• Will Teachers Get the Retirement That They Deserve?

    Classroom educators are coping with hybrid plans and pension fund shortfalls.

     

    Provided by MidAmerica Financial Resources

     

    Arizona. Kentucky. Massachusetts. Michigan. Pennsylvania. Rhode Island. Tennessee. In these states and others, teachers are concerned about their financial futures. The retirement programs they were counting on have either restructured or face critical questions.1,2

     

    Increasingly, states are transferring investment risk onto teachers. Hybrid retirement plans are replacing conventional pension plans. These new plans combine a 401(k)-style account with some of the features of a traditional pension program. Payouts from hybrid retirement plans are variable – they can change based on investment returns. The prospect of a fluctuating retirement income is making educators uneasy, especially in states such as Kentucky where teachers do not pay into Social Security.1

     

    Traditional pensions have vanished for teachers starting their careers in Michigan, Rhode Island, and Tennessee. In 2019, that may also happen in Pennsylvania.1

     

    In some states, educators are being asked to offset a shortfall in pension funds. Arizona teachers now must contribute 11.3% of their pay to the Arizona State Retirement System, compared to 2.2% in 1999. (What makes this situation worse is that the average Arizona public schoolteacher earns 10% less today than he or she did in 1999, adjusted for inflation.)2

     

    Classroom teachers in Massachusetts already have 11% of their salaries directed into the state retirement fund; in California, almost 10% of teacher pay goes into the state retirement system. (The national average is 8.6%.) Make no mistake, some of these pension fund problems are major: New Jersey’s state retirement system is only 37% funded, and Kentucky’s is just 38% funded.1,3    

     

    How can teachers respond to this crisis? One way is to plan for future income streams beside those from underfunded or reconceived state retirement systems. A talk with a financial professional – particularly one with years of experience helping educators make sound, informed financial decisions – may help identify the options.

     

    That conversation should happen sooner rather than later. Educators in some states are no longer assured of fixed pension payments – and unfortunately, the ranks of these teachers seem to be growing.

       

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us

       

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

    Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.

       

    Citations.

    1 - money.cnn.com/2018/04/04/retirement/teacher-pensions-kentucky/index.html [4/4/18]

    2 - money.cnn.com/2018/04/20/pf/arizona-teacher-pay/index.html [4/20/18]

    3 - yankeeinstitute.org/2018/04/bill-seeks-to-lower-teacher-pension-contribution/ [4/11/18]

     

  • The Different Types of IRAs

    This popular retirement savings vehicle comes in several varieties.

     

    Provided by MidAmerica Financial Resources

     

    What don’t you know? Many Americans know about Roth and traditional IRAs, but there are other types of Individual Retirement Arrangements. Here’s a quick look at all the different types of IRAs:

     

    Traditional IRAs (occasionally called deductible IRAs) are the “original” IRAs. In most cases, contributions to a traditional IRA are tax deductible: they reduce your taxable income and as a consequence, your federal income taxes. Earnings in a traditional IRA grow tax deferred until they are withdrawn, but they will be taxed upon withdrawal, and those withdrawals must begin after the IRA owner reaches age 70½. I.R.S. penalties and income taxes may apply on withdrawals taken prior to age 59½.1

     

    Roth IRAs do not feature tax-deductible contributions, but they offer many potential perks for the future. Like a traditional IRA, they feature tax-deferred growth and compounding. Unlike a traditional IRA, the account contributions may be withdrawn at any time without being taxed, and the earnings may be withdrawn, tax-free, once the IRA owner is older than 59½ and has owned the IRA for at least five years. An original owner of a Roth IRA never has to make mandatory withdrawals after age 70½. In addition, a Roth IRA owner may keep contributing to the account after age 70½, so long as he or she has earned income. (A high income may prevent an individual from making Roth IRA contributions.)1,2

     

    Some traditional IRA owners convert their traditional IRAs into Roth IRAs. Taxes need to be paid once these conversions are made.1

     

    SIMPLE IRAs are traditional IRAs used in a SIMPLE plan, a type of retirement plan for businesses with 100 or fewer workers. Employers and employees can make contributions to SIMPLE IRA accounts. The annual contribution limit for a SIMPLE IRA is more than twice that of a regular traditional IRA.3

     

    SEP-IRAs are Simplified Employee Pension-Individual Retirement Arrangements. These traditional IRAs are used in SEP plans, set up by an employer for employees, and funded only with employer contributions.4

     

    Spousal IRAs really do not exist as a distinct IRA type. The term actually refers to a rule that lets non-working spouses make traditional or Roth IRA contributions as long as the other spouse works and the couple files joint federal tax returns.1

     

    Inherited IRAs are Roth or traditional IRAs inherited from their original owner by either a spousal or non-spousal beneficiary. The rules for Inherited IRAs are very complex. Surviving spouses have the option to roll over IRA assets they inherit into their own IRAs, but other beneficiaries do not. No contributions can be made to Inherited IRAs, which are also sometimes called Beneficiary IRAs.5

     

    Group IRAs are simply traditional IRAs offered by employers, unions, and other employee associations to their employees, administered through trusts.6

     

    Rollover IRAs (occasionally called conduit IRAs) are IRAs created to store assets distributed from another qualified retirement plan, often an employer-sponsored retirement plan. If the original plan were a Roth, then a Roth IRA must be created for the rollover. Assets from a non-Roth plan may be rolled over into a Roth IRA, but the rollover will be viewed as a Roth conversion by the Internal Revenue Service.6,7

     

    Education IRAs are now mainly referred to by their proper name: the Coverdell ESA. A Coverdell ESA is a vehicle that helps middle-class investors save for a child’s education. Taxes are deferred on the assets saved and invested through the account. Contributions to a Coverdell ESA are not deductible, but withdrawals are tax-free, provided they are used to pay for qualified higher education expenses.8

     

    Consult a qualified financial professional regarding your IRA options. There are many choices available, and it is vital that you understand how your choice could affect your financial situation. No one IRA is the “right” IRA for everyone, so do your homework and seek advice before you proceed.

           

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us

       

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

       Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.

     

    Citations.

    1 - thestreet.com/story/14545108/1/traditional-or-roth-ira-or-both.html [4/4/18]

    2 - forbes.com/sites/catherineschnaubelt/2018/04/25/choosing-the-best-ira-to-maximize-your-retirement-savings/ [4/25/18]

    3 - fool.com/retirement/2017/10/28/2018-simple-ira-limits.aspx [10/28/17]

    4 - investopedia.com/university/retirementplans/sepira/ [11/14/17]

    5 - investopedia.com/terms/i/inherited_ira.asp [4/30/18]

    6 - fool.com/retirement/iras/the-eleven-types.aspx [4/30/18]

    7 - investor.vanguard.com/401k-rollover/options [4/30/18]

    8 - investopedia.com/terms/c/coverdellesa.asp [4/30/18]