Nearly 40% of middle-aged Americans failed to establish an emergency savings fund while one-third of them have retirement savings below $25,000, according to this article on USA Today, citing a survey by PNC Financial. The results could be attributed to the financial hurdles that these middle-aged people face to support their children, aging parents or both. “We can see that the sandwich generation is struggling to save for their own needs. When you add in the demands associated with financially supporting children and/or elderly family members now or in the future, it paints a very grim picture for this demographic’s future unless they take immediate action,” says an expert with PNC Investments.
Lawmakers would raise future tax rates if they believe in popular investor Warren Buffett, who has said that wealthy Americans are undertaxed, according to this article on Forbes. This will make a good case for investing in a Roth IRA or Roth 401(k), as clients will have to pay taxes on the contributions when tax rates are low in exchange for tax-free distributions in retirement, when tax rates would be higher than the current rates. Although clients will get an upfront tax benefit for their traditional 401(k) contributions, they will still end up paying taxes when they start taking withdrawals from the retirement account.
Aside from choosing investments carefully and diversifying the portfolio, IRA investors should also factor in the tax efficiency of their investments, according to this article on Kiplinger. That’s because traditional IRAs are subject to required minimum distribution rules. These withdrawals will be taxed as ordinary income, meaning these distributions could result in a hefty tax bill in retirement. To minimize the tax bite, clients should hold their conservative investments in tax-differed IRA and their aggressive, high-earning investments in a taxable account, where earnings are taxed at a lower capital gains tax rate. A Roth IRA is another good option, according to the article.
Retirees and disabled persons can save as much as $7,500 on taxes by taking advantage of the Senior Tax Credit for the Elderly and Disabled, according to this article on Fox Business. To qualify for this tax credit, taxpayers should be 65 or older, and retired because of a disability. They also need to have received taxable disability income last year, and not reached the mandatory retirement age for your employer by Jan. 1, 2018. Moreover, their adjusted gross income should not exceed the income limits indicated in IRS Publication 524.
