MONEY MONDAY 10/8/18
We've just scheduled our LAST round of retirement planning workshops for 2018! If you're 5 years from retiring and have saved well, come learn the 7 key areas you need to focus on to have a smooth transition out of the workforce. Our Simply Money Advisors team will be in Blue Ash, Florence, and West Chester the week of October 22nd... but seats will fill up fast! So reserve your spot now at simplymoneyadvisors.com
Topic #1: Investing
We've seen kids with plenty of money go into financial ruin, and we've seen plenty of kids start with little and become financially successful. Welcome to America. But what can you do as a parent or grandparent to get your children on the right financial foot?
1) Help them establish a good credit history. When your kids are very young, freeze their credit. More than 1 million children were victims of identity theft last year and now freezing your credit is absolutely free.
And when your kid becomes a teenager, consider making them an authorized user on your credit card. You usually cannot obtain a credit card before you turn 21, but most issuers do not have a minimum age for authorized users.
20% of teenagers have credit cards already.
2) Enroll in college classes in high school. Frame taking AP coursework as an economic decision as well as an academic decision.
Average costs: 1) In-state tuition at a public college = $10,000. 2) out-of-state tuition at public college = $26,000. 3) Private college = $35,000
They may not graduate earlier because of A.P. classes, but it may keep them from graduating later. It takes the average college student almost 6 years to complete a bachelor's degree, even if they begin college within a year of finishing high school.
3) Encourage them to be responsible about debt. It's almost impossible to feel free if you're beholden to credit card or student debt. Our rule for student debt: don't take out more than you can reasonably expect to make in the first year of your career.
4) Set up an Roth IRA. This is one of our favorite ways to save for retirement and we wish every kid had one. Your child needs "earned income" contribute to a Roth IRA (sfter-tax money goes in, then it grows tax-free and comes out tax-free in retirement). Make sure your kid is putting money from their job into one so they can understand the power of compound interest.
A kid who has $5,000 in a Roth at age 10 will have about $150,000 in tax-free money by age 60. This assumes a 7% return.
5) Be open about your financial mistakes. It might be difficult to tell your kids about what you have done wrong, but this can help them from making the same mistakes into a positive.
HERE'S THE SIMPLY MONEY POINT
Set your kids up for financial success by giving them a little help and a lot of education.
Every Sunday, you can find the Simply Money column in The Cincinnati Enquirer and on cincinnati.com
Carl from Lawrenceburg: I’m 56 and hoping to retire soon. Will I be penalized for taking money out of my 401(k) early?
We've just scheduled our LAST round of retirement planning workshops for 2018! If you're within 5 years of retirement and have saved well, come learn how to make your money last, when to take Social Security, and how to minimize taxes. Our Simply Money Advisors team will be in Blue Ash, Florence, and West Chester the week of October 22nd... but seats will fill up fast! So reserve your spot now at simplymoneyadvisors.com
A Roth IRA allows savers to put away up to $5,500 (plus $1,000 if you're age 50 or older), have the money grow free of taxes and then tap it in retirement on a tax-free basis.
But as useful as these accounts may be, not everyone will have access to them. Taxpayers whose modified adjusted gross income exceeds $120,000 if single or $189,000 if married won't be able to make the full contribution directly to a Roth IRA.
That's where Roth conversions come in: You take a chunk of traditional IRA dollars, pay income taxes and convert it to a Roth IRA. Income limits do not apply to conversions.
And married couples weighing a Roth conversion have an added sweetener: The income tax brackets are more favorable for married people, so convert while both spouses are alive.
The Tax Cuts and Jobs Act not only trimmed individual income tax rates across the board, it also broadened the income tax brackets for married couples. This allows higher-income households to remain in lower brackets and be subject to friendlier top rates.
Just understand: this conversion is now PERMANENT.
You should only make the conversion if you've looked at whether or not it's a smart tax move for you… AND if you can pay the taxes with money NOT from the account you're converting.
Work with a trusted financial advisor (such as a CERTIFIED FINANCIAL PLANNER or Chartered Financial Consultant), as well as a trusted tax professional.
HERE'S THE SIMPLY MONEY POINT
A Roth IRA conversion CAN make sense for some of you… but not everyone.