What your clients need to know about 401(k) loans: Retirement Scan
Our daily roundup of retirement news your clients may be thinking about.
While 401(k) participants have the option to make a loan from the plan, they are advised to consider the consequences before making any decision, according to this article on Nasdaq. Taking a 401(k) loan means missing out on the growth of borrowed funds, and paying tax on the funds again, as they use after-tax dollars to repay the loan. Clients may also face the risk of defaulting on the loan payments if they leave the company, according to the article.
Retirement planning should include preparations for a possible increase in spending, according to an expert in this article on Money. To do this, clients are advised to review their budget to understand their expenses. They should also account for the activities they intend to do in retirement as well as their health care needs in old age.
A reverse mortgage is a good option to create an income stream in retirement, according to this article on MarketWatch. This option can help retirees avoid the risk of sequence of returns, and will allow them to take advantage of the low interest rates. Those who get a reverse mortgage can expect an increase in the loan amount over time, while the new rules governing reverse mortgage are favorable to younger spouses.
Getting a buy-out offer from the employer can be upsetting for older workers, but putting their emotions into context can help reduce the emotional impact, according to this article on Forbes. It also helps to be optimistic about their situation, as this would generate positive emotions. Seniors can also bounce back from a buy-out by looking forward to better opportunities and possibilities ahead of them.
Before the year ends, retirement investors should max out their pretax contributions to 401(k) plan or IRA to reduce their taxable income, according to this article on Kiplinger. Another option to consider is to convert traditional IRA assets into a Roth to boost their after-tax income in retirement. Retirees who have reached 70 1/2 may want to make charitable donation directly from their tax-deferred retirement accounts, as the donation can be counted towards their required minimum distribution and allow them to avoid taxes on the RMD amount.