Should I convert IRA money to a Roth?

Roxanne Alexander

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA® Senior Financial Advisor

The tax laws changed for taxable years after 2017 regarding allowing recharacterization — or, in simple terms, being able to undo a Roth conversion. Since you are no longer able to undo a conversion there are some important considerations to make before taking this route since it can impact your tax situation and potentially push you into a higher income tax bracket for Medicare.

What is a Roth Conversion?

A Roth conversion is taking funds from a regular IRA account, paying taxes on the income since the funds are pretax, then moving them to a Roth account. The funds grow tax-free in the IRA account, and since the taxes were already paid, you owe no taxes when you withdraw the funds. This is best executed while you are in a lower tax bracket (usually after retirement but prior to taking social security and required distributions from any traditional IRAs). Keep in mind you cannot convert funds from an inherited IRA.

The main advantage of a Roth is the funds are not taxable when you take them out later on which may possibly lead to lower taxes in future. You then have the flexibility to use Roth funds to subsidize higher expense years vs. taking excess from an IRA assuming the bulk of your funds are in a retirement account. This is a great strategy for people with larger IRAs since they can convert funds when they are in a lower tax bracket, usually after retirement and before age 72 (previously age 70.5 before the new tax law changes which extended the required distribution age to 72), and create an account which grows tax-free but is no longer taxed when withdrawals are made.

How much is the Roth conversion going to cost?

The question is whether you think you will be in a higher tax bracket now vs. later. If your tax bracket will be lower later in life, then you would lose some of the benefits. If you plan to move from a lower-tax state such as Florida to a higher-tax state such as California, converting funds before moving may make sense since you would avoid state taxes. Hedging against future higher taxes can be a crapshoot since nobody really knows what rates will be in the future.

Pension income, social security income, and IRA distributions may push you into a higher bracket for Medicare (IRMAA). Since Roth accounts have no required minimum distributions, this can automatically lower your taxes in the future and can be beneficial when it comes to staying in a lower Medicare bracket.

Do you have other after-tax funds?

If you plan to spend more than your retirement income and minimum IRA distribution but have other after-tax funds, a Roth account may be less beneficial since you can still avoid having to take excess funds from your IRA. However, if you have high unrealized gains in the after-tax account, you may be forced into a higher tax bracket anyway by taking the gains when funds are needed.

Do you plan to leave funds to heirs tax-free?

Leaving Roth money to heirs can be very helpful to them in future, especially if you have high-income children. Having to take mandatory distributions out of an inherited IRA will incur additional income. This is especially important to note now that the SECURE Act has changed the distribution rules from inherited IRAs to having to liquidate the account within 10 years vs. using life expectancy.

If you have named a trust as the beneficiary of your IRA, a trust has higher tax rates and required distributions to the trust are tax-free with an inherited Roth in comparison to a regular inherited IRA owned by the trust.

Will you have future tax deductions?

If you already have a large Roth, it may make sense to keep some funds in a regular IRA so you have flexibility to take advantage of future tax situations. For example, if you foresee any possible ability to offset losses or deductible expenses, you may be able to pay no taxes on a conversion. One possible situation is a large medical expense deduction when purchasing into an assisted living facility. This would cause a large up-front medical deduction, which can offset the excess income in that year.

Feel free to reach out to Roxanne Alexander with any questions by email: or phone 305.448.8882 ext. 236.

9 birthdays to remember for retirement readiness

Marcos- cropped

Marcos A. Segrera, CFP® Financial Advisor

Even if it seems a long way off, it’s never too early to begin thinking about retirement. The decisions you make now will have a profound impact on where you find yourself decades from now. Odds are your retirement will be the largest “cost” you’ll have to cover in your lifetime—depending on your retirement date and life expectancy, it isn’t a stretch to say you could live in retirement for 30 years. As you plan for your future, it’s important to have guidelines for each age in life. Today we want to touch on 9 of these important stages of your financial life.

Under 49

It’s time to be aggressive in funding your retirement accounts. Leverage the power of compound interest! The max 401k contribution for 2020 is $19,500 and for IRAs it is $6,000.

Age 50

Once you hit 50, you can add $6,500 to your 401k per year and boost your IRA funding by $1,000. It can be incredibly helpful to take advantage of these increased contribution limits during your prime earnings years, beefing up your total contribution to retirement accounts to $33,000: $19,500 to your 401k + $6,500 catch-up + $6,000 to your IRA + $1,000 catch-up.

Age 55

You’re now able to start withdrawing from past-employer retirement funds without penalties, though you need to maintain funds in your employer 401k plan and the feature isn’t allowed if you’ve rolled your 401k over to an IRA. Drawing an allowance can be beneficial if you’re cutting back hours or retiring early from an employer and you can’t wait until the standard age of 59.5 for penalty-free withdrawals from an IRA.

Age 59.5

This is the magic age at which you can begin taking money out of your IRA and other retirement accounts without incurring the standard 10% early withdrawal penalty. Taxes still apply.

Age 62

You become eligible to receive Social Security payments, although it’s important to proceed with caution as your monthly payments will be roughly 30% less for the remainder of your life if you begin this early. The longer you wait, the lower the penalty you’ll incur.

Age 65

Now you’re eligible for Medicare. Even if you’re not in full retirement mode, it’s important to sign up for this service 3 months before you turn 65 so you don’t incur additional cost to your monthly premium.

Age 66

This is full retirement age to receive 100% of your Social Security benefit if you were born between 1943 and 1954…

Age 67

…and this is full retirement age to receive 100% of your Social Security benefit if you were born after 1960.

Age 70

Once you hit 70, it’s no longer beneficial to delay receiving Social Security benefits. If you aren’t already receiving these benefits, now’s the time to start.

Age 70.5

If you’re over the age of 70.5, you’re no longer eligible to receive a tax deduction for IRA contributions. You’re also mandated to begin withdrawing funds from your IRA and other retirement accounts and pay income tax on these withdrawals. There are two exceptions to this rule: 1) if you’re still working and have a 401k with that company (unless you own that company) and 2) if you have ROTH IRA accounts, in which case you don’t need to withdraw from those.

Please note, amounts shown are for 2020. The IRS publishes guidelines each year that can cause these amounts and ages to change. For example, there is currently legislation in Congress that, if passed, will change the required minimum distributions age to 72 from 70.5. You can read more on that topic here. I hope you found this helpful!

Happy investing,



Feel free to contact Marcos with any questions by phone 305.448.8882 x.212 or email:


For more articles by Marcos see below:

The retirement opportunity that you may be missing: The SEP IRA

Just inherited an IRA? Take a moment to consider your options



For more details on Evensky & Katz/ Foldes Financial Wealth Management visit:

UPDATE: Congress moves to make changes to US retirement system

David Garcia

David L. Garcia, CPA, CFP®, ADPA® Principal, Wealth Manager

This is an update to our June 5th, 2019 blog post on the major changes to the US retirement system if the Setting Every Community Up for Retirement Enhancement Act, commonly known as the SECURE act, is passed. Since our last post the likelihood of passage this year has gone down somewhat. Since May the bill has been sitting in the Senate, with supporters hoping for passage by unanimous consent versus the Senate writing its own version that would take much longer. The general consensus seems to be that the leadership in both houses want the bill to pass this year. The bill is being held up by mainly logistical issues. Priorities like confirming judges and a few senators who want additional amendments to the bill are holding things up. Given the short number of legislative days left in the year, the more likely scenario for passage would be attaching the current bill to an omnibus package of must-pass legislation at year end. What happens if passage is pushed into 2020? Even though both parties support the bill, 2020 is a presidential election year, which adds an element of uncertainty to passing anything. We’ll continue to keep our clients updated on any developments between now and the end of the year. In the meantime, here is a summary of notable changes proposed in the bill from our original post.

  • Currently individuals are barred from contributing to their IRAs after age 70 1/2. The house bill would remove this limitation while also increasing the age taxpayers are required to start taking taxable distributions from their IRAs from 70 ½ to 72.
  • The bill would make it easier for 401(k) plans to offer annuities by providing more liability protection to employers. This provision has been somewhat controversial, with some consumer advocates suggesting more protections for participants when negotiating annuity prices.
  • The bill would allow parents to withdraw up to $10,000 from 529 education savings plans for repayment of student loans.
  • One of the biggest changes would affect people who inherit retirement accounts. The bill would require heirs to withdraw the money within a decade and pay any taxes due. Currently, beneficiaries can take much smaller taxable distributions over their own life spans.
  • The bill allows unrelated employers to create groups to offer a retirement plan. This is meant to encourage smaller firms to offer retirement plans.



Feel free to reach out to David Garcia by

phone 305.448.8882 ext. 224 or email:

For more blogs by David Garcia see below:

Congress moves to make changes to US retirement system

IRS Increases 2019 Retirement Plan Contribution Limits



Visit for more information on

Evensky & Katz / Foldes Financial Wealth Management

The retirement opportunity you may be missing: The SEP IRA

Marcos- cropped

Marcos A. Segrera, CFP® Financial Advisor

It is very common for workers to generate some form of income outside of their primary occupation. You may have a full-time job but still seek an opportunity to generate additional income. The extra money could be a potential opportunity to increase retirement savings. A Simplified Employee Pension IRA (SEP IRA) offers an easy and inexpensive way to set this up.

A SEP IRA is an employer-sponsored retirement plan. Contributions can only be made by the employer on behalf of its employees. In this case, you are the employer and the employee. If you do have employees (other than yourself), you need to be aware that anyone who works for the company will be entitled to contributions.

The process for establishing a SEP IRA is fairly straightforward, and you can open this type of account at most brokerages. Once the account is open, contributions are tax deductible for the business. However, no salary deferrals or catch-up contributions are allowed in a SEP IRA.

Once in the IRA, the funds are like any other IRA funds and subject to the same rules. They immediately belong to the employee and you can do whatever you want with them. You could even take an immediate distribution, although this is not recommended. The distribution will be taxable and subject to a 10% early withdrawal penalty if taken before age 59.5, unless an IRS-approved exception applies.

One of the advantages of a SEP IRA over a traditional IRA is the larger contribution limit. For 2019, the limit is the lesser of 25% of compensation or $56,000. This dwarfs the 2019 traditional IRA limit of $6,000 plus $1,000 catch-up if over age 50. SEP contributions can be made up to the due date of your tax return, including extensions. For example, a 2019 SEP contribution can be made up until April 15, 2020 or October 15, 2020 if you filed an extension. Contributions are not required to be made every year, so it provides flexibility if the income you are generating outside of your primary occupation is low or you simply do not want to contribute.

The last piece of good news is that you are able to contribute to a SEP IRA even if you participate in a retirement plan at your main job. You can also fully fund a Roth IRA or traditional IRA up to the allowed limits. Keep in mind that the deductibility of a traditional IRA contribution and ability to contribute to a Roth IRA will phase out depending on your annual income.

Bottom line, if you have a side gig or are self-employed, you could take advantage of the SEP IRA option to increase your overall retirement savings. Be sure to consult with your financial advisor and accountant to see if this is a good option for you.

Feel free to reach out to Marcos by phone 305.448.8882 extension 212 or email:


Congress moves to make changes to US retirement system

David Garcia

David L. Garcia, CPA, CFP®, ADPA® Principal, Wealth Manager

Having made substantial changes to the US tax code at the end of 2017, Congress took a step closer to changing the US retirement system a few weeks ago. The House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act on May 23 by a large bipartisan margin of 417-3. The bill is expected to be taken up by the Senate later this year and would make some major changes to the US retirement system. What follows are some of the major provisions of the bill, which would be the most significant changes to the system since 2006.

  • Currently individuals are barred from contributing to their IRAs after age 70 1/2. The House bill would remove this limitation while also increasing the age when taxpayers are required to start taking taxable distributions from their IRAs from 70 ½ to 72.
  • The bill would make it easier for 401(k) plans to offer annuities by providing more liability protection to employers. This provision has been somewhat controversial, with some consumer advocates suggesting more protections for participants when negotiating annuity prices.
  • The bill would allow parents to withdraw up to $10,000 from 529 education-savings plans for repayment of student loans.
  • One of the biggest changes would affect people who inherit retirement accounts. The bill would require heirs to withdraw the money within a decade and pay any taxes due. The Senate version has a similar provision. Currently, beneficiaries can take much smaller taxable distributions over their own life spans.
  • The bill allows unrelated employers to create groups to offer a retirement plan. This is meant to encourage smaller firms to offer retirement plans.

Lawmakers say this could be only round one of legislation geared to increase retirement savings in the US, with more to come later in the year. Possible legislation may require companies of a certain size to offer retirement plans to their workers. The Senate is considering its own version of the House bill, called the Retirement Enhancement and Savings Act, or may just vote on the House version later this year. There is a real possibility a final bill could make its way to the president’s desk before year end.  EKFF will continue to monitor the progress of the legislation and its impact on our clients.


Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email: 

For more information on financial planning visit our website at

Tergesen, Anne, and Richard Rubin. “House Passes Bill Making Big Changes to US Retirement System.” The Wall Street Journal, 23 May 2019, 6:32PM,
O’Brien, Sarah. “The House Just Shook up Retirement Planning: Here’s What Could Happen to Your Savings.” NBC News, 24 May 2019, 1:18PM,
“House Passes Bill That Would Bring Major Changes to US Retirement System.” CBS News, 24 May 2019, 12:12PM,

Turning age 70.5 with an IRA account – what you need to know

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA®
Senior Financial Advisor

When you turn 70.5, you have to start taking distributions from your retirement plans. There are several decisions you will need to make once this process starts, but making sure you do start taking distributions is the most important, since the IRS imposes a 50% penalty on funds that are not withdrawn as mandated.

How is a required distribution calculated?

The calculation is fairly straightforward, if you fall under the regular rules. You would take the value of your IRA accounts as of December 31 of the prior year and then divide it by the IRS divisor based on your age. This IRS Uniform Lifetime Table can be found here:

There are several rules depending on whether you are married or single, and whether your spouse is 10 years younger than you are. If your spouse is 10 years younger, your distribution amount will be less, and you would use the IRS Joint Life Expectancy Table to find the correct divisor. The custodian of your IRA will usually calculate your required distribution and will track how much you take out on a monthly basis. They will then give you this information on your monthly statement. However, if you have a unique situation (inherited IRA or younger spouse), you may need to calculate and track this on your own.

Do you need the cash?

If you need cash, you would simply withdraw the required amount from your IRA and move it into a taxable account less any tax withholding. Usually the custodian of the funds will send the tax withholding directly to the IRS on your behalf. This works somewhat like withholding on a W2, so when you go to file your taxes this amount has already been paid to the IRS on your behalf. At the end of the year, you will get a 1099R showing how much you took out and the taxes that were withheld on this amount. Sometimes your accountant may suggest a higher withholding than your actual tax rate, since the withholding may cover taxes on any other income you might be receiving. If you don’t need the funds, you can transfer securities into a taxable account. This will still be considered a taxable distribution, so you will either need to have funds available to pay the taxes or you may need to sell some securities to generate funds to pay the taxes. You should speak to your accountant to determine how much you should withhold based on your tax situation.

Should I wait until the following year to take my distribution?

You have until April 15th of the year after you turn 70.5 to take your first distribution. Keep in mind that, in this case, you will have to take a second distribution that year. If you are still working in the year you turn 70.5, but plan to retire the following year and project that you will have lower income, you can choose to wait and take two distributions the following year.

Do I have to take a portion from each account?

If you happen to have several IRA accounts, you can aggregate the value of the accounts to make the calculation, but then take the distribution from only one of the accounts. You do not need to take a portion from each account, unless you prefer to do it that way for accounting purposes. Keep in mind, if you have a 401K account, you will need to calculate that amount separately and then take that portion from the 401K. If you have other accounts, such as retirement annuities or 403b’s, you will likely have to take those distributions separately, as they cannot be aggregated with your regular IRAs. If you have a 401k and you are still working and contributing, providing you are not more than a 5% owner of the company, you can choose to defer distributions until you retire. If you own more than a 5% share of the company, you will be required to take a distribution.

Charitable contributions and the new tax laws

The new tax laws have increased the standard deduction and put caps on what you can itemize. If you have charitable contributions, you can make these through your IRA by sending a check to the charity directly from your IRA account. These donations go towards satisfying your required minimum distribution, but are tax free. For example, if your RMD is $50,000 and you donate $50,000 to a charity from your IRA, you owe no taxes and you have satisfied your required distribution. You can also request checks on your IRA in order to make smaller donations along the way that otherwise may not be deductible. Keep in mind that the charity has to be registered as a qualified charity.

Feel free to contact Roxanne Alexander with any questions by phone 305.448.8882 ext. 236 or email: 

For more information on financial planning visit our website at

IRS Increases 2019 Retirement Plan Contribution Limits

David Garcia

David L. Garcia, CPA, CFP®, ADPA® Principal, Wealth Manager

Every October, the IRS considers whether, due to inflation, the limits for retirement account contributions should be increased. For several years now, a low inflationary environment has meant increases have been scarce. At times, there was even fear that contributions may be reduced due to negative inflation. The Federal Reserve has increased interest rates seven times since December 2016, so that is no longer a concern.

Below we have listed the new contribution limits for various retirement account types.

  • IRAs. The contribution limit for IRAs and after tax Roths has increased from $5,500 in 2018 to $6,000 in 2019. Note, the catch-up contribution for individuals over 50 remains the same in 2019 at $1,000. Therefore, an individual over 50 can make a maximum contribution of $7,000.
  • 401(k), 403(b), Federal Thrift Savings Plans, and most 457 plans. The IRS has increased the annual contribution limit for these plans from $18,500 in 2018 to $19,000 in 2019. The increase also applies to after-tax 401(k) or Roth 401(k) contributions. Like IRAs, the catch-up contribution for employees over the age of 50 stays the same for 2019 at $6,000. Therefore, an employee over 50 can make a maximum employee deferral of $25,000.
  • SEP IRAs. Self-employed individuals’ contribution limit on SEP IRAs increased from $55,000 in 2018 to $56,000 in 2019. Contribution amounts are calculated based on a percentage of compensation. The compensation limit increased from $275,000 in 2018 to $280,000 in 2019.
  • Phase-outs for deductible IRA and Roth IRA contributions. For a married couple filing a joint return, where the spouse making the IRA contribution is not covered by an employer plan but is married to someone who is covered, the deduction is phased out between AGI of $193,000–$203,000. If you are the spouse participating in an employer plan, the deduction is phased out between AGI of $103,000 to $123,000. For a married couple filing a joint return, your ability to contribute to a Roth IRA phases out between AGI of $193,000 to $203,000. For folks who make too much to contribute to a Roth, opening a nondeductible IRA and performing a Roth conversion may be an option.

Not everyone may be able to max out their retirement contributions. However, even if you contribute less than the maximum, it is one of the best things you can do for your financial future. This is especially true for those with employers who provide 401(k) matching. This is where employers match employee contributions up to a certain percentage. It’s basically free money. According to research data, only 48% of workers participate in employer-sponsored plans for retirement.[1]  Among millennials, participation is even lower, at only 31%.[2]  The key is starting as soon as possible and taking advantage of the incentives for saving for retirement.

Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email:

[1] Pew analysis of 2012 Census Bureau Survey of Income and program Participation data

[2] Pew analysis of 2012 Census Bureau Survey of Income and program Participation data

Employee Benefits: Retirement

The following is a chapter from Employee Benefits: How to Make the Most of Your Stock, Insurance, Retirement, and Executive Benefits by Josh Mungavin CFP®, CRC® and Edited by Chris Boren & Tristan Whittingham.

Employee Benefits - cover




401(k), 403(b), & 457 Plans

A workplace retirement plan is one of the most common profitable employee benefits employers offer. They normally come in the form of 401(k), 403(b), 457, pension, or cash balance plans. Often, an employer will match employee contributions up to a certain dollar amount or income percentage.

Optimal Use: Strategies and Analysis

a. Mega Backdoor Roth 401(k) contributions

By using the right strategies, you may be able to contribute more than you thought possible and, in turn, save more money on taxes over time. In general, employees can only contribute up to $18,500 per year to a retirement plan with an additional catch-up of up to $6,000 per year if the employee is 50 years old or older (“employee contribution limit”).1 Many employees don’t realize that the maximum contribution to one of these accounts is $55,000 per year plus the catch-up (“maximum contribution limit”)—and that they may be able to contribute up to that amount despite the employee contribution limit and employer matching amounts adding up to less than the full maximum contribution limit.

The strategy is as follows:

1. Backdoor Roth 401(k) Strategy

The math works like this:

2. Backdoor Roth 401(k) Math

Normally, this would mean you could not fund your 401(k) up to the maximum contribution limit of $55,000, leaving a full $24,000 on the table ($55,000 – $31,000 = $24,000). If you have a nondeductible 401(k) and work for a company with retirement plan documents that allow it, however, you can make a $24,000 contribution to the nondeductible part of the 401(k) and then convert the contribution to the Roth portion of your 401(k). This effectively allows you to maximize the yearly contribution to your retirement account.

A very highly compensated employee can still take advantage of this strategy because employers can only base 401(k) matching off $275,000 of an employee’s compensation per year no matter how highly compensated the individual is.2 A 401(k) can provide a versatile savings account by allowing penalty-free (but not tax-free) distributions of certain amounts for a down payment on a home purchase or medical expenses. Keep in mind that any additional profit-sharing plan contributions by the employer must be considered when calculating the overall yearly contribution. It is very important to check the plan documents and speak with your HR department or plan administrator to make sure you are getting the most from your retirement plan.

b. Company Stock in a 401(k): Net Unrealized Appreciation

Net Unrealized Appreciation (NUA) is the name of a little-known tax break that can help save you money on taxes from employer stock held in a 401(k) plan if you qualify. NUA rules allow you to take employer stock out of your 401(k) upon certain triggering events, only pay ordinary income taxes on the cost basis of the stock (the price you originally paid for the stock) for the withdrawal, and then have the gains taxed at capital gains tax rates. This can be particularly valuable if:

  • You have highly appreciated employer stock (stock with very low-cost basis);
  • You have an immediate need to withdraw money from your 401(k);
  • You are retiring after age 70.5 and you have to take your first required minimum distribution (RMD); or
  • You have a short RMD period, including stretch RMDs.

The rules for an NUA distribution are very strict, and you should work with your CPA to make sure you follow all the rules precisely. The rules are as follows:

  • You have to distribute the entire balance of your 401(k) and any other qualified plans you have with the employer in a single tax year (some can be withdrawn directly to a taxable account and some can be rolled into an IRA, but there can be no money left in your 401(k) account at the end of the tax year).
  • You must take the distribution of company stock from your 401(k) in actual shares—you cannot sell the shares in the 401(k) and then distribute cash.
  • You must have experienced one of the following triggering events:
  • Separation from service from the company whose plan holds the stock (this may include certain cash buyouts of the company you work for);
  • Reached age 59.5;
  • Become disabled; or
  • Death

Potential Downsides

All tax strategies can be useful, but it is generally not recommendable to let the “tax tail wag the dog.” Trying to pursue this NUA strategy too aggressively can lead to you owning too much company stock and not having your portfolio appropriately diversified. You only have a few different triggering events, which means you only have a few opportunities to distribute the stock, possibly leading to overzealous distributions in the year in which they can be made. This can lead to paying taxes at a higher-than-normal tax bracket and not leaving as much money as you would normally leave in your retirement account, ultimately leading to higher taxes in the long run because all the investments held outside your retirement account are taxed every year. Your heirs do not receive a “step up in basis” on NUA shares upon your passing. You may be charged a penalty for an early retirement account withdrawal if you retire earlier than 59.5 years old, (although in some cases you can take penalty-free distributions as early as age 55). You cannot strategically convert these assets into Roth IRA assets over the years at a potentially low tax rate if they are taken as NUA; however, any amounts rolled into an IRA and not taken as an NUA distribution can still be converted to a Roth IRA. You will have to pay any applicable state taxes on the NUA withdrawal, which may apply equally to ordinary income and capital gains.

Keep in Mind

  • You will have to pay gains (for any price changes in the stock subsequent to the distribution) on any shares distributed from the retirement account and not sold immediately as either short- or long-term gains.
  • It is generally wise to keep the NUA stock in an account separate from other company stock to simplify your recordkeeping.
  • In addition, note that the NUA is not subject to the 3.8% Medicare surtax on net investment income.

Strategic Use

  • You are allowed to “cherry pick” which shares of stock to distribute in kind to the brokerage account and roll the remainder into an IRA.
  • Your heirs are allowed to take an NUA distribution when you pass away if the shares are still held in the company plan.
  • If you separate from service before the age of 59.5, have a very highly appreciated employer stock position, and you need to make a distribution from your retirement account, you would have to pay the normal 10% early withdrawal penalty. However, the penalty will be calculated off of your cost basis. This means if you purchased shares for $1,000 that are now worth $50,000, you can withdraw the $50,000 in employer stock and only pay the ordinary taxes and 10% penalty on the $1,000 cost basis. Then you would only have to pay taxes on the remaining $49,000 at your current capital gains tax rate.
  • You may be able to take an NUA distribution and then strategically sell the shares off in small amounts over the years to keep your income limited to a level that allows for 0% capital gains rates.
  • You can use the NUA distribution to satisfy your first required minimum distribution if you are over the age of 70.5 when you retire so you only have to pay ordinary income taxes on a potentially low-cost basis amount rather than the full amount of your first distribution when you would have had to distribute money from your retirement account anyway. This can significantly reduce the taxes due on your first required minimum distribution.

c. Optimizing Taxes: Backdoor Roth IRA Contributions

This unique strategy becomes available if your 401(k) plan allows you to roll over an IRA account into the 401(k) plan. Normally, single people making over $120,000 a year and married people filing taxes jointly making over $189,000 a year are limited in their ability to contribute to a Roth IRA (the income numbers are based on your Modified Adjusted Gross Income). By using the backdoor Roth IRA strategy, a highly compensated individual can contribute to a non-deductible IRA and convert it to a Roth IRA. The problem is that any Roth conversions must be done pro-rata across all IRA accounts. This means that, if you have a deductible IRA in addition to a non-deductible IRA being funded, any conversion of IRA money would be taken from both pre- and post-tax IRA accounts pro-rata. This creates a tax on the distributions from the deductible IRA where otherwise there would be none.

3. Backdoor Roth IRA Contributions

To avoid this additional taxation, you could potentially transfer the deductible IRA money into your 401(k) and then convert the new non-deductible IRA contributions to a Roth IRA without creating a taxable distribution.

d. 15-Year 403(b) Catch-Up Deferrals

There may be a special provision in a 403(b) plan that allows an additional catch-up separate from the over-50 catch-up. The additional catch-up, which amounts to $3,000 per year, is available to employees who have provided the same employer with 15 years of service. The amount of the allowable 15-year catch-up deferral is calculated as the lesser of:

  • $3,000; or
  • $15,000 reduced by all prior 15-year catch-up deferrals; or
  • $5,000 x years of service, reduced by all prior elective deferrals (including all past 15-year catch-up deferrals) to your 401(k)s, 403(b)s, SARSEPs, or SIMPLE IRAs sustained by your employer.

For employees who are eligible for the 15-year catch-up deferral and the over-50 catch-up, the 15-year catch-up deferral should generally be used first; the over-50 catch-up falls second in priority.

4. 15-Year 403(B) Catch-up Deferrals

e. 457 Special Catch-Up Deferrals

Another catch-up tool available to 457 plan participants is the 457 special catch-up deferral. This allows plan participants who are three years away from attaining normal retirement age in their 457 plan to defer:

  • Twice the yearly limit on deferrals ($37,000 in 2018, which is two times the yearly maximum contribution of $18,500 in 2018) for the three years leading up to normal retirement age; or
  • The yearly limit on deferrals plus any amount allowed in prior years that you chose not to or could not contribute. Plans will keep an ongoing list of amounts you were allowed to defer in prior years, the amount you actually deferred, and any shortfall from those years. If you choose this option, they add up all your shortfall and allow you to contribute an amount equal to the shortfall over the next three years.4

For governmental 457 plans, this additional contribution cannot be paired with the over-50 catch-up, which makes it important to use the one that will provide you with the greatest benefit or largest contribution.

5. 457 Special Catch Up Deferrals

Special Considerations

It is important to know whether your employer matches contributions on a per-year or per-paycheck basis. Obviously, it is in the best interest of the employee to put in the full $18,500 at the beginning of the year to maximize the amount of time the money is invested. However, if the employer matches on a per-paycheck basis, the employee may find themselves getting a 5% match on their first paycheck and no further employer contributions for the year. As a result, the employee’s checks have no 401(k) contributions to match for the remainder of the year. This can lead to tens or hundreds of thousands of dollars in lost matching through the years if not caught by the employee.

Mingling Contributions Among 401(k)s, 403(b)s, and 457 Plans

If you have a 401(k) and a 403(b), the maximum amount you can contribute to both accounts combined is $18,500 (2018).5 If you have a combination of a 401(k) and/or a 403(b) paired with a 457 plan, the maximum you can contribute combined is $37,000: $18,500 to the 401(k) and/or 403(b) and $18,500 to the 457. Plus, you can make any catch-up contributions allowed. The money you save into each account should be in order of employer matching with the employer plan that matches you at the highest rate first, until the match is completely maximized; then the money should flow to the account with the second-best matching and so on until you have contributed your overall maximum contribution to all plans.

6. Mingling Contributions 401(k), 403(B) & 457

Over-50 Catch-Up Contributions

For those who will reach age 50 before the year’s end, the limit on the amount you may contribute to a 403(b), 401(k), or 457 account increases by $6,000. This boosts the individual contribution limit from $18,500 to $24,500.

7. Over-50 Catch-Up Contributions

General Breakdown of 401(k)s, 403(b)s, and 457 Plans

When it comes to comparing 401(k)s, 403(b)s, and 457 plans, there are many similarities and few differences. The similarities include:

  • $18,500 contribution limit (2018);
  • $6,000 over-50 catch-up contribution;
  • Risk of investing falls on employee;
  • Withdrawals taxed as ordinary income; and
  • Amounts deferred on a pre-tax basis.

The major differences include:

  • 403(b)s and 457s have additional catch-up deferrals, as discussed above;
  • 401(k)s are open to most employers, 403(b)s are open to tax-exempt and non-profit organizations, and 457s are open to state/local governments and some non-profit organizations; and
  • 457 plans may not be subject to early withdrawal penalties like 403(b)s and 401(k)s.

Pensions: Buying Years of Service

Your pension may give you the option to buy additional years of service credit, which can increase your yearly pension benefit.

Optimal Use: Strategies and Analysis

Purchasing additional years of service should be looked at as an investment decision. You should estimate the rate of return on the “investment” of buying years of service. Doing so would allow you to compare it to a portfolio you’re currently invested in or one you plan on being invested in during retirement. You should also look at what you can buy as a single premium immediate annuity compared to what you would spend out of pocket to buy the years of service. You can then compare the additional increase in your pension to the annuity payment (keeping in mind whether your pension has any cost-of-living adjustments) to know whether you’re being offered something that competes with what is available on the open market.

To calculate an estimated return on this investment, you will need to figure out the rate of return over a given period. In other words, you’ll need to determine the amount of time you expect to collect on the pension plus any cost-of-living adjustments the pension may have. A cost-of-living adjustment would only make buying years of service more profitable.

8. Buying Additional Years of Service for Pensions

Some employers may allow you to avoid early retirement penalties by purchasing service credits. Doing this allows you to become eligible for normal retirement at an earlier date. This might make sense if you: (1) face the potential of having to go on unpaid medical leave that will be factored into your last three years of income, (thus lowering your yearly benefit); (2) have enough money to retire and no longer wish to work; or (3) are presented with another money-making opportunity that requires leaving your employer to pursue. Purchasing additional service credit is generally done to increase your retirement benefit, but doing so can also increase the benefit to your beneficiaries if you pass away during active service. This can be particularly valuable if you have a younger spouse or a critical illness. It can be thought of as a life insurance policy that pays out over time to support your family, even if you no longer qualify for a new life insurance policy due to your terminal illness.

General Considerations

Pension calculations generally rely on the following variables: years of service, retirement age, and highest salary over a specified number of years or average salary over a specified number of years. Purchasing additional service credit adds the number of years purchased to the number of years you worked for the employer for purposes of computing your monthly benefit.

9. Example of a Pension Benefit Calculation

Special Considerations

One thing you need to consider is that you will be buying additional income in retirement. This may affect your taxes and Medicare premiums. You must also consider the stability of the pension plan you’re buying into and the possibility that the pension will change during your retirement along with the years in which you’ll be collecting the pension.

You will want to consider whether you are already vested in the pension. Buying into a pension before vesting and being laid off before you vest can have serious repercussions depending on how the pension years of service purchase works with your employer. There is the possibility of buying years of service before vesting, being laid off or leaving, and not getting any benefit from the money you spent to buy years of service in a pension you will never receive benefits from. Pensions will usually not allow beneficiaries to buy additional years of service credit once the original pension owner passes away. It’s imperative that you don’t put all your eggs into one basket. Relying solely on the pension money can be risky because the pension could be renegotiated and the city, state, federal agency, or employer could go into bankruptcy.

An important factor to consider is whether you can purchase the service credit with pre-tax or after-tax money. If all the money from the pension benefit is to be taxed, then it would be ideal to pay for the years of service credit with something that is pre-tax, like a 403(b) or other retirement plan. As a result, the money is only taxed once rather than twice, and you can reduce your required minimum distributions from the retirement plan for future years in hopes of staying in lower tax and Medicare brackets.

General IRS Rules and Eligibility

  • Pensions typically don’t allow you to buy years of service to bring yourself up to a vesting level (although some do).
  • Some pensions only allow you to buy service at retirement or after a certain number of years of employment.
  • Certain pensions allow credit to be purchased at a discount or acquired for free for periods spent in military service, on maternity leave, under a worker’s compensation claim due to disability, or for out-of-state service from a similar state, federal, or private school employer.

It’s worth talking to any past and current employers to figure out the best way to combine your years of service or use previous job years of service to get a discount when buying years in your pension.

You may also find value in using your paid time off (PTO) strategically during your last working years (the years your pension calculation is based on). You may be limited in the number of hours of PTO factored into your pension calculation in your last years of employment. As a result, you may be able to get more value from your pension by strategically selling your PTO days back to your employer if that is considered when your pension is calculated. You may also be able to use your PTO during times you would normally be off work, e.g., holidays or summer for teachers, in your last years of your employment to boost the average salary on which your pension is based.

DROP Accounts

Some employers’ pension plans have the option for a Deferred Retirement Option Program (DROP), which allows you to formally retire (as far as your pension is concerned) while you continue to work. Your monthly pension retirement benefits are put into a trust fund instead of being paid to you while you participate in the DROP program. The trust fund will be invested, potentially earning tax-deferred interest for you during the time you participate in the DROP program.

Optimal Use: Strategies and Analysis

It’s important to begin paying attention to any DROP program options far in advance of retirement since plans can have a five-year period for which you can participate. You will have to file the appropriate applications on time to take advantage of the longest period that you can be a participant if it makes sense for you and your financial plan.

Your DROP benefits may be calculated using a participation rate (accrual rate) on your current income or on your pension benefits. For example, let’s say someone earns credits in the DROP program based off a accrual rate on their years of service and their current income ($50,000 per year), the accrual rate is 2.5%, the period in the program is five years, and the person elects to participate for the full five-year period after having worked 25 years. You determine the DROP benefit by multiplying the $50,000 per-year income by the 2.5% accrual rate, which gives you a payout rate of $1,250 per years of service. In this case, we would multiply the $1,250 x 20 for the years of service to get an annual credit in the DROP pension payout of $25,000 per year x the five years of participation for a total drop credit of $125,000.

The math works like this:

10. Example of a Drop Pension

Free calculators are available online that will compute your break-even period if you invest the DROP money; going into that level of depth on this calculation, and some things that should be factored in, are beyond the scope of this book. Suffice it to say that, for most people who invest the funds at a reasonable rate of return, the time to break even when not having participated in DROP is a very long time. It may also make sense to compare the yearly benefit of an immediate fixed-annuity payment bought with the lump-sum DROP money to the yearly difference in a pension payment (keeping in mind that I’m not currently a fan of annuities), but doing so gives you a good comparison point for how much your DROP money would purchase in terms of an annual benefit.

You may also choose to participate in the DROP plan if you have already maximized your lifetime benefits payable by your pension plan. This allows you to continue adding to your retirement even though you have hit the edge of what your pension will pay you. The rate at which you accrue benefits in the DROP program may also be higher than what the defined benefit part of your pension plan offers. It’s worthwhile to look at the payout available to you if you were to take the DROP assets at the end of the period and put them in an immediate annuity purchased cheaply at a fixed rate. By doing so, you can see what the amount of money would buy you in a yearly retirement benefit guaranteed by the open market compared to what your employer offers for the same period of service credits. That is not to say you should buy an annuity with the money, but it is an easy, straightforward way to compare what your pension offers with what is available elsewhere with the same amount of money.

Further, it may make sense for you to use your DROP funds to purchase a term or other life insurance policy and couple that with a pension that has a payout over a single lifetime. This dual strategy may give you more money overall than if you just got a joint pension with a payout for both spouses—and given the insurance component, it also provides money on the back end for the surviving spouse. The value of this strategy varies widely from couple to couple, so it’s important to do a proper evaluation and comparison. That being said, when evaluating the life insurance, you should assume that the spouse for whom the single life pension payments are being made passes away in the first year, so the surviving spouse has sufficient buffer should the worst happen. Again, I am not a huge fan of life insurance due to the way it is commonly sold, but it makes sense to at least check the math on the cost and potential value of a fixed-term life insurance policy with an insurance agent before deciding whether to participate in the DROP program using the above strategy and what type of pension payout to take.

Your pension may have a cost-of-living increase to the pension plan for the years in which you are participating in DROP, or they may stop the cost-of-living adjustment increases for your pension benefits while you are participating in the program. It is important for you to account for this in any calculations involving whether it makes sense for you to participate in the DROP program.

The DROP program will generally allow you to name a designated beneficiary and contingent beneficiary. This means that if you pass away while participating in the DROP program, your beneficiary or contingent beneficiary will receive the DROP assets. This can be particularly valuable if you have elected for any options other than joint and 100% survivor pension benefits so the surviving spouse is left with a lump sum of money. It can also benefit the contingent beneficiary to the extent that if something were to happen to both you and your spouse, usually no one would be eligible to receive pension benefits. However, in this case your contingent beneficiary could still receive the DROP benefits that accrued during your participation in the DROP program rather than receiving nothing from your pension.

DROP programs can allow either a guaranteed rate of return or allow you to invest the funds like you would with an IRA account. It’s important to know what your investment options are and if they are guaranteed before opting for the DROP program. Make sure your participation in the DROP program is in line with your risk tolerance and return goals. If you retire with enough money to not take your pension payments immediately and before you reach age 70.5, you can use the assets you hold outside the DROP program and the pension to fund your current lifestyle. It may be wise to use the years before you turn 70.5 to convert, in piecemeal, the DROP program money into an IRA and then convert slowly, as dictated by pre-modeling your taxes, certain amounts of money every year from your IRA to your Roth IRA.

This conversion over time means the required minimum distributions from any DROP money will be lower in the future. You may be able to keep your lifetime taxes lower by taking small amounts out of your IRA and moving them to a Roth at a low tax bracket. Decreasing the required minimum distributions by converting money from IRA money to Roth IRA money over the course of time may also help keep your Medicare premiums at a lower rate during your retirement, which allows additional cost savings. In addition, if you retire early enough and you have converted some of your IRA money to a Roth, you can take it out tax and penalty free if you need any money from that Roth IRA (as long as the money is not attributable to growth but the money you put in the Roth IRA that has been in the Roth IRA for five years or longer). This means that you need to keep track of how much you convert from the IRA to the Roth IRA before growth. In other words, if you convert $10,000 from the IRA to the Roth IRA and it grows to $15,000 over the course five years, it is invested so you can take out $10,000 tax and penalty free; however, you will have to pay penalties on the additional $5,000 in gains that are made in the Roth (if you are not over age 59.5). This allows extra emergency cash flow in case you need it later in life but before you turn 59.5.

General Considerations

Generally, the DROP program is valid for a specified number of years; after that point, you will have to terminate your employment. The DROP assets will generally be paid out to you as an IRA rollover. Certain job benefits may also accrue based on your previous purchase of service credits in the pension. If this money is paid for with after-tax contributions, you may find different rules for receiving the money back. You may be able to roll the ordinarily earned DROP money over into an IRA, and you may have to take an immediate distribution to a taxable account for any DROP credit earned by purchasing service credits from your pension provider. These accumulations may or may not be a tax-free lump sum payout. The proportion of DROP assets you get that are attributable to any purchase of service credit with after-tax money may be treated differently upon rollout. You may find that you get paid out to a taxable account and the rest rolls over to an IRA.

Special Considerations

Typically, once you start the DROP program you are no longer eligible to purchase pension service credit.6 It’s important to purchase any credits you intend on purchasing before entering the DROP program or to know whether your employer allows the purchase of service credits after having entered the DROP program.

Make sure you file the appropriate forms if there are any changes to your employment or employer and make sure you know how DROP works before making any changes since any lapse in employment with a participating employer can cause your DROP participation to be terminated. Some benefits intended for actual retirement may not be available to you while you are in the DROP program because you are currently working, including health insurance subsidies and other programs intended to help retired employees.

It is important to know your options for reemployment after participating in DROP and formally retiring from service since some employers require you to be retired for a certain period, such as six months after your DROP termination date and your retirement date, to receive all your benefits. In some cases, if you go back to work too early, the employer will void your retirement application and benefits, including all the funds accumulated during your DROP participation, which you will ultimately have to pay back. This has very serious consequences, so if you intend on going back to work after retirement, it’s important to speak with your HR department and make sure you fully understand how the DROP and pension programs work in coordination with going back to work in the future.

If you do not terminate your employment at the end of the DROP program, you may find that your retirement benefits during that point of time, including DROP money that has been put aside and growing for you, are cancelled and you are put back into the regular pension program, which may or may not be beneficial. Understanding what happens if you work past the DROP election date is important because if the DROP program has not had a positive outcome for you, it may be worthwhile to run the math and consider working past the DROP program date intentionally to accrue the pension benefits if your pension works in that manner.

You can generally receive DROP account money in a direct rollover to an eligible retirement plan (e.g., an IRA and a lump-sum payment) or some combination of a direct payment to you and a rollover to an IRA. Keep in mind that if you decide to take a lump-sum payment, you will generally be taxed on the full amount given to you at an ordinary income tax rate. This can be punitive because you may have five years of pension payments taxable all in the same year that you have been working.

11. More Drop Pension Examples

It is important to note that any withdrawals from the DROP program prior to age 59.5 may be subject to a 10% penalty, similar to the 10% penalty assigned to an IRA early withdrawal. There may be a way around this if the DROP program has an associated investment plan qualified as an employer-sponsored plan. Keeping the money in the investment plan may make you eligible to take distributions prior to age 59.5 from the investment plan without facing a 10% IRA early withdrawal penalty if the payments are paid to you after you separate from service with your employer during or after the year you reach age 55. You may also be able to structure payments over the course of your lifetime from the DROP program and avoid the 10% penalty. Correctly structuring your retirement and the age at which you will need these assets is very important, so you should speak with your tax advisor and financial planner before doing anything.

Some special-risk members who are qualified public safety employees may receive distributions from the plan without the 10% excise tax if they separate from service after age 50 (people in this category are generally police, firefighters, or emergency medical service workers for a state or municipality). This means, it can be important to think carefully about your age and how long it will be before you need the DROP money before deciding whether to keep the money inside an investment plan offered by the pension provider or roll the money over into an IRA where you could be subject to additional excise taxes on any withdrawals before the age of 59.5. If you have already rolled the money over into an IRA, it may be wise to speak to your HR department about whether you can roll the money back into the investment plan and take withdrawals if you end up needing withdrawals prior to age 59.5, although this may not always be possible.

 General IRS Rules and Eligibility

  • You may have to wait until you are eligible to retire under the current pension plan to participate in the DROP program. Depending on the plan, you may have to choose to enroll within a certain period based on your first eligibility date, or you may be allowed to choose when you would like to enroll after your retirement date.
  • Once you enroll in the DROP, you may not be able to add years of service to your pension.
  • You are likely limited in terms of the amount of time you can participate in the DROP program, but if you select a shorter DROP period than the maximum allowed, you may be able to request an extension up to the maximum allowed by your employer.
  • Electing to participate in the DROP program is usually irrevocable. In other words, you typically cannot decide you don’t want to participate in the DROP program any longer once you have started participating. In addition, you will no longer receive service credit for years of work and the pension calculation for years worked while participating in the DROP program in most cases.
  • You may need to name a separate beneficiary for the DROP account money from your pension since that person may not automatically be the same as the pension beneficiary. Looking at who the beneficiary is and ensuring that it is who you want it to be is important.


To download the book – for free! – click the following links:

Barnes & Nobles

Feel free to contact Josh Mungavin with any questions by phone 1.800.448.5435 extension 219, or email:

For more information on financial planning visit our website at

Thinking About Retiring Abroad

Michael Hoeflinger

Michael Hoeflinger, CFP® Wealth Manager

Retiring and moving abroad has been become very popular over the last 20 years but it can have its own set of unique problems. Our guide will help navigate some of the unexpected or not commonly thought about pitfalls.

In the U.S. alone, there are 10,000 baby boomers retiring every day, a trend expected to continue for the next 15 years. This means that about 3.6 million Americans are retiring each year. And more Americans are retiring outside of the U.S. every year, as evidenced by almost 375,000 retirees receiving their Social Security checks overseas in 2013 (the latest data published by the Social Security Administration).

The dollar has appreciated against most foreign currencies. Thanks to this exchange rate, purchasing property overseas has become relatively reasonable and certainly much less expensive than the purchase of similar property here in the U.S. The cost of living in most overseas locations is a good deal less, which means you can maintain a better lifestyle and your savings will last longer.

In addition, although the cost and quality of health care varies substantially from country to country, there are many overseas locations that offer health care services similar to what is provided in the U.S. and usually at a great deal less.

As you research overseas locations you should select some destinations and check to see how they compare to your needs and expectations. Considerations should be:

Lifestyle/cost of living. Is the beach important, what about restaurants, shopping, skiing, the arts, etc.? Do you want to live near the mountains or near the beach or even both? What lifestyle will your budget provide?

Climate. Many overseas retirement destinations are hot and humid, while some can be chilly and others have a rainy season lasting several months. How does climate affect your decision?

Health care. Do you have medical problems or a medical condition that requires special medical attention or require that you live near a hospital? What kind of health care is available in the country you select, what are the costs and is this available locally?

Time to travel/ease of travel. If you plan to return often to the U.S. to visit friends and family, or if you want them to visit you; if you have health issues and need to return to take care of them this is an important consideration.

Safety. If you don’t feel safe, you may not feel comfortable in certain overseas locations.

Politics/government/local laws/stability. How comfortable are you living in a country with anti-American leanings, or where you must be careful with your interactions with the police or local politicians?

Natural disasters. Some places have hurricanes, volcanoes, earthquakes, flooding, etc. and their infrastructure is not set up to handle them.

The arts. How important is access to museums, opera, symphony, ballet, theater?

Sports. Do you wish to play golf, tennis, ski, run, bike, hike, scuba dive, or climb mountains? Do you wish to be able to attend professional or amateur sporting events? Is it important to view sporting events on TV?

Shopping. Is shopping important to you? What about shopping for food, clothes or staples?

Language. Are you comfortable in a country where English is not the native language and perhaps is not spoken or understood by many of the locals?

As you do your research on retiring, relocating abroad check out:

Beware of Scams

Land scams are prevalent in many countries where Americans plan their retirement. Check any projected purchase carefully with regard to the legitimacy of the seller as well as the laws governing ownership by non-local as well as foreign nationals.  As an example in Mexico’s Baja peninsula a few years ago, many U.S. retirees learned that deeds on their beachfront property were not valid, as they did not meet certain provisions of a national-security statute that permits only citizens to own land on.


The “International Living” Top 10 List

ECUADOR  Ecuador is the best country in the world to retire to. The country gets top scores in the Buying and Renting and Climate categories and scores high across-the-board in all other categories. Expats are drawn by the low cost of living, perfect climate, the beautiful and diverse landscapes and the favorable retiree benefits.

PANAMA When it comes to the Benefits and Discounts for Retirees, Panama has always ranked at the top with a perfect score of 100. No other country does more for retirees. Panama has been a long-time expat haven mostly for its famed Pensionado visa discount program available to anyone with a pension of over $1,000 a month. The Pensionado visa gives retirees 50% off their entertainment expenses, 25% off airfare, restaurants, electricity and phone bills and 20% off medical services. It’s pretty easy to get back to the U.S. from Panama, and it is possibly the friendliest country toward North Americans. It also has the fastest Internet and best roads in Central America.

MEXICO  Due to its proximity to the U.S., the comforts of home are never far away in Mexico. Established expat havens in communities such as Puerto Vallarta and San Miguel de Allende ease the integration process, while excellent property can still be found for far less than you’d pay in the States.

MALAYSIA Every year, more and more expats are waking up to the amazing opportunities Malaysia has to offer. The country has one of the most robust economies in Asia and this is reflected in the consistently high standard of living available to locals and expats alike. It’s just one of many factors that led it to being ranked the highest Asian nation in this year’s International Living index.

COSTA RICA  Costa Rica scores high points across the board, especially in the Integration and Entertainment and Amenities categories. Costa Rica is a hugely popular retirement haven for the climate, neighborly atmosphere, low cost of living, excellent health care, stable democracy and countless ways to have fun.

MALTA AND SPAIN (tied) Tiny Malta enjoys plentiful sunshine year-round, on top of world-class health care (consistently ranked among the Top Five in the world by the World Health Organization) and tasty Mediterranean cuisine. The European island also has one of the lowest crime rates to be found anywhere. For those seeking sun and affordable living in Europe, Spain remains by far the best option available, evidenced by its standing as one of the highest-ranked European nations.. Although not as cheap as in most of Latin America, property in Spain is often of a high standard and far better value than in many other European countries. Likewise, Spain’s cost of living is lower than what you find in much of Europe.

COLOMBIA For North American retirees heading south, Colombia is becoming an increasingly popular choice. Given all that this diverse country has to offer, it’s not difficult to see why.  Colombia has an incredibly low cost of living. A couple can live comfortably on just over $1,200-a-month here.

PORTUGAL Portugal’s mild climate, its low cost of living and its largely First-World infrastructure make it an increasingly popular European option. English is widely understood, especially in the large cities and — combined with the warm Portuguese hospitality — makes it easy to settle in and feel at home, whether you prefer sophisticated urban environments like Lisbon or one of Portugal’s many beach communities.

THAILAND As Asia’s appeal to North American expats continues to grow, Thailand has become a popular destination. The country combines the best of authentic Asian cuisine and culture with enough North American influences to help you feel at home. Thriving expat communities already exist in the larger cities, such as Bangkok and Chiang Mai, and resort areas, such as Phuket and Hua Hin.

Some Countries that Were Not Ranked 

Why are so many countries not included? Places like Australia, Israel, Japan, Germany, much of the Caribbean and all of Scandinavia. The primary reason is a higher cost of living for some of those places and the weather.  Most retirees are looking to never drag heavy coats around with them.

Sites that will help you with your research
There are too many websites that only tout the advantages of moving overseas, without listing the negatives.  To get both sides check out this Best Places in the World to Retire as it lists over 4,500 answers to questions provided by experts.  Visit to determine the best places for you to consider. Here you can read information either written by “real life” retirees or based on interviews with them.

Retire in Asia provides information on the best cities in Asia that you should consider as well as visa requirements, etc. Visit

Insurance.  Retirees living abroad may or may not have access to local health care unless they have health insurance. Check carefully to make sure you have coverage and access to adequate healthcare. You may have to port healthcare insurance with you. Visit for information. Another resource for researching insurance and medical plans is Travel Insurance Review. Visit to reach this site.


Tax implication:
 provides you with the tax implications (click the international taxpayers section).

Money calculator helps you calculate how far your money will go in 300+ countries

Filing U.S. Taxes Can be a Problem

Unfortunately there are some confusing rules and a great deal of paperwork involved. Expatriates must file tax returns in the U.S. if they remain U.S. citizens. Preparing a return is complicated as, for example, in addition to filing a tax return expatriates must also file two separate forms reporting their foreign savings, stock holdings, life insurance, retirement plans, annuities and other financial information. All amounts must be converted from local currencies into U.S. dollars.  Most retirees living overseas need professional help in preparing their taxes as the fines for even unintentional are substantial.

What You Need to Know to Open a U.S. Brokerage Account from Overseas

Many Americans who retire abroad discover that it’s difficult to maintain or open a U.S. brokerage account from overseas. Some brokerage companies you may have worked with for years say that since you’ve left the U.S. they can no longer trade mutual funds for you, give you advice, or provide services for other issues.

Despite what the brokerage firm may say, there are no laws against you keeping your assets in the U.S. while you live somewhere else. In most cases, you can continue to handle your American stocks, bonds, mutual funds, and bank deposits when you live overseas; however you need to know what forms you’ll have to sign, what are the address requirements, and what investments you can and cannot hold.

It is advisable to discuss with your attorney and CPA which options may be a better choice for your unique situation.

Feel free to contact Michael Hoeflinger, CFP®  with any questions by phone 305.448.8882 ext. 241 or email:

[i]”The World’s Best places to Retire.” International Living. N.p., 2016. Web.

[ii]”Best Retirement Cities in Asia.” Retire in Asia, 1 Mar. 2013. Web.

[iii]”International health Insurance/ International Medical Group.” N.p., n.d. Web. <>.

[vi]”The World’s most affordable places to retire.” Ilyce Glink, 27 June 2013. Web.

[v]”International tax treaties.” N.p., n.d. Web. <>.

[vi]”International Cost of Living Calculator.” N.p., n.d. Web. <>.

Just turned 30? Don’t place saving for retirement on the back burner


Katherine Sojo, CFP® Financial Advisor

You are in your 30s and it is just scary…

At this point in your life, you hopefully are a little more put together than you were in your 20s. Your career path is not as foggy and blurry as it was in your 20s and your bank account is not as lifeless as it used to be. Many people in their 30s begin to make major life decisions around this time, whether it is taking out a mortgage on your first home, planning a wedding or having children — all of which are excessively and unreasonably expensive! Your 30s bring along all those grown-up things you wished you were able to do at 13 when your parents would always say, “Enjoy your childhood; growing up is a trap!” The joke is on us now! Most people are not thinking about retirement when they are in their 30s, and it’s a pretty big mistake. It is important to start planning and saving as early as possible for this goal. Every cent you stash away now will grow in a tremendous way, all thanks to compounding interest.

It’s time to start asking some serious questions. For example, what type of lifestyle do you want to maintain during retirement? How much do you need to have at retirement to maintain that lifestyle? At what age do you want to retire? There are online tools available to consumers that offer free advice to help answer these questions, but these tools are generally not reliable. Harold Evensky, founder of Evensky & Katz / Foldes Financial Wealth Management, presented an academic study involving 36 online retirement tools and found that in the attempt to keep the tools simple, they actually destroyed the legitimacy of the conclusions. The tool we use is called MoneyGuide Pro, a robust program that requires time spent answering personal questions such as family longevity, personal health, 401k savings, Social Security, expenses and much more. Our tool gives us the capacity to help with major life choices such as buying versus renting, how much you should actually spend on that wedding, etc. These results are a road map and are not to be interpreted as an absolute answer, since many assumptions are used.

The next step is to decide which retirement vehicle will help you best accomplish your retirement goals. First look to your employer and make sure you are participating in your employer-provided 401k if one is available. If you have the financial ability to maximize your contributions, do it! The max contribution limit for 2016 is $18,000. If not, at least make sure you are contributing the amount necessary to receive the employer match. Think of the employer match as “free money.” It is also important to increase, gradually, your contribution percentage over time and eventually begin saving, as a good rule of thumb, between 10% and 15% of your salary.

After you have exhausted your employer-provided options or in the event your employer does not offer a retirement plan, begin saving outside of work in an Individual Retirement Account (IRA). There are two types of IRAs.

  1. Traditional IRA: This type of account generally uses pre-tax funds and allows a contribution limit of $5,500 for 2016. The contributions made to an IRA, depending on your current circumstances, may be fully deductible on your tax return. Additionally, these assets are tax-deferred until the time of distribution, typically after age 59½.
  2. Roth IRA: This type of account uses after-tax funds, which means you have already paid taxes on the money you are putting away but the earnings grow tax-free. The contribution limit for a Roth IRA is $5,500 for 2016. You are not required to cash out a Roth IRA at any time, unlike a traditional IRA from which you must begin distributions by age 70½.

Deciding between a Traditional IRA and a Roth IRA can be a bit tricky, but consider a couple of factors before making a decision. For instance, if you are in a low tax bracket, a Roth IRA is beneficial since you pay taxes on the funds now at a lower rate and the earnings are tax free. If you are currently in a high tax bracket, but expect to be in a lower tax bracket during retirement, then a Traditional IRA is beneficial since the money will be taxed at a lower rate at the time of distribution. Both the Traditional IRA and the Roth IRA have phase outs based on income limits, and depending on where you fall within these limits one may be better than the other. We work closely with our client’s CPA and have our own tax resources to help a client decide on the best option to meet their retirement needs.

Once the best retirement vehicle has been decided on, it’s time to begin thinking about investing your retirement money prudently and efficiently. This may be the right time to speak to a Certified Financial Planner in order to evaluate your risk tolerance levels and analyze your financial health. There is no rule of thumb for investing. Just because you fall into the same age group as others does not mean you should have the same investment allocation. Every person is different and some may prefer more risk (i.e., more potential growth). Others may not be able to tolerate market movement and would prefer a more conservative allocation (i.e., preserving capital and keeping up with inflation). Asset allocations are tailor-made to fit your time horizon, your investment profile and your risk tolerance levels.

Now is the time to learn about setting goals and investing in your financial future. Your 30s are the make it or break it years; let’s make sure you make it!

Feel free to contact Katherine Sojo with any questions by phone 305.448.8882 ext. 243 or email: