Updated: Dec 20, 2021
We regularly get questions from people trying to manage financial transitions in their lives. I thought I would share some of these real-life scenarios as a collaborative learning tool. After all, life is complicated – so let’s figure it out together.
Question: My sister, who was 75, just passed away after a brief illness and named me and my other sister as 50% beneficiaries on her $450,000 IRA. Can I take my portion and use it to finish paying off my house?
Answer: Every dollar withdrawn from an IRA is taxable, so if you withdraw the entire amount, you’ll give Uncle Sam about one-third of your inheritance. Since you are a named beneficiary, you can “stretch” your withdrawals over your lifetime, greatly reducing the tax bill. Or if you really want to pay off your house, you could consider a 5 year payout and stretch the tax bill over that period.
Question: I am 65 years old, married and want to retire next year. I’m trying to decide if I should take my Social Security next year or wait until I’m 70 and live on my investments until then. How do I decide?
Answer: The time between retirement and age 70 is the sweet spot for retirement tax planning. One strategy is to delay SS until age 70 (thus growing 8%/year) and live on your 401k dollars. This assumes you’ll be in a lower tax bracket before age 70. Because there are several factors to weigh, this is a part of retirement planning that needs professional guidance.
Question: My husband has always been the financial person in our house. He has recently been diagnosed with a form of dementia, and I don’t know what to do next.
Answer: The first step is to get your finances organized using an online tool like Everplans or a hard copy binder. You’ll know what assets and insurance you have, and can make a plan to pay for his care. You’ll also need a financial power of attorney that allows you to manage his financial affairs. And just as importantly, make sure you have a plan for yourself in case your assets are drained paying for his care.
If you’d like to learn more about the real-life topics addressed here today, call our office for a complimentary meeting. Have a question you’d like answered? Email your question to firstname.lastname@example.org and you might see it in this column next month.