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Financial Information for Senior Military Officers

Have You Planned How You Will Spend Your Money?

Have You Planned How You Will Spend Your Money?
Financial Advisors, myself included, spend a lot of time thinking and talking about investing money to have available for your Golden Years (had to get a cliché in).  But, not a lot of time is spent talking about how to best spend that money in retirement.  I'm not talking about what you will spend that money on.  That is up to you.  What I am talking about is where the funds will come from.  If you have multiple sources of retirement income, you can improve your results about thinking about which money you will spend first.  This is due to a very important acronym...RMD.  Required Minimum Distributions can significantly impact your tax picture and how much you will pay for medical care in retirement.  Let me explain.

 

If you have tax deferred accounts such as TSP, 401(k)s and Traditional IRAs when you turn 70 1/2 you will have to start taking a minimum distributions based on your age (if you are still employed then you can defer RMDs from your current employers' plan).  If the balances in your accounts is large that could amount to a great deal of money.  This can have a few results. 
 
First it could push you into the next tax bracket and/or cause you to lose deductions and/or credits.  Not good.  Although not likely for many readers of this newsletter due to pension income, it could cause previously untaxed Social Security Benefits to become taxable (this could be an issue for your parents if they don't have a pension) 
 
It could also cause you to pay a higher premium for your Medicare Insurance (which by the way you have to pay if you want to keep Tricare coverage under Tricare for Life).  As of this writing, the first threshold for an increased Medicare premium is $170,000 for those taxpayers that file Married Filing Jointly.  This is a pretty high threshold but it gets lower quickly. 
 
Let's look at the case of a retired married O-6.
  • Retired Pay:  $80,000
  • Social Security: $30,000
  • Spouse Social Security: $15,000
  • Total "Income":  $125,000
  • Deferred accounts balance to put you over $170,000: $1.23M ($45,000 x 27.4)

 

As of right now, as a result of ObamaCare, the $170,000 threshold is not inflation adjusted until 2017.  We'll see if that is extended beyond 2017.

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Don't Leave Money on the Table (And Don't Get Double Taxed Either).

Don't Leave Money on the Table (And Don't Get Double Taxed Either).
You've decided to "Hang-up" your G-Suit or ABUs or whatever uniform you wear to work each day.  You're pretty confident you'll roll into the new job you've been looking forward to and it won't take too much time.  If your new job offers a 401(k) (or 403(b) or TSP) there are some things you need to think about AND you need to make sure you don't screw up some other things.  By the way, these concepts also apply if you change civilian jobs during a year.
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Roth TSP? Action May Be Required

Roth TSP?  Action May Be Required

If you are active duty military and contribute to Roth TSP, you might have some homework to get done soon.  If you make "dollar-amount" (as opposed to a percentage of pay) contributions to Roth TSP you're the one with homework.

If you don't change your contribution instructions your Roth TSP contributions will stop on 31 Jan 15. 

A change to DFAS that goes into effect on 1 Jan 15 will require that you change your contributions to a percentage of pay.  No Roth contributions will be made until the change is made...So, on 31 Jan the contributions stop.

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Disclaimer

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.

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Understanding TSP RMDs
      You can't leave your money in TSP forever.  Find out what happens if you don't take it out...

 

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