Yearly Retirement Planning

Retirement planning doesn’t, and shouldn’t, just happen when you set up your accounts and when you’re ready to withdraw, but is a yearly process to keep up to date.  Neglecting opportunities to make the most out of your accounts could result in thousands of dollars worth of losses by the time you reach retirement age. Making the most out of your investments starts with these four yearly processes.

  • Contributions. It’s a no brainer that early and consistent contributions make for the most successful retirement accounts. You’ll want to learn the maximum contribution amounts you can make to a traditional IRA, Roth IRA, and a 401K, as well as your company’s maximum match contribution in order to fully take advantage of what each account offers. 401K contributions must be made by December 31st and IRA contributions by April 15th in order to count on your tax forms.
  • Required Minimum Distributions. If you are 70 ½ or older, you must take an RMD every year on a traditional IRA and 401K account. The RMD will be based on your life expectancy and how much you have in your account. All RMDs count as taxable income if you didn’t pay tax at the time of your contribution. Roth IRAs don’t require RMDs ever, unless you have an Inherited Roth IRA.If you acquired an Inherited IRA or Inherited Roth IRA this year and the original account holder already reached the 70 ½ mark, you will want to make sure they already paid their required RMD before December 31st of the year of death. Then, you will have to take an RMD every year on the account based on your own life expectancy. If the original account holder was younger than 70 ½ at the time of death, you can wait to take your first scheduled RMD until December 31st of the year after the year of death. All RMDs from Inherited IRAs are subject to income tax, while RMDs from Inherited Roth IRAs are not. If you miss an RMD for the calendar year, the IRS will charge you a 50% fee on the amount that should have been withdrawn.

    To avoid taxation on an RMD from a traditional IRA, you can donate the money directly to a charity. You are allowed to contribute up to $100,000 of an RMD to charity, and since the money is transferred directly to the charity from the account, it doesn’t count as taxable income.

  • Conversions. If converting some or all of your traditional IRA funds into a Roth IRA makes sense for you this year, the conversion must take place by December 31st to count on your tax forms. Remember, you are responsible for paying the tax on any amount converted since a traditional IRA is tax deferred and a Roth grows money tax free.
  • Review Estate Plans. Did you get divorced this year or have any births in the family? You’ll want to make sure to update your inheritance paperwork to ensure all select family members are accounted for. Technically you can do this any time of the year, but it’s easier to add on your end of the year checklist with everything else up for review.

When conducting a yearly review of your retirement accounts, close attention to deadlines is a must. Updating the processes above will not only set you up for tax season, but help maximize your retirement accounts for the future as well.

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