I.Pension & Election Options
A.Defined Benefit
B.Employer Contribution
C.Require Defined Benefit Pensions income to be paid over a period of time such as:
1.Life Only
2.Life with Joint Survivor
3.Life with a Minimum Period Certain
Example of how I was able to increase a client’s pension cash flow by $900 per month:
My client had an option to receive $9,800 per month for the rest of his life of which all benefits would cease even if he died the next day. He also had another option to receive $8,200 per month for the rest of his life. However, if his wife survives him, this option would pay his wife $8,200 per month for the rest of her life. Thus, he would be giving up $1,600 per month to make sure that his wife was properly provided for. I had him buy a combination of $750,000 of permanent and term life insurance at a cost of $700 per month. Thus, he was comfortable selecting the $9,800 per month life only benefit because he knew that the life insurance would provide the security his wife needed. This strategy allowed him to increase his monthly cash flow by $900 per month vs him electing the life with joint survivor option.
II.Traditional IRA
A.Tax deductible contribution
B.Tax deferred growth
C.$5,500 maximum annual contribution through age 49
D.$6,500 maximum annual contribution ages 50-70
E.10% penalty for withdrawals prior to age 59 1/2
F.Required minimum distributions required April 1st in the year following ones age 70 ½
III. Roth IRA
A.Contributions are not tax deductible
B. $5,500 Maximum Annual Contribution through age 49.
C. $6,500 Maximum Annual Contribution through ages 50-70.
D.Tax free withdrawals after age 59 ½ (10% IRS penalty for withdrawals prior to 59 ½)
IV.401k, Simple IRA, SEP
A.Defined Contribution Plan
B.Generally includes employer & employee contributions
C.Allows for access of partial or lump sum of money to be taken out or rolled into an IRA
D. One’s income could limit the amount of contribution – check with your tax advisor.
