WHAT TO DO WITH STOCK MARKET GAINS
And other questions about retirement
Q: I am a little nervous about the stock market, and I would like to take some profits and invest in some safer alternatives without capital risk but with reasonable income. Any ideas?
A: A lot depends on the time frame you are looking to invest. If you want safety and liquidity, you can invest in money market funds, Treasury bills or shortterm high-quality bond mutual funds or exchange-traded funds (ETFs). If you want to invest for only one or two years, you can invest in CDs. As long as you don’t redeem them before maturity, you won’t face any surrender charges. I don’t think you should go beyond a five-year maturity.
If you want to invest for three years or more, you might consider multiyear annuities (MYGAs, also known as fixedrate annuities) in three-, four- or fiveyear maturities. For these maturities, the return in most cases will exceed that of a CD. However, you should only select this option if you are reasonably confident you will hold the securities until maturity. Otherwise, you will face surrender charges. If you are not confident you want to invest for at least three years, you should stick to shorter term CDs or shortterm investments with no surrender charges, but these will have lower returns.
Q: Several years ago, I rolled over two 401(k) accounts to a traditional IRA. One of the accounts was after-tax contribution. I am now old enough that I have to take RMDs. How can I avoid paying federal taxes on the amount I rolled over that has already been taxed?
A: I ran this issue by Ed Slott’s group (www.irahelp.com). An attorney from the group indicated that “after-tax funds are subject to RMDs just like pre-tax funds are. If all the funds were rolled into an IRA, then RMDs will be required on all of them. (You) could have split the distribution from the plan and rolled the after-tax contribution from the plan into a Roth IRA, which does not require RMDs. Unfortunately, this was not done, and there is no way to undo it.”
The bottom line is that if you have any after-tax contributions in a 401(k) account, do not roll these funds into a traditional IRA account; only roll them into a Roth IRA. Otherwise you will be taxed twice.
Q: I am 68. I was divorced after 14 years of marriage. My ex has been receiving his Social Security benefit for many years. However, I believe I will be entitled to more than 50% of his benefit when I apply for my benefit at 70. If I apply for a spousal benefit now, will I still be able to get full benefit at age 70?
A: Because you were born before Jan. 2, 1954, you are entitled to file a “restricted” application for a spousal benefit now, the
equivalent of 50% of your ex-husband’s Social Security benefit. When you reach 70, you can then file for a benefit based on your own work record with the full step-up for those who wait until that age to file.
Again, individuals can file for the restricted spousal benefit only if they were born before Jan. 2, 1954. They are eligible as either a current spouse or a divorced spouse if the marriage lasted at least 10 years; they must not have received a reduced retirement or spousal payment before. A restricted application only makes sense if the filer’s benefit at age 70 is higher than the spousal benefit; it doesn’t matter whether the individual filing or his/her spouse is working or retired after their full retirement age.