As we wrap up 2018 and our year end planning, it is now time to look towards some retirement planning items for 2019. Below, are several proactive steps that you can take to prepare and update your retirement plan for 2019.
Required Minimum Distributions (RMDs)
At age 70.5, individuals are required to begin distributions from pre-tax IRA accounts. These distributions can be taken at any frequency, so it may make sense to plan your distributions accordingly. A monthly RMD can be beneficial for cash flow purposes, while a single lump sum can be earmarked for a large annual outlay such as a vacation.
Do you expect a significant change to your taxable income in 2019? If so, it could make sense to change your tax withholding election if you are taking distributions from pre-tax retirement accounts. Tax withholding changes are a fairly simple update, and planning ahead can help eliminate any surprises at tax time.
For those taking distributions in retirement, as the markets shift, so to will your “Withdrawal Percentage” as they have an inverse relationship. As markets moved upwards, your percentage will decline and as markets move downward, your percentage will increase.
Historically speaking, it has been difficult for retirees to maintain withdrawal percentages north of 6% for a significant period of time. If your percentage reaches levels north of 6%, you may consider lowering your withdrawals. The same holds true if your percentage declines due to upward markets, you may consider increasing your withdrawals.
Are you expecting to make any large purchases in 2019 such as a new roof, furnace, or vehicle? If so, it could make sense to have those funds set aside at the beginning of the year so they are available when you need them. Additionally, consider setting up an ACH between your bank and account to facilitate the distribution as efficiently as possible. Waiting until the last minute could cause delays as it can take time for investments to be sold, checks to be cut, and ACH lines to be established. Planning for large distributions in advance also helps your investment advisor as they can take these distributions into account while effectively managing your portfolio.
By early February, you should receive most 1099 tax forms. These 1099 forms are generated by both non-retirement and retirement accounts and need to be received prior to filing your annual tax return. By having an inventory of all accounts where you expect to receive a 1099, you will in essence have a reference guide, and be able to provide your tax preparer all of your paperwork at once to avoid delays.
Have you recently lost a loved one, sold/bought real estate, gifted assets to children, or welcomed a new family member? As life changes, it’s important to keep your estate planning documents and beneficiaries up to date. As a reference, here are the four most important documents, and what they mean:
Power of Attorney (POA) – A person(s) who can handle your financial matters in the event you cannot. Consider a ‘Gift Rider’ to this document as it allows this person to transfer and protect assets should you go into a nursing home.
Health Care Proxy – A person who can act on your behalf in regard to your health care decisions in the event you cannot.
Living Will – A written statement of your end of life directives.
Will – A ‘catch all’ document that expresses your wishes as to how property is to be distributed at death, and names a person(s) to manage the estate until final distribution.
It is also a good practice to keep copies of beneficiaries for all investment and insurance accounts in one place with the dates last updated.
While the markets remain unpredictable over short periods of time, the above referenced exercises are a great way to proactively help keep your retirement plan in check, and help to avoid any unnecessary surprises or problems.
I hope this information was helpful, as always if you have any questions at all please do not hesitate to contact the office. Have a great holiday season!