to offset the tax bill from the conversion.
It’s also important to consider your planned retirement income and tax bracket.
The difference between a pre- and post-tax account is when you pay your taxes. With a Roth account you pay up front, with a 401(k) or IRA you pay when make your withdrawals. So a Roth portfolio can lose some advantages if you pay a much higher tax rate while working than you will once you have retired.
For example, say that you currently pay a 20% effective tax rate and anticipate a 10% effective tax rate in retirement. You might pay $100,000 on the conversion (0.2 * $500,000) vs. $50,000 over time on the withdrawals (0.1 * $500,000).
Now, this is just by way of example. Taxes in reality are much more complicated, but it serves to illustrate the point. If you have the time for your Roth IRA to grow significantly and you expect to be in a comparable tax bracket once retired, this might be a wise conversion. If you do not have time for this account to significantly grow and/or you expect to be in a significantly lower tax bracket in retirement, you might actually pay more on a Roth IRA conversion in the long run.
Remember, if you need help with taxes or a retirement strategy, you can get matched with a personal financial advisor.
You cannot avoid paying taxes on a Roth IRA conversion. This is a post-tax account, so you must pay income taxes on the money you put in. For large retirement accounts, this makes a conversion complicated. It can be a good idea if you have the money to pay that bill and the time for your account to grow, but be careful not to trigger more taxes in the long run.
It’s easy to consider Roth IRAs the golden goose of retirement, and for most people this really is the best product on the market. Still, it’s important to consider both the pros and cons of investing in Roth IRAs.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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The post I Want to Convert $500k in My 401(k) to a Roth IRA. How Do I Avoid Paying Taxes? appeared first on SmartReads by SmartAsset.
Can a nursing home seize your savings? What if your money is in a trust or a Roth IRA? For married and single retirees alike, these are important questions with nuanced answers.
First for the good news: A nursing home cannot simply take your retirement accounts or savings. Short of legal action due to an unpaid bill, you can distribute your assets as you see fit. However, you will have to plan ahead to optimize your end-of-life finances, particularly because in some cases its possible the government could seize assets post-death to pay for nursing home expenses.
Long-term care, especially stays in nursing homes, can be costly. Options for covering these costs include paying out of pocket, private insurance and Medicaid. Your assets, even if they’re in a Roth IRA or certain types of trusts, can potentially impact your eligibility for the latter. If you need help planning for your long-term care needs, consider working with a financial advisor.
Long-term care, which can include everything from homemaker services and help from a home health aide to nursing home care, is expensive. In fact, the median monthly cost of a private room in an American nursing home is estimated to be $9,584 in 2023, according to GenWorth, an insurance company that offers long-term care coverage. Those costs are expected to increase to nearly $13,000 per month by 2033.
That’s well beyond what most people can afford from their retirement income, and many times what Social Security pays. That’s why it’s important to plan ahead, says Alec F. Root, a chartered financial analyst (CFA) with DBR & Co.
“As with estate planning in general, it is helpful to have these conversations sooner rather than later, especially before one’s health changes and potentially impacts their ability to properly insure themselves,” he told SmartAsset. “Five to 10 years prior to retirement is generally a good time to discuss this subject. A strong estate plan will detail the terms of late-life care, while a good financial plan will account for nursing home care and final expenses.”
Medicare won’t cover the costs of a nursing home or other facilities. Instead, generally, the best way to afford long-term care may be through dedicated long-term care insurance. The earlier you purchase this coverage the less expensive this will be. For a healthy 55-year-old, you can expect to pay between $950 and $1,500 per year for this coverage, according to the American Association of Long-Term Care Planning. At 65, those averages jump to between $1,700 and $2,700 per year. So prepare ahead of time.
Remember, a financial advisor can walk you through your options for paying for long-term care and potentially even help you purchase an insurance policy.
If you can’t afford long-term care insurance, the next most common option is Medicaid – the government program that provides medical care for low-income households. While its coverage tends to be limited, it does pay for nursing homes, as well. However, it’s important to be aware that through the Medicaid Estate Recovery Program (MERP), it’s possible that someone’s assets may be recoverable by the government to repay nursing home expenses.
Medicaid also has strict income and asset caps, and every state has its own eligibility requirements and scope of coverage. For example, in New York, your income cannot exceed $1,677 per month and your total assets cannot exceed $30,182. However, the state does not count your IRA or Roth IRA toward those total assets.
Note: Medicare, the health care program for all Americans over 65, does not pay for long-term care facilities.
On the other hand, in Massachusetts, your income cannot exceed $1,215 per month and your total assets cannot exceed $2,000. There, the state does include your IRA among those total assets.
Keep in mind that if you have an IRA you’ll have to take required minimum distributions (RMDs) by age 73. These withdrawals will count toward your annual income cap. Roth IRAs, on the other hand, are not subject to RMDs but states may count the portfolio among your total assets, as Massachusetts does. But if you need help calculating your RMDs or managing your Roth assets, consider speaking with a financial advisor.
If your wealth exceeds these caps, you may have to spend almost all of it in order to qualify for coverage. Then again, there are ways to preserve your assets if you need Medicaid to cover your nursing home expenses.
“Traditional investments can be vulnerable to these financial threats, and that’s precisely why we need to explore alternative avenues,” said Dutch Mendenhall, CEO of RAD Diversified and author of Money Shackles.
You can move your money into assets that your state’s Medicaid program does not count against eligibility limits. Beyond a Roth IRA potentially shielding your assets from Medicaid, many households look to put their money in trusts. Doing so can reduce your on-paper wealth, making you potentially eligible for Medicaid coverage.
“Using a trust, such as an irrevocable trust, is a formidable weapon in your arsenal to shield your assets from the voracious appetite of long-term care costs,” said Mendenhall.
“Placing your assets in an irrevocable trust effectively removes them from your ownership, making them less susceptible to being counted as part of your financial assets during eligibility determinations for Medicaid, he added. “This separation can be a game-changer, potentially preserving your wealth.”
But only an irrevocable trust will work for Medicaid qualification. Assets in a revocable trust, meaning one that you can change or revoke while you’re still alive, still count toward your overall household wealth.
The typical vehicle for this is a form of irrevocable trust known as a Medicaid asset protection trust.
Be aware that there’s usually a ‘look-back’ period during which Medicaid considers your financial transactions leading up to your long-term care application. The assets you transfer into a trust may be subject to this scrutiny, so planning in advance is crucial. Most, if not all, states look back five years.
And if you need help establishing a trust or deciding what kind to set up, find a financial advisor with estate planning expertise.
This is a complicated answer to the complicated question of whether a nursing home can take your savings. While nursing homes can’t seize your assets, the costs of this care are high and can quickly drain your savings. Experts recommend preparing for these costs with diversified investments, income-generating assets and long-term care insurance. If that’s not an option, using a trust to qualify for Medicaid can be a potential avenue for getting coverage. But the specifics will range widely based on your personal situation, your assets and the state in which you live.
While we didn’t have time to explore the topic fully here, some other options for protecting your assets from Medicaid can include annuities, life estates and even your own home.
A financial advisor can help you determine whether you could potentially qualify for Medicaid. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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The post Can a Nursing Home Take Our Assets? We Have a $500k IRA and a Trust to Protect Us appeared first on SmartReads by SmartAsset.
With $1 million in a 401(k) and no mortgage on a $500,000 home, retirement at 60 may, in fact, be possible. However, retiring before eligibility for Social Security and Medicare mean relying more on savings. So deciding to retire at 60 calls for careful planning around healthcare, taxes and more. At any age, deciding whether you can retire comes down to weighing your assets against your expenses.
Do you have questions about retirement planning? Speak with a financial advisor today.
The first step in deciding if you can retire at 60 is understanding your financial situation. Important factors include your assets like retirement accounts, other savings and home equity. Your expenses also matter, from basics like housing and food to discretionary costs for travel. Comparing your income sources to your costs reveals whether you need to adjust your savings rate or can retire comfortably.
It’s also key to understand how retirement age affects your future income and expenses. For instance, you aren’t eligible for Social Security until age 62. Also, while you can technically claim benefits at 62, waiting until your full retirement age of 67 or even until 70, boosts your monthly benefit significantly.
Retirement age also can greatly affect healthcare costs. That’s because retiring before 65 means paying for five years of private health insurance until Medicare eligibility.
American workers typically retire around ages 64-67. Retiring early at 60 requires diligent preparation, but isn’t impossible. First, understand the rules around retirement accounts.
With a 401(k), you can take penalty-free withdrawals starting at age 55 if you leave your employer. However, you’ll still owe income tax on withdrawals. It’s wise to delay drawing down retirement savings as long as possible, so your investments keep growing.
Second, realize you’ll need to self-fund healthcare until Medicare at 65. In turn, you’ll need to budget for five years of individual coverage or COBRA. If you have health issues, delaying retirement to keep work-based insurance may be safest.
Third, while you can claim Social Security at 62, your benefit will be permanently reduced versus waiting. If you delay until your full retirement age, your check will be approximately 30% higher. Waiting until 70 maximizes it even further to 132%. If you can afford to wait, many experts recommend doing so.
If you have a mortgage, consider paying it off before retiring at 60. If you’ve paid off your home, that’s one less expense to worry about after you’re living on a fixed income, notes Alec F. Root, CFA and research analyst at DBR & CO.
“Generally speaking, it is not imperative to pay off your mortgage in full before retirement, but it does make a difference,” Root said to SmartAsset. “The primary reason is that if you own your home outright, then you are eliminating an annual expense of $30,000 to 40,000 or more during retirement. Without this expense, there is less need to draw from your assets and/or income sources, which helps preserve your assets over the duration of your retirement.”
A hypothetical example can show how all this might work. Consider a married couple, both 55 years old, with $1 million in 401(k) accounts and a paid-off $500,000 home. They make $150,000 a year combined and spend $80,000 annually. They have 10 years until age 65 and Medicare eligibility, but would like to retire by age 60.
Using the 4% withdrawal rule, a common guideline, their $1 million 401(k) could safely provide $40,000 income annually before taxes. They could cover the resulting $40,000 shortfall by increasing their withdrawal rate to 8%. This would, however, increase the chances they’d run out of money in retirement.
Two years after retirement, at age 62, they could claim Social Security benefits. Assuming they each received the average benefit of about $1,800 monthly, their combined Social Security benefit would be $43,200. They could then reduce their 401(k) withdrawal to the 4% safe rate or slightly below.
They’d need to budget carefully for healthcare, likely buying an individual policy costing $1,000 per month for them both until Medicare eligibility at 65. Taxes will also take part of their income from withdrawals and Social Security, but early retirement appears feasible with their assets. They could also trim spending or earn income from part-time work.
Every individual retirement plan is different. Strategies for deciding if you can plan to retire early include:
No matter how well laid out your early retirement plan is, risks remain. For instance, retirement costs may exceed projections due to inflation or healthcare needs. Another possibility is that an extended period of underperformance could jeopardize portfolio sustainability. Surprise costs, such as unexpected home repairs, can strain budgets, Root notes.
“Some of the major costs to budget for after paying off a home include general maintenance and repairs, larger projects such as a new roof or new floors, or a bathroom or kitchen renovation, and property taxes,” he said.
While retiring at 60 takes diligent preparation, for some it can become reality. The key is understanding your income sources, estimating expenses accurately and planning for risks like healthcare costs pre-Medicare. Paying off your home before retirement also helps.
A financial advisor can help you build a retirement plan for the future. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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The post My Wife and I Have $1 Million in a 401(k) and Fully Own a $500k Home. Can I Retire in 5 Years at 60? appeared first on SmartReads by SmartAsset.