Thoughtfully Rolling a Workplace Retirement Plan to an IRA

3 Minute Read

When you retire or leave your place of employment, you have the option to leave your money in your company plan, or roll the money to an IRA.

The IRA can provide several benefits including more investment options, professional management, personalized service, and added flexibility of systematic distributions during retirement.  It can also help to create clarity and simplicity by consolidating retirement assets together in one place, incorporated with a comprehensive financial plan.

The process to roll the money from a company plan to an IRA requires thoughtful analysis.  Here are several items to consider to ensure the rollover is done properly, and tax efficiently.


First and foremost, make sure your company has your correct vesting amount.  Vesting is your ownership in company contributions and earnings.  Many companies require you to be employed at least half-time for 6 years to be fully vested in the contributions they have made to your account.  Vesting records are many times not accurate, and updated infrequently so be sure your record is correct, and you receive all of the money you are entitled to receive.

After-Tax Contributions

Before the Roth was introduced, employees were able to make after-tax contributions to their retirement accounts.  These after-tax contributions can either go to you in a check, or you can roll them into a Roth IRA.  The Roth IRA will allow tax-free earnings going forward while and you retain the ability to take the contributions out of the Roth at anytime tax and penalty free.

Net Unrealized Appreciation

If you have highly appreciated company stock, you can transfer that stock into a brokerage account instead of an IRA and pay taxes on the basis.  Why would you want do this?  When you sell the stock, the appreciation will be taxed at capital gains rates instead of ordinary income rates, potentially saving significant tax dollars upon sale and distribution.

The Check

Many company plans will send the rollover check directly to you.  When you request the distribution, be sure to indicate you are requesting a “Direct Rollover” and the check to be made payable to “IRA Custodian For the Benefit Of Your Name.”  Ask that the check be sent expedited delivery so the money is out of the investment markets for the shortest time possible.

Avoid Indirect Rollovers

These are instances where the funds are paid out directly to you, fully taxable, and you have 60 days to get the money into another retirement account.  These types of transfers are filled with potential tax and penalty landmines.  Always opt for Direct Transfers and Direct Rollovers when moving retirement money between accounts.  You can always take a cash distribution later, if needed, directly from an IRA.

Age Matters

Finally, the age in which you do the rollover is an important consideration.  If you are between the ages of 55 and 59.5, it could make sense to at least keep some money in the company plan.  Distributions from a company plan are penalty free at age 55 when separated from the company.  For IRAs, distributions prior to age 59.5 incur a 10% penalty.

If you are working past age 70.5, you can delay Required Minimum Distributions (RMDs) from your company plan if you are employed for the entire year through December 31st.  Retire even one day prior, and you are required to take that RMD for the entire year.

Thoughtful planning around rolling money from a company plan to an IRA can truly add value in retirement planning.





Retirement Legislation Passes House

2 Minute Read

In a 417 to 3 vote, the “Setting Every Community Up for Retirement Enhancement” or SECURE Act has passed the House, and is heading to the Senate for vote.  Here is a brief rundown of the bill’s major provisions along with some thoughts.

  • Required Minimum Distributions will be pushed out from age 70.5 to 72.
    • I would have preferred they pushed this out further, or just eliminated it all together.
  • Non-spouse individuals who inherit Retirement Accounts will be required to distribute them over a 10 year period.  Currently, a beneficiary can stretch the payments out over their lifetime.
    • The most disappointing part of the entire legislation, eliminating the ability for parents to pass their retirement savings along to their children in a tax efficient manner.  There is some hope the Senate can tweak this provision.
  • Allow parents to withdraw as much as $10,000 from 529 education plans towards paying some student loans.
    • What would make more sense is to simply allow 529 plans to pay any and all student loans.  Shouldn’t the reduction of student loan debt be more encouraged?
  • Provide protections and incentives to companies that add annuities to their 401(k) plan.
    • Setting every community up for retirement enhancement by introducing more high fee insurance products into the 401k marketplace?

In summary, this legislation really just provides insurance companies better access to the $5 trillion dollar 401k market, at the expense of the Inherited IRA.

If this legislation passes, here are a couple of items for consideration:

If you are currently saving in a retirement plan and do not need the tax breaks of Pre-tax contributions, Roth contributions going forward could make sense.  I would also review the fees inside of your 401k if your company moves to an annuity platform.

If you are retired, I would discuss Roth conversions with your accountant to see if it makes sense to gradually move money from Pre-tax to Roth over the course of several years.

Permanent life insurance to cover future tax liabilities will once again be a planning item.  This type of life insurance was minimalized when the estate tax cap was increased to over $11M.  Now it will come back into play, except this time for middle class America.

I hope this is helpful, as always if you have any questions please don’t hesitate to contact me at the office.  Have a great holiday weekend!



Did the Internet Wipe Out Inflation?

3 Minute Read

An interesting theory is making its way through investing circles to explain why inflation and interest rates have remained so low for so long….the internet!

Inflation is the rise in the prices of goods and services over time.  Let’s take a look back to the cost of living back in 1960:

New House $12,675
Average Income $5,200/Year
New Car $2,610
Movie Ticket $1
Gasoline $0.25 per gallon
Stamp $0.04
Eggs $0.30 per dozen
Burger $0.58 per pound
Milk $1.04 per gallon
Bread $0.20 per loaf

The measure of inflation is important because if your investments make 10%, but inflation is 7%, your REAL return, hypothetically speaking is only 3%.  High inflation can be damaging to an economy, but some inflation is considered good, almost like greasing the wheels of capitalism.

Historically speaking, higher inflation comes with an expanding economy and low unemployment, the exact economy the US is experiencing.  Only one problem, there is little to no inflation and economists are baffled.

Current inflation is coming in at 1.8%, and expected to hover around 2% for the foreseeable future.  Some argue these readings aren’t accurate and inflation is even lower.

Did the internet wipe out inflation?
Interest rates follow inflation and the current 10-Year US Treasury is only yielding 2.4%.  This means that traders expect low inflation and interest rates to last for the foreseeable future.  Proponents of this theory argue that the internet has wiped out inflation through:

  • Transparent pricing across industries.
  • Amazon’s effect on brick & mortar retailers.
  • Technological & software advances increasing worker productivity.

These factors along with the decline in union representation (less wage leverage for workers) frame the argument that low inflation and interest rates are here to stay.

If this is the case, what does this mean for us as investors?

  • While stock market returns may trend lower long-term, REAL investment returns could remain the same if inflation stays muted.
  • I continue to prefer short-term bond investments, they are yielding the same 2.4% but allow for flexibility should inflation and interest rates rise.
  • I recommend staying with mostly with high quality bonds such as US Treasuries, CDs and A rated companies.
    • Investors will sometimes make the mistake of “Reaching for Yield” by investing in bonds from low quality companies, those with shakier prospects of paying the money back.  This is what fueled the housing crisis, investors lending their money to subprime borrowers for a few extra percentage points.

My philosophy for managing client portfolios is not to try and predict what will happen near term, but rather position client portfolios to be adaptable, and potentially take advantage of opportunities in these ever changing markets.

I hope this was helpful, as always if you have any questions please don’t hesitate to contact me at the office.  Have a great weekend!

Higher Bank Savings Rates

Ever wonder if there is a way to increase the interest you receive on your bank savings/checking account?  In this low interest rate environment, it’s a great question and one I receive frequently.

One of the many great things about our country is entrepreneurship; new businesses entering a market to provide a better, more cost effective solution, or in this case creating a market where there is need from consumers.

MaxMyInterest is a technology platform that will find the highest yielding interest rate among participating online banks for your savings.  Your money is held directly with the online bank, fully liquid and available to you at any time.  Bank interest rates are reviewed every month and if a more competitive rate is found, your savings is automatically transferred to the higher yielding account.

The highest current rate among participating banks is 2.71%.

These online banks provide the same FDIC protections up to $250k per account as your local bank.  If you have over the $250k FDIC limit in savings, MaxMyInterest will even split your savings up between banks to ensure all savings is FDIC insured.

If you would like more information on this solution, please contact me and I’ll be glad go through it in more detail.

Saving for a Child/Grandchild

What are some ways that you can save for a child or grandchild, and how do those accounts affect college aid in the future?  Here are two types of popular accounts, details on taxation, along with how they affect college aid in the future.

For determining financial aid eligibility, applicants file a FAFSA that details the previous year’s assets and income of both the child and the parent(s).  The higher the incomes and assets, the less of a chance to qualify for the preferred financial aid packages such as the Pell Grant, Work Study, and Subsidized Student Loans.  Student loans and scholarships are still available for those who do not qualify for the preferred financial aid packages.

529 – An investment account where earnings grow tax-free, and withdrawals are tax-free as long as they are used for college related expenses.  These accounts provide a NY state income tax deduction for contributions, and can be re-registered to another child at anytime.

If owned by the parent, these accounts are considered a parental asset, and receive preferential treatment in terms of the above referenced financial aid calculation.  In addition, withdrawals are not counted as income for either the parent or child.  Withdrawals for non-college related reasons result in tax and penalty implications.

If a grandparent or other relative owns the 529, the withdrawals are counted as the child’s income and can decrease financial aid eligibility.  In these situations, it can be advisable to wait until after the last FAFSA has been filed, and the child is in their last years of college to withdraw funds so they do not affect financial aid eligibility.

UTMA – An investment account in the name of a child, but controlled by a guardian until the child’s age of 21.  Withdrawals can be made at anytime and for any reason as long as it is for the benefit of the child.  There are no tax implications until the investments generate over $1,050 of income during a calendar year.

The downside is in terms of financial aid, the UTMA is counted as a student asset and could decrease eligibility for preferred financial aid.  That said, if you are sure the child is going to go to college, you can transfer the UTMA into a 529 prior to the child going to college.

In summary, the 529 provides great tax benefits and is helpful for college planning, but really is specific for college.  The UTMA is an investment vehicle providing greater flexibility for a child that may use the funds prior to college, or not go to college at all.

If you are interested in setting up either a 529 or UTMA for a child, please contact the office and I’d be glad to help.