More than Money with Gene Dickison
“Real Life Questions – Real World Answers”
“I am officially 70 ½ years old and forced – against my will – by the IRS to take money out of my IRA. I understand that my RMD is exactly $11,219.11 based on my IRA balance at the end of 2018. I also understand that I must take this money out and pay income tax on it before the end of this year – 2019.
I have two questions. First, should I take this RMD early in the year or late in the year? Second, if I determine I don’t need the money for bills can I roll this into a Roth IRA?”
Congratulations on reaching the magical age of RMDs!
Your questions are very appropriate for your first go at this RMD experience. Your feeling of being forced against your will is also very common among our clients.
Let’s look at your second question first. No. You cannot roll an RMD into a Roth IRA. If you don’t feel you need the funds and you don’t wish to pay income taxes on your RMD you do have another option. A Qualified Charitable Distribution (QCD) is available to folks facing RMDs. QCDs allow you to send your RMD (or any portion) to a charity (or multiple charities) of your choice. Doing so removes the RMD from your taxable income. This might be just the thing for you. Or not.
If you need the RMD funds to balance your family budget, the ‘or not’ part applies. Then you can select from whatever distribution pattern best fits your needs. Many folks divide their RMD by 12 and have the net, after-tax payments sent to their bank accounts – just like a paycheck. Folks who think the stock market is going up in 2019 will wait until December before liquidating their stock funds to produce their RMD. Those who think the market is going to drop will take their RMD early in the year.
The IRS really doesn’t care when during the year you take your RMD so the deciding factor is what fits you and your financial goals the best.
“My fiancé and I are getting married in September of 2020. We’ve been together for almost four years and both have really good jobs that pay us very well. We both contribute to our 401(k)s. Our student loans will be paid off in four months. Up to this point we really haven’t needed to have a budget. We spend what we want, pay our credit cards off each month, and always have a little left over.
Now, things are changing. We hope to buy a home and have a family in a few years. We need to start getting smarter about our spending.
How do we go about setting up a budget so we don’t get ourselves in financial trouble?”
Congratulations! You are already smarter about money than the vast majority of Americans who have never asked themselves these questions. As a result, they end up with lots of financial challenges and very little financial success. You and your future husband will be among the exceptions!
First, as quickly as you can, begin living on just your fiancé’s income. Save as much of your income (hopefully, all of your income) as you can between now and the start of your family. This (obviously) will get you in excellent position to live comfortably on one income after children arrive. If you decide to return to work after having your children you can continue the same pattern and direct your income to college savings or other financial goals.
Second, put as much into your 401(k) as you possibly can. Bulking up your retirement funds while you can will give you the maximum capital to compound until you need them.
Third, keep the balance of your net income in the bank. You do not want to invest these dollars. You want to save these dollars. You will need a down payment on your home. And that’s just the start of what you will need – furniture, etc. While the bank may not pay you much income, your money is safe and secure. You will be investing the funds in your 401(k)s, but you should be saving the funds for your home.
A final thought about budgeting. Once you’ve taken these steps you might find it fun to look at all the things you do spend money on and make it a challenge to find ways to do everything you want for far less money.
There are numerous web sites and books to guide you in creative ways to spend less and get more. Buying cars that are gently used (off-lease for example) rather than new will save you tens of thousands of dollars over your lifetime – perhaps even enough to pay for a child’s college. College that starts with two years at a wonderful community college might save $50,000 or more off a college education. And you’d be amazed what wonderfully useful and practical things you can find at yard sales!
Some of the wealthiest people I know are also the most creative about how to stretch their dollars. Even after they’ve accumulated wonderful levels of financial success they continue these habits because they’re fun. Make saving money a game and have fun!
“I’m 32 and have been working at the same job since I graduated 10 years ago. I make a good income and have good benefits. The problem is I’m not really happy going to work.
I talk to my friends who all seem to love their jobs and that makes me even more unhappy. I took an online class called ‘Finding Your Bliss’. In three hours it all boiled down to ‘do what you love and the money will follow’. I have some ideas, but there has to be more to it than just taking a leap into the abyss.
My wife knows I’m unhappy and will support me whatever I decide to do. She’s the one that said I should check with you (no pressure). So, o wise one, what should I do?”
You married one very smart woman. So start with the fact that you are a very lucky man.
‘Do what you love and the money will follow’ is one of the top urban myths of the entitled generation. If your developmental years were filled with participation trophies it is reasonable that you expect to get paid for doing whatever you wish. Whatever . . . The real world, however, does not (usually) work that way.
Like many myths, this one does contain a kernel of truth. Doing what you love (or at least enjoy) is one of life’s greatest blessings. I can honestly say I haven’t worked more than a few months – total – in my life. I have been blessed with a career that I simply love. How can it be work if it’s this much fun? So loving your work is part of this equation.
I think the second part is providing a product or a service that someone actually needs. You might be the very best buggy whip maker in America. Assuming you even know what a buggy whip is – how many Americans need a buggy whip? Of course, with today’s technology, you are not limited to what Americans need. In fact, the world is only interested in one thing. What do you have to offer that will make their lives better?
If you can provide products or services that are needed anywhere on the globe you may well be onto to something.
And (I was about to say ‘obviously’, but I would have been misusing the word) you should be producing something people are willing to pay you for. Interestingly, the internet has made the getting paid part much easier than it was just a generation ago. For example, the number of people in your town interested in custom wrought iron products might be quite small. The number of people around the world interested in custom wrought iron products might well be far more than enough to support a wonderful career. The logistics of finding, serving, getting products or services to, and getting paid by people around the world are easier, simpler, and cheaper than at any time in history.
Before you get too far down the rabbit hole exploring new opportunities, take a very careful look at your current job. You might very well find that – with a few adjustments – you could be very happy right where you are. Don’t assume that there’s no solution within your company. If you’re willing to take the leap into the abyss, take the time and effort to explore what might be done to make your current job (or some variation on that theme) one that you could love.
One last bit of advice – don’t wait. You have 30 or more years of working life ahead of you. If you do nothing, you’re condemning yourself to work-life purgatory. If you make finding a career that makes you happy a priority you might find that you won’t want to stop the fun when you’re ‘only’ 65. After all, why would you want to retire if you’re doing what you love?
More than Money Radio and Television
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More than Money with Gene Dickison airs on AM790 WAEB.
Two Full Hours – 8:06 through 10:00 AM.
Words are Powerful Tools for American Freedom
I hope your holidays were filled with family and friends. Gifts are nice to receive. Finding just the perfect gifts for those you love is much, much better. However, at some point in your life, the importance of gifts falls away. You begin to look not to possessions, but to people and experiences that make your life richer. A few hours with family and friends – in your living room, in church, around a café table, hiking through woods, sipping a new-found wine, celebrating a milestone birthday or graduation, getting warmed around the fireplace, playing a bit of ping pong, or just being silly snacking around the kitchen island – make your life truly rich.
On Christmas day we were with family when I saw a simple sign on the wall:
“The Most Important Things in Life Are Not Things.”
I couldn’t imagine being able to say it better.
I pray this New Year brings all of you far more things that are not things to make your lives richer in every sense of the word that really matters.
Please allow us to serve you and those you love.
P.S. What makes your life truly rich?