Perk Planning FAQ en Copyright 2024 Sun, 03 Mar 2024 22:25:18 -0600 RMD Aggregation Rules Sun, 14 Apr 2019 13:00:00 -0500 Sun, 14 Apr 2019 13:00:00 -0500 Retirees often stress over taking money out of their savings to cover living expenses. But imagine the stress of having to spend your savings to cover one of the harshest penalties of all: the 50% fine that is levied for failing to take a required minimum distribution.

You've heard this before: when you turn 70 1/2 years old you must begin taking required minimum distributions (RMDs) as dictated by IRS rules.  But keep in mind that there are two keys to avoiding trouble:

  1. WHEN - pay attention to when you must begin taking RMDs
  2. WHERE - understand the account aggregation rules that specify WHERE the RMDs must be withdrawn from.


It's easy enough to understand the rules when you have, say, one tradtional IRA. Per the IRS:

"If you are the owner of a traditional IRA, you generally must start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70 1/2. If you don't (or didn't) receive that minimum amount in your 70 1/2 year, then you must receive distributions for your 70 1/2 year by April 1 of the next year."

Back to our somewhat simple example of a retiree with one Traditional IRA...let's assume that she turns 70 on April 1, 2019 and reaches age 70 1/2 on October 1, 2019. For 2019, she must receive the required minimum distribution from her Traditional IRA by April 1, 2020.  In addition, she must receive the required minimum distribution for 2020 by December 21, 2020. The downside of this approach is that she will be doubling up on taxable income in 2020 which might push some of that income into a higher marginal tax bracket. 


What if you have more than one type of retirement account? This is where you need to pay careful attention to the account aggregation rules, including the requriements regarding which accounts you must actually take the withdrawal from. By the way, all RMDs are calculated by dividing the balance of the account (or aggregated accounts, if appropriate) by the balance as of the close of business on December 31st of the preceeding year, then dividing by the applicable life expectancy per the IRS. Now back to the aggregation rules by account type:

  • Traditional (pre-tax) IRA's - Treat these accounts as one. You can tally up the balances as of the close of business on December 31st of the preceeding year, then divide that total by the applicable distribution period. And it's OK to then pull the RMD from just one of these IRA's.
  • Roth IRA's - As long as it's your IRA and you didn't inherit it from a non-spouse, there is no requirement to take a distribution.
  • Traditional 401(k)'s and 457 plans - You cannot aggregate these accounts. You must calculate and take the RMD separately from each account.
  • Roth 401(k)'s and 457 plans - This is a surprise to many: Roth 401K's and 457 plans ARE subject to required minimum distribution rules. You must calculate and take the RMD separately from each account.
  • 403(b) plans - If you have more than one 403(b) you are allowed to aggregate them and the RMD can be satisfied with only one distribution from just one of these plans. 

What do you do if you discover that you have missed an RMD or that you failed to take the distribution from the correct account? Your first move is to take the distribution as soon as you discover the error. Then file Form 5329 asking for forgiveness from paying the 50% penalty, and include a brief letter explaining what happened. Be sure to keep copies of the letter and form, and use a mailing method that allows for tracking so that you can document that it was sent.

If you don't hear back from the IRS that's actually GOOD news. If you are denied the IRS will determine the penalty and will send you a letter explaining the denial of your request. 

If you want help ensuring that you don't make an RMD mistake, you have a few options: enroll in your custodian's automatic RMD service (do this with each account from which you must take an RMD) or ask your financial planner or CPA to calculate this for you and send you a letter outlining the amount that needs to be withdrawn from each account - then take the withdrawals as outlined. 





Assets Under Management - The Gollum Effect Wed, 03 Jul 2013 05:14:00 -0500 Wed, 03 Jul 2013 05:14:00 -0500 Financial writer Bob Veres has been blogging lately about the chaos that exists in the pricing of financial planning services among fee-only advisors.   He questioned why we haven’t come up with a more standardized approach. 

In case you haven’t been exposed to the basic array of pricing options, I’ll summarize:  the majority of fee-only advisors operate under an Assets Under Management (AUM) model where the client pays anywhere from 0.25% to 2% of their investable assets every (freaking) year in advisory fees. In exchange, the advisor will most definitely focus on investments and may offer to include a comprehensive plan for free or for an additional fee. There are, of course, other advice models – including flat-fee or hourly, but these last two represent a tiny percentage of the fee-only advisor market. Flat-fee and hourly advisors will also offer guidance on investments but are likely to place the same emphasis on comprehensive financial planning. You know, mundane things like goal setting, budgeting, long term care planning, whether or not you should refinance and which pension option is best for you.

FYI – all fee-only advisors have a fiduciary duty to their clients, and nearly all fee-only advisors embrace a passive approach to investing, the hallmark of which is to keep your costs down by investing in low-cost, no-load index funds or ETF’s (purchased directly). We differ in the degree to which we adhere to this philosophy - it’s hard to justify your AUM fee if you’re not developing sophisticated-looking portfolios and offering complex rebalancing strategies.

The hourly and flat-fee among us are leaving serious money on the table. If I switched to an AUM model and charged an average of 1% of the assets under my advisement, my gross income (in the extremely unlikely event that I could convince my current clients to come along with me) would increase by a factor of seven. If I were in the business of selling handbags and the same income opportunity existed, I’d be a fool if I didn't change my strategy.

But I’m not selling handbags. People pay me for fiduciary advice, which dictates that I have an undivided loyalty to my client and reveal any potential conflicts of interest. This includes the conflict between the fee that I charge and the value they will get. 

Cue the choir and usher me to the gates of Sanctimonious Valley.  But this wouldn’t sound so cringingly pious if I were your mother’s oncologist. 

We aren’t saving lives, but we have the same obligation to our clients as physicians, lawyers and accountants. If a doctor breaches this duty by recommending a drug or device in which he has a financial interest without disclosing the conflict, there will be hell to pay.

Which leads me back to Bob Veres’ question on why the disparity in fees persists among the AUM crowd. My take: squirming uncertainty about the value they are adding, internal conflict between the application of their fiduciary duty and their income goals, and the markets they are each targeting.

Advisors who target and serve extremely wealthy households get little quarrel from me. I get it I get it – you are crushing it with your team of Certified Financial Analysts and loss harvesting strategies and collars and dynamic asset allocation and rebalancing on the fifth Thursday after the mid-point of the presidential election cycle (sorry Jim Otar, I know this isn’t your actual strategy). This crowd rests easy in their knowledge that their fee is justified by the degree of financial complexity involved and the delight with which their clients pay their fee. Fair enough.

I also have no issues with AUM advisors who give their clients a choice between AUM and hourly OR at least advise them of other options available to them in the market if the complexity of the situation suggests the that the client would receive a better value for their dollar elsewhere.

Pricing gets messier when you move down the complexity and transparency scale and the internal fiduciary v. income conflict grows as newer advisors measure the gap between what they were making in their former lives and their new Fee-Only-Fiduciary career. And they tinker with their AUM percentages when guilt creeps in over how little time is spent “managing” their client’s money after the initial blizzard of implementation.

The disparity in the availability of both business models is further fueled by the overabundance of testosterone in this fee-only smoothie. It gives the industry an aura of a big you-know-what contest. Coffee is for closers and you can’t get your name on the rolls of Worth magazine without AUM.

So, what’s the right answer for a fee-only advisor who was born to manage money? Frame your services and pricing transparently, limit your clientele to those who are likely to receive adequate value and be clear about the options available to them (either with you or elsewhere).  

Hourly advisors run into conflicts all the time.  I've met with prospective clients who were already doing the things that I would recommend and tell them that I don’t think I can add any value.  Others have the money to pay me but also have a financial disaster on their hands that would be better served by a non-profit debt and credit-counseling agency so I send them to Greenpath. And a few have the trifecta of $500K or more to invest, only need investing advice and stumbled into my office. “Hello Vanguard Concierge Services?  This is Lisa Andrews.  Lisa.  A-n-d-r-e-w-s.  Anyway, I have another client for you.” The rest all get a quote from me for services that I think will add value.

I have experienced few things in my life that are as unexpectedly satisfying as telling a prospect that I think they may get a better value somewhere else.  And no, I don’t feel like a chump - because I am a fiduciary.

Long Term Care Insurance - Probably not for you Mon, 17 Jun 2013 21:13:00 -0500 Mon, 17 Jun 2013 21:13:00 -0500

Long term care insurance is a hotly debated solution to a very expensive problem.  Alan Roth posted an excellent piece about it in his blog.  In short, he's generally not a fan of using insurance to protect against the risk of long term care costs.

And I agree with his thoughts. Except I HAVE the coverage.  I bought it 15 years ago when I was a 30-year-old single parent and my motivation was more emotional than financial - I didn't want to be in a position to have to ask my son to help me go to the bathroom or feed me if I had some horrific accident.  The premiums have gone up once in the last 15 years - from about $800/year to $1,100 per year and my policy has a $330 daily benefit, inflation rider, 90-day elimination period and lifetime coverage.  The insurer, if you're curious, is State Farm.  Note that I drank the Kool-Aid there for 14 years as an employee and still love the company to a depth that is hard to explain.

How you should address the potential cost of a long term care stay depends on your goals, income, net worth and willingness to take a chance that your insurer may not be able to pay your claims should you actually use the coverage.

That last piece is critical since there are some very appealing offers available from some not so appealing companies.  If you are seriously considering purchasing a policy PLEASE check their Weiss ratings. Weiss has the toughest reputation and they charge for access to their data so ask the insurance company to provide this for you. 

But, to Alan's point, self-insuring is perhaps the least risky route IF you can afford it.  The only client that is likely to be a good candidate for insurance is one who absolutely does not want to be in a Medicaid facility AND has the income and/or the net worth to cover the premiums. 

If I had to make the decision again today, I'd still be tempted to buy the coverage if only to avoid having a well-meaning relative attempt to care for me when I'm helpless.  I'll take a paid stranger any day.

Is it better to pay off student loans quickly or to save up for a down payment for a house? Thu, 13 Jun 2013 20:59:00 -0500 Thu, 13 Jun 2013 20:59:00 -0500 A Nerd Wallet reader asked:  Is it better to pay off student loans quickly or to save up for a down payment for a house?

Background:  I have a 10-month emergency fund saved up and will be graduating from graduate school in May. I will be working full-time and wonder if I should put my monthly savings toward paying off more of my $60,000 in student loans than my monthly payments or toward saving up to buying a first home/condo. I live in D.C. I annually max out my retirement funds contribution limits. I'm not sure if it's better to pay down the student loan debt early or to save up for a down payment on a property since my rent money is just going to a big black hole never to be seen again and I can write off the student loan interest. I will earn about $65,000+ annually once I graduate. If it's better to pay off the student loans first, is there a threshold point where I can then transfer my energy to saving up for a house? Like at $20,000 paid off? I'm 30 and would like to have a place that I own.

The only way I'm in favor of you buying a house is if it's a multifamily unit and you generate some rental income.  Otherwise, a single family home is just an expense and an anvil for a 30-year-old. Khan Academy has a good video on the topic of renting vs. buying here.

If you are going to go ahead and buy the single family home anyway, here's what I suggest to minimize the risk to your financial security:

  1. Emergency Fund - you said you have 10 months set aside.  I suggest six, and you can do an Amish version if you believe you could cut your monthly spending on food, entertainment, etc.  And go ahead and back out what your would receive from unemployment compensation.
  2. Use the excess money in your emergency savings to pay down your student loan debt.
  3. Calculate the maximum payment you can make toward paying off your student loan that would allow you to continue to contribute 15% of your gross income to retirement savings.  I am unmoved by the student loan interest tax deduction. Get the monkey off your back.
  4. After the student loan is gone (that's my threshold), accumulate enough money to put 20% down on your new house (I abhor PMI payments), plus closing costs, plus obvious repairs that will need to be made within the first year.  Limit your loan to an amount that puts your monthly payment (including escrow) at no more than 28% of your gross monthly income.

There is nothing sexy about my answer unless you think being sensible is sexy.  Buying a home is often  a much bigger financial black hole than making rent payments.

Is it Time to Refinance? Mon, 27 May 2013 14:35:00 -0500 Mon, 27 May 2013 14:35:00 -0500

Assuming that your goal is to reduce your interest expense, you’ll know it’s time to refinance if a.) there are rates available lower than your current rate, and b) if the cost to refinance can be recouped through your reduced mortgage payment before you plan to sell.  Here are the steps:

  • Gather the info on your current mortgage:  principal balance, interest rate, payment and current market value (use recent comparable sales as a guide).
  • Go to a mortgage rate consolidator website – I like or - and enter your data.  Be sure to select “refinance” instead of “new purchase” – the results will likely be different.
  • Consider a 30-year fixed rate even if you plan to pay off the mortgage sooner.  The lower required payment might come in handy if you lose your job or have some other financial crisis.
  • Sort the results by annual percentage rate (APR) from low to high (APR takes into consideration your loan discount points and closing fees) and confirm that there are offers with interest rates lower than your current rate.
  • Look at the provider with the lowest APR and note the closing fees…let’s say the closing fees are $2,500. 
  • Next, note the payment for this provider…let’s say it’s $1,200/month (this is excluding any escrow). 
  • Now do some math - if your current monthly payment excluding escrow is $1,700, it will take you five months to break even on this deal ($2,500 closing costs divided by $500 monthly savings).
  • If you plan to live in the house longer than the payback period, you should consider refinancing.

A few things to keep in mind: 

  • Don’t be tempted to refinance just to lower your payment – what you are really after is reducing your interest payments over the life of the loan (or you want to get out of an adjustable rate mortgage).  Only refinance if you are lowering your borrowing costs through a lower or a fixed interest rate, not just “resetting” your loan term.
  • It’s possible that you may not qualify for a better rate if your mortgage amount is higher than the market value of your home.  If you are in this boat and you are not behind on your payments, you may be eligible to refinance through the Making Home Affordable Program (HARP).  You can learn more about HARP at .
  • If you are behind on your mortgage payments, you may qualify for loan modification under the Home Affordable Modification Program (HAMP).  You can learn more about HAMP at
Should you close credit cards with a zero balance? Mon, 22 Apr 2013 13:43:00 -0500 Mon, 22 Apr 2013 13:43:00 -0500

A Nerd Wallet reader asked:  Is it smart to close credit cards when balance is zero? I have recently paid off all my credit cards and was wondering if it is smart to close them. I don't want to hurt my credit score by doing so, but I don't need 3 credit cards and would like to open one more geared towards rewards (ie. gas, travel, etc) Also, does closing store cards hurt my credit score?

It IS SMART to close them if your cannot trust yourself with all of that available credit (Morocco next weekend with my new manic friend? WHY NOT!?!).

Otherwise, if you are trying to keep your credit score intact (better loan offers and insurance rates) leave them open.  Here's why:

  1. Utilization matters - your outstanding credit balances divided by your available credit is a big component of your score (a low ratio here is better).  You could unwittingly shrink your denominator and jack up your ratio if you close those cards.  Of course, you'll want to keep an eye on your accounts to make sure they stay dormant.
  2. Length of credit history - the longer your good credit history, the better.  If you had a history of making timely payments on these cards leaving them open will enhance your score.  If you close them they will eventually drop off your credit report and out of your credit score.

If you don't plan to use the cards, scan the front and back of the cards, secure the image with password protection and then cut them up.  If you're ever the victim of identity theft you'll want to have ALL of your credit card account info handy.