Since all of you women are guru's of the fitness world, I was hoping that some of you may have some tax advice. We have just taken a huge step toward retirment, we purchased additional disability insurance and a variable annuity retirement package that includes life insurance and retirement. My husband has a traditional IRA with a balance of $11k. Our advisor wants us to have $12k of cash reserves. My husband wanted to liquidate the IRA, take the penalty and stick that into our cash reserves. Is this a good idea to do? Any advice would be helpful. Thanks ladies!!!
Tax advice
- Thread starter danzakcpa
- Start date
4
40something
Guest
Imho...eating a penalty is NEVER a good idea. Unless you are in dire straits and NEED the cash, I would encourage you to leave the IRA alone until you can withdraw from it without incurring penalties.
To reach your goal of $12k cash, come up with another plan.
To reach your goal of $12k cash, come up with another plan.
Miss Lee
Cathlete
My DH and I are working on storing up some cash reserves as well. I don't have any quickie solutions for you. Our plan is simply not to spend money until we have reached our goal for savings. I'm putting cash into a money market checking account (not a big interest earner, but show me a way to save cash that is). I view this as another bill that has to be paid every month so it comes right off the top of the paycheck. In the grand scheme of things, 12K isn't that much. Just be diligent and put a specified amount aside every month until you reach your goal. You'll be surprised by how fast it accumulates! HTH
4
40something
Guest
I want to add one more brief comment for you. Without going into detail and not knowing your personal situation I want to suggest to you that once your husband is of the age to start withdrawing from his IRA you can do monthly withdrawals and then put that money into a more liquid account. By doing that you will move the IRA funds into your cash reserves.
I also second the suggestion to not only discuss your retirement financial plan with a financial planner but also with an accountant...a GOOD accountant who knows the tax laws and stays current on the tax changes every year.
I also second the suggestion to not only discuss your retirement financial plan with a financial planner but also with an accountant...a GOOD accountant who knows the tax laws and stays current on the tax changes every year.
It is not a good idea to withdrawal the money from you IRA unless you have to. In addition to the tax (whatever your tax rate is) you will give the IRS 10%. You won't have $11,000 anymore. I don't think your advisor intended for you to build up a cash reserve using that IRA. If you find that you need the money for medical expenses,etc. than withdraw the money. At lease check with your advisor before doing it.
Good Luck.
Jo
Good Luck.
Jo
Thank you all for your advice. We are both young, only 31 each. The reason why we were thinking about cashing that out was for a couple of reasons. We are putting a bunch of money into this variable annuity retirement vehicle; and the IRA that we have will not be able to go into this vehicle, it will basically sit out there by itself and hopefully accumulate dollars along the way. We can afford to take a small hit, and while it is heart-wrenching to give away $1100 in taxes, we figure that the small amount in the IRA could lose value over the year. By pulling out the money, we can put it into a high-yield savings, to accumulate what we need for our cash reserves. So, the responses have been great, we both understand the consequences involved. It is always great to hear other people's opinion, especially on this matter. Thank you all!!!!
Robin
Robin
mspina
Cathlete
>Thank you all for your advice. We are both young, only 31
>each. The reason why we were thinking about cashing that out
>was for a couple of reasons. We are putting a bunch of money
>into this variable annuity retirement vehicle; and the IRA
>that we have will not be able to go into this vehicle, it will
>basically sit out there by itself and hopefully accumulate
>dollars along the way. We can afford to take a small hit, and
>while it is heart-wrenching to give away $1100 in taxes, we
>figure that the small amount in the IRA could lose value over
>the year. By pulling out the money, we can put it into a
>high-yield savings, to accumulate what we need for our cash
>reserves. So, the responses have been great, we both
>understand the consequences involved. It is always great to
>hear other people's opinion, especially on this matter. Thank
>you all!!!!
>
>Robin
I'd highly recommend that you get a second opinion. Pretty much nothing you've talked about doing sounds in the LEAST bit reasonable for a 31 year old couple. Be VERY VERY careful who you speak to re: financial planning. There are a LOT of people out there happy to take your money, in what sounds like a great retirement plan. Life insurance is NOT a good financial planning vehicle - I'd see someone else before you actually do anything drastic that you'll regret later.
>each. The reason why we were thinking about cashing that out
>was for a couple of reasons. We are putting a bunch of money
>into this variable annuity retirement vehicle; and the IRA
>that we have will not be able to go into this vehicle, it will
>basically sit out there by itself and hopefully accumulate
>dollars along the way. We can afford to take a small hit, and
>while it is heart-wrenching to give away $1100 in taxes, we
>figure that the small amount in the IRA could lose value over
>the year. By pulling out the money, we can put it into a
>high-yield savings, to accumulate what we need for our cash
>reserves. So, the responses have been great, we both
>understand the consequences involved. It is always great to
>hear other people's opinion, especially on this matter. Thank
>you all!!!!
>
>Robin
I'd highly recommend that you get a second opinion. Pretty much nothing you've talked about doing sounds in the LEAST bit reasonable for a 31 year old couple. Be VERY VERY careful who you speak to re: financial planning. There are a LOT of people out there happy to take your money, in what sounds like a great retirement plan. Life insurance is NOT a good financial planning vehicle - I'd see someone else before you actually do anything drastic that you'll regret later.
cataddict
Cathlete
mspina,
I agree with you 100%. Robin, PLEASE get another opinion about this plan. Variable annuities pay the seller a TON in commissions and for this reason be sure that you have the utmost confidence that the advisor is not looking to simply line his/her pockets at your expense. These are also unusual retirement vehicles for someone your age. Look at maximizing whatever 401 K plans your employers have, DON'T cash out your IRA (what guarantee do you have that this annuity will do any better and why pay the tax unnecessarily?). Create the necessary cash reserve by putting aside a little at a time. The purpose of a cash reserve is for emergencies, after all, and fortunately you're not in that place now.
I'm not a financial planner, just an accountant who has seen some clients stuck with financial "plans" that weren't right for them and to get out of an annuity without heavy fees is virtually impossible.
JMHO.
Leslie
I agree with you 100%. Robin, PLEASE get another opinion about this plan. Variable annuities pay the seller a TON in commissions and for this reason be sure that you have the utmost confidence that the advisor is not looking to simply line his/her pockets at your expense. These are also unusual retirement vehicles for someone your age. Look at maximizing whatever 401 K plans your employers have, DON'T cash out your IRA (what guarantee do you have that this annuity will do any better and why pay the tax unnecessarily?). Create the necessary cash reserve by putting aside a little at a time. The purpose of a cash reserve is for emergencies, after all, and fortunately you're not in that place now.
I'm not a financial planner, just an accountant who has seen some clients stuck with financial "plans" that weren't right for them and to get out of an annuity without heavy fees is virtually impossible.
JMHO.
Leslie
Mspina and Leslie, thank you so much for your advice. This is a really difficult situation, that is planning for retirment. The thing is, we have had three meetings with financial planners and we like this one the best. She did say, that after the first year, we can reduce our life insurance and place the monies into the retirement side. Our AGI is around $130k and will only be going up, unfortunately, both of our companies do not have 401k plans, only SIMPLE plans, but they both stink! This is the reason why we looked into a financial planner. The fees, we pay this one company, large company $400 a year, no other fees with unlimited phone calls, visits, etc. So, it is tough. I love Real Estate, but that is a gamble as well, yikes! But, at least we are getting started before we are too old, right! Thanks for all your advice. I appreciate it.
Robin
Robin
nancy324
Cathlete
NO NO! Don't liquidate the IRA in order to have short-term cash. I agree with your advisor that you should have cash reserves for emergencies, and good for you for increasing your disability insurance. But GET RID OF THE ANNUITY. As a general rule, annuities have too many fees to be worthwhile. Take the money you put into the annuity and use that as your short-term cash fund. In general, you should never liquidate an IRA or retirement fund unless you are desperate. There is no better way to make your money grow over time then to have it grow tax-free in an IRA.
I can't stand annuity salespeople. My elderly clients are always being suckered into buying annuities they don't need, and it really gets me angry. x( The only people who are benefited by annuties are annuity salespeople.
-Nancy
I can't stand annuity salespeople. My elderly clients are always being suckered into buying annuities they don't need, and it really gets me angry. x( The only people who are benefited by annuties are annuity salespeople.
-Nancy