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    April 2, 2013
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1 2 3 4 5 ... 30 next>>
 

I’m retired and need to generate an income stream from my investments. With interest rates so low, what investment types should I be considering?

It was much easier when interest rates were high and I could buy a safe bond.

Submitted by Maureen at Fidelity, on behalf of one of our customers
You are not alone. We hear similar questions from many retirees who want to live off interest and preserve as much of their assets as possible. Although short-term rates remain at historically low levels, you do have options.

But first I want to emphasize a few fundamental but important points. Before making investment choices, you need to have a good handle on your expenses, both discretionary (nice to haves) and essentials (can’t live without). Once you really understand your expenses, you should match your income sources against each type of expense. Specifically, your guaranteed, predictable income sources should cover your essential expenses. These income sources include Social Security, pensions, and guaranteed annuity income. Your discretionary expenses could be covered by other sources of income, such as part-time work, rental income, and periodic withdrawals from various accounts. Also, be sure to have a good understanding of key retirement risks, such as longevity, inflation, and rising health care costs. In other words, make sure you have a retirement income plan. We can help you put one together if you haven’t done so already.

Once you have a firm grasp of your expenses and how you’re going to cover them, you might consider the following investment types:
o High quality dividend-paying stocks
o Fixed and variable income annuities
o Bond mutual funds and ETFs

Our fund managers often say “Beware of chasing yield” when looking for dividend-paying stocks. In other words, look forward, not backwards. Focus on finding companies that are well-positioned to grow their dividends in the future, rather than those who have paid healthy dividends in the past. This may require a lot of research, which is available on Fidelity.com. Or, you could use the services of a professional portfolio manager.

Income annuities are essentially a contract with an insurance company: you make a lump-sum purchase in exchange for a guaranteed stream of lifetime income. Annuities come in different flavors: some offer fixed rates, some are variable (meaning the payments may fluctuate with the underlying investments), and some offer a form of cost-of-living adjustment (COLA).

Third on the short list are bond mutual funds: professionally managed portfolios of individual bonds. With them, not only do you get the potential benefit of a professional portfolio manager, you also have the flexibility to choose different types of bond funds, such as international, U.S. Government, and corporate. You can also make choices about credit quality and duration. For more information, take a look at our bond fund overview on Fidelity.com: https://www.fidelity.com/mutual-fun....

Just be sure to start with your retirement income plan. If you don’t have one, or simply want to get a second opinion on the plan you have now, please give us a call. We’d be delighted to help.

Ken

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

INVESTING IN A VARIABLE ANNUITY INVOLVES RISK OF LOSS.
3 weeks, 2 days ago
by
AskKen
 

I’m 30 and making a decent salary. I’m trying to decide whether I should open a Roth IRA or a Traditional IRA. Any opinion?

Submitted by Maureen at Fidelity, on behalf of one of our customers
We get this question a lot, and for good reason! The upshot is if you meet the IRS eligibility requirements you may first want to consider a Roth IRA. Generally, Roth IRAs offer the benefits of tax-free growth (you pay no taxes on the earnings or the withdrawals), and you are not required to take distributions at age 70½, giving you more flexibility about when to start using your savings. There are certain conditions that need to be met in order to realize these benefits, however. First, the “five-year aging rule” stipulates that your contributions need to have been in the Roth IRA for at least five years before you start making withdrawals. Second, you must attain age 59½. Third, in order to be eligible to make a full contribution to a Roth IRA ($5,500 for 2013) your income as a single filer can’t exceed $112,000. There is the potential for partial contributions, but those amounts are also based on IRS eligibility rules. All in all, a Roth IRA provides the potential for tax-free compounded growth and tax-free income in retirement. Traditional IRAs, on the other hand, have no income eligibility requirements for making contributions, and in some cases, contributions may be tax-deductible. Unlike a Roth IRA, withdrawals of earnings from a Traditional IRA are taxable and withdrawals are required to begin at age 70½. Try our IRA comparison tools on Fidelity.com at https://www.fidelity.com/retirement... to get a better idea of which IRA might be right for you.

Ken

A distribution from a Roth IRA is tax free and penalty free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, qualified first-time home purchase, or death.
3 weeks, 2 days ago
by
AskKen
 

where do I find the RMD on my IRA?

Thank you for your question on the minimum required distribution (MRD or RMD) for your IRA.

You can access the MRD estimate for your account by logging on to Fidelity.com and going to the Retirement Distribution Center at Fidelity.com/RDC.

On that page you will see the estimated MRD for your account, and if you select “2015 Retirement Account Details” in the center section, additional information will be presented and you can see how that MRD was calculated. As long as all the details are accurate, then your estimate is correct.

If you decide you want the convenience of automating distributions of your MRD from your IRA each year, please consider enrolling in automatic withdrawals for the account. The link to enroll is also available on the Retirement Distribution Center.

Hope this helps.

Ken
1 month ago
by
AskKen
 

401K and Roth/IRA

I am currently maxing out my 401K investments ($23K over 50) however I have not been investing additional $ in Roth/IRA account(s). From what I am reading it may be possible to save more by putting it away in a Roth/IRA in addition to the 401K. I see the 401K max contributions are increasing to $24K this year (2015). Can I start investing additional $ into a Roth/IRA as well for retirement? If so how much and how do I get started?
Tom,

First, congratulations on maxing out your workplace savings opportunities! Many people do not take full advantage of this easy way to save for retirement.

To answer your question, yes, you can supplement your workplace plan with a Traditional or Roth IRA even if you are maxing out your 401(k). Note, though, that there are income limits for those who contribute to a Roth IRA. You can learn more about those here: https://www.fidelity.com/retirement....

Assuming you qualify for a full Roth IRA contribution, the limits for 2014 and 2015 are $5,500 for those under age 50 and $6,500 for those age 50 or over.

The best way to get started is to check out the page linked above, which provides instructions on opening a Roth IRA. Or you can give us a call at 800-343-3548.

Ken
1 month ago
by
AskKen
 

IRA deduction

I thought I would not be able to deduct an IRA for 2015 since my income with SS will be almost $80,000.

Rereading the tax code and since I have no retirement plan at work, it seems as though I can deduct an IRA regardless of income.

Did I read that correctly?
Yes, you are correct. If you are not covered by a workplace retirement savings plan like a 401(k) or 403(b) then any amount you contribute to a Traditional IRA will be tax deductible. Thanks for the question.

Ken
1 month ago
by
AskKen
 

Is there an extended time to contribute to a 2014 Roth IRA in 2015. I thought there was a 90 day extension??

Also, is the rule only that contributions have to be made from earned income? Can a retired husband contribute to his Roth IRA if his wife has earned income and they submit a Joint Tax return annually.
Thanks for your question. Yes, you can make a 2014 contribution to a Roth IRA up until the deadline to file your 2014 taxes, which is April 15, 2015.

Contributions do need to be made from earned income but there is a provision that allows a non-working spouse to make a contribution based on a spouse’s income. In your scenario above, the husband can make a contribution as long as the wife’s income equals or exceeds the total amount contributed for both spouses (up to $5,500 per spouse for those under age 50, or $6,500 per spouse for those age 50 or older).

Ken
1 month ago
by
AskKen
 

I want to exchange one IRA fund for another .

Do i have to pay any taxes on the gains
Hi John,

Thanks for your question. Generally speaking, you do not have to pay gains tax on earnings within an IRA. If you have a Traditional IRA, then you won’t pay taxes until you begin to take distributions. At that point, the money coming out is taxed as ordinary income in the year of the distribution.

If you have a Roth IRA, then distributions are completely tax-free assuming you are age 59½ or older, and certain conditions are met such as the five-year aging rule, meaning that it has been at least five tax years since your first contribution to the Roth was made.

I hope this is helpful.

Ken

Important Additional Information:
A distribution from a Roth IRA is tax free and penalty free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, qualified first-time home purchase, or death.
1 month ago
by
AskKen
 

My wife turns 70 1/2 on 1/20/16. what rmd requirements for 2015 and 2016?

Thank you for your question on your wife’s minimum required distributions (MRDs).

If she is turning 70½ on January 20, 2016, then she must have a birthday around July 20, 1945. If that is true then she does not have an MRD requirement for 2015, but she does have one for 2016. MRDs must begin the year a person turns 70½, although for the first MRD only, the distribution can be delayed until April 1 of the following year.

If you want to estimate how much her 2016 MRD might be, you can use our MRD calculator on Fidelity.com found here: https://www.fidelity.com/calculator... or here: www.fidelity.com/mrdcalc

For 2016, her MRD would be calculated using her 2015 year-end balance and the life expectancy factor that applies in her situation. Our MRD calculator will take that into consideration and use the appropriate IRS life expectancy table as you enter the dates of birth for the two of you.

Also, she may want to enroll in our automatic withdrawals now to start in 2016 for her MRD. Since the penalties for neglecting to take an MRD can be substantial, it is helpful to have your MRDs set up to be withdrawn automatically. She can do that online at www.fidelity.com/autowithd or by calling a retirement representative at 800-544-4774.

I hope this helps.

Ken
1 month ago
by
AskKen
 

Can I withdraw money from my IRA for child's college tuition without paying a penalty?

Thanks for your question on the rules for IRA withdrawals. Yes, paying for your child’s college tuition is an approved exception to the early withdrawal penalty as long as the institution is accredited and the expense is on the list of eligible expenses.

IRS publication 590-B (found here: http://www.irs.gov/publications/p59...) indicates that an accredited institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education. You will want to check with your child’s institution to confirm that it qualifies.

Eligible expenses generally include tuition, fees, books, supplies, and required equipment. If the student attends college half-time or more, room and board also count as qualified educational expenses.

Distributions from Roth IRAs can be used to pay for educational expenses as long as the account has passed the five-year aging rule requirements, and there should be no penalties.

Please note that any distribution may be subject to income tax and we suggest checking with your tax advisor regarding your specific situation.

Ken
1 month, 1 week ago
by
AskKen
 

Need the RMD division number for an 86 year olds

Could use a table. Thanks
Thanks for your question on calculating minimum required distributions (MRDs). On Fidelity.com, you can find the links to the IRS tables under “How do I calculate my MRD?” on this page:
https://www.fidelity.com/retirement...

If the 86-year-old you mention is using the Uniform Lifetime Table, you can use the life expectancy factor of 14.1.

If the 86-year-old has a spouse that is more than 10 years younger, you need to use the other IRS table and apply the spouse’s age too. That table is called the Joint Life Expectancy Table and is also available in that “How do I calculate my MRD?” section. Or you can use our MRD calculator available at www.Fidelity.com/mrdcalc and enter the two dates of birth to see the calculation.

I also suggest you visit our Retirement Distribution Center, which provides a free service of calculating your MRDs for you each year. You can find more information on the RDC here: https://www.fidelity.com/retirement...

Ken
1 month, 1 week ago
by
AskKen