In fact, the assets in Mortimer’s Roth IRA used to live in his Traditional IRA. Years ago, he worked with his Certified Financial Planner™ practitioner to determine the optimal amount to convert to a Roth IRA. By doing so, he removed a fair sum from his IRA which was subject to required minimum distributions (taxed as ordinary income) and moved these assets to a Roth IRA that has no required minimum distributions and money coming out, is not subject to any taxes.
As humans we are hardwired to seek safety, security and certainty. Back in the ‘hunter-gatherer days’ our survival depended on fending off lethal predators and finding enough food to survive. Recognizing the benefits and efficiencies of a collective, humans began to organize themselves into tribes which were more formidable to predators than single individuals trying to sustain themselves. This led to systems: males typically hunted for food while females managed the home and childrearing. Stability to these systems helped them have a better chance of avoiding starvation or death, which were real threats.
I continue to be surprised by how many new clients have been contributing far less than the annual maximum amounts. Sometimes this is due to limited cash flow or financial capacity to contribute. But more often this is due to a lack of understanding about the employer plan rules. Some have not been contributing at all - even if the employer offers matching contributions. In this case, they are leaving free money on the table. Most plans offer an employer match, anywhere from 1% to 5% or more. But in many cases, employees contribute only the percentage of salary that is matched by the employer, not recognizing their potential to save much more. Employer matching contributions usually have a vesting schedule, so know your employer’s vesting schedule, especially if you plan to change jobs before your funds are 100% vested.
Meet Sarah and James1, a couple in their late 50s with a net worth of over $2 million. Over the years, they’ve worked hard to save and invest wisely, building a diversified portfolio and an almost paid-off home.
While I think I make wise investment choices, few professional investors are able to consistently beat the broad stock market averages. I like to think of myself as more of a “slow and steady wins the race” kind of investment professional.
It is crucial to pay every bill on time. Even one late or missed payment can negatively impact your credit. Set up automatic payments from your bank account to ensure you pay at least the minimum required payment each month. Get into the habit of paying down credit card balances as much as possible to prevent charges from building up to the point that your debt is out of control. On time payments will also improve your credit score, or FICO score, which tracks payment history. The more often you make on-time payments toward your accounts, the higher your score.