These funds can help boomers avoid 50% tax penalty
Our daily roundup of retirement news your clients may be thinking about.
These funds help boomers avoid a 50% tax penalty
Retirees are compelled to start taking required minimum distributions from their tax-deferred retirement accounts when they turn 70, but many of them fail to take the mandatory distribution and face a tax penalty equivalent to 50% of the RMD amount, according to this article on CNBC. Fidelity launched mutual funds to help retirees manage their RMDs and avoid the hefty penalty. "These funds are designed for investors who only take out the required minimum distribution each year. The biggest fear retirees have is running out of money. These funds help address that fear," says an expert with Fidelity.
Don't let clients lose a Roth IRA tax break from this mistake
Roth IRA investors are advised to wait for five years before making any withdrawal from the account to avoid taxes and an early penalty on the withdrawn amount, according to this article on personal finance website Motley Fool.
Based on the five-year rule, the countdown starts on the first day of the first taxable year in which investors made the contribution. Withdrawals within the five-year period are not subject to tax and penalty if Roth IRA investors use money to buy their first home, or they become disabled.
Morningstar's guide to 401(k)s
While investing in employer-sponsored 401(k) plans can be simple, workers still have to make a number of considerations that could make the process complicated, according to this article on Morningstar. For example, should they take a more active approach to 401(k) investing or simply resort to the plan's default option. "In short, 401(k) plans invite the potential for plenty of goofs," says Morningstar's Christine Benz. The article offers links to articles that can help 401(k) participants make better investing decisions.
4 retirement myths that you need to know
Clients should avoid the many misconceptions about retirement to plan well for the golden years, according to this article from Forbes. For example, not all companies are generous in funding their retirement plans, while workers face limits on 401(k) contributions. It's also not true that they can invest in their plan and withdraw their money any time they want. Although 401(k) plans are not the same, participants should make the most of the plan by getting their employer's matching contribution and investing in the cheapest, most diversified funds.
How a low-fee fund can be a high-cost mistake
Investing in low-cost options is key to enhancing the clients' overall retirement savings, according to this article from Kiplinger. However, investors should also consider other aspects of retirement investing, such as keeping a diversified portfolio, mitigating the sequence-of-returns risk, and factoring in their time horizon in their decisions. For example, while an annuity product may come with high fees that can be a turn-off for investors, it may have a lower cost in the long run.