Your Money: Unpacking your retirement account options

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Bruce Helmer and Peg Webb

Planning for retirement often falls to the bottom of the list of priorities, but it’s important not to put off the process. Planning today improves the odds that your savings and investments will help you maintain your desired lifestyle after you stop earning a regular paycheck.

Also, by planning early, you’ll also be able to handle the tax bill that likely will come each year after you retire.

Retirement planning boils down to addressing the key risk factors that impact retirement security: longevity (how long you’ll live), inflation (protecting the purchasing power of each dollar), public policy (changes in future tax rates), and a sustainable rate of withdrawal over time. The typical building blocks for retirement income include the following:

• Assets held in taxable brokerage accounts or bank savings accounts

• Guaranteed sources of income, such as Social Security or pensions

• Insurance benefits

• Savings and contributions to retirement-focused accounts, such as your 401(k), traditional IRA or Roth IRA

Good retirement income planning must go beyond simply joining your company-sponsored retirement plan or opening an IRA at your local bank. You also need to make sure a good portion of your future income is positioned for long-term growth and is as tax-efficient as possible.

There are three basic types of retirement accounts, based on how they are taxed: tax-deferred, tax-advantaged, and taxable. Learning the features of each is important because their different tax treatments can have a big impact on the ultimate size of your nest egg.

Tax-deferred accounts

Employer-sponsored 401(k)s are by far the most popular retirement account among for-profit businesses. Similar defined contribution plans are available for schools and university systems (403(b) plans), government entities (457 and 401(a) plans), and the federal government’s Thrift Savings Plan. Sole proprietors and other small businesses can use Solo 401(k)s, Simplified Employer Plans (SEP-IRA), or SIMPLE IRAs.

All defined contribution plans essentially work the same way:

• You invest pre-tax money into an account set up in your name, and you select investments from the plan’s available lineup.

• The employer may match a certain percentage of your salary as their contribution (say, 50 cents for every dollar you put in, up to 10% of your income).

• You reduce the amount of each year’s taxable income by the amount you put into your account.

• You pay no taxes on the accumulation in your account until you begin taking withdrawals. When you’re ready to withdraw funds in retirement, your withdrawals will be taxed as regular income.

• As with all tax-deferred retirement accounts, withdrawals made before reaching age 59½ are subject to a 10% federal income tax penalty.

• Required minimum distributions (RMDs) begin when you turn 73.

An Individual Retirement Account (IRA) is similar to a 401(k) but with some differences. Perhaps the most important is that the deductibility of your contributions depends on whether you (and/or your spouse, depending on how you file your taxes) also contribute to an employer 401(k) plan. Contribution limits and catch-up contributions are lower than with 401(k), and, of course, there’s no available employer match. IRAs generally offer a wide variety of investment options and, as with a 401(k), you pay no taxes on the accumulation in your account until you begin taking withdrawals. Withdrawals are taxed as regular income (plus a 10% federal penalty if taken before age 59½).

Tax-advantaged accounts

These accounts, such as Roth IRAs and Roth 401(k)s, move your tax liability from the future to the present. A Roth IRA can be owned by individuals or offered by employers through their 401(k) plans.

Contributions are made with after-tax dollars, meaning that you pay taxes on the funds you invest at the start, with no available tax deduction. Hopefully, your investments will grow over time, and you’ll pay no taxes on that accumulation or distribution.

However, the IRS rules around tax-free withdrawals can be a little tricky. For example, for withdrawals to be tax-free, the account needs to have been open for at least five years and you must be at least age 59½.

Still, tax-advantaged accounts can be great if you anticipate being in a higher tax bracket when you retire. They are also simple and efficient ways to pass wealth tax-free to your heirs.

Taxable accounts

To bridge the gap between tax-deferred and tax-advantaged accounts, many investors also hold assets in taxable accounts. Taxable accounts have none of the tax benefits we’ve just described, but they serve an important role in your tax diversification strategy. Taxable accounts typically include brokerage accounts, savings accounts, and other liquid accounts that allow you to invest and withdraw when you please.

Taxable accounts are subject to tax rules depending on the nature of the assets held within the accounts, such as long-term or short-term capital gains taxes. But they allow you to invest in taxable investment accounts without triggering an immediate taxable event. Instead, dividends and other distributions generated by your investments are taxable at year-end, and if you sell assets within these accounts, you’ll pay taxes on the gains (albeit at more favorable rates than ordinary income rates).

Thus, the three key advantages of taxable accounts are accessibility, in that you can withdraw funds at any time and any age without penalty, immediate liquidity in years leading up to retirement, and added flexibility for years after you retire.

Importance of tax diversification

While reducing today’s taxes is important, there’s a lot more to retirement tax strategy than simply reducing this year’s taxes. Diversifying your investments across all three types of retirement accounts is a critical element of lifetime tax efficiency.

Having too much of your nest egg in a 401(k) or IRA could put you at a disadvantage when you retire. That’s because you won’t get your entire balance as you spend it down: Up to a third or more of your income will be paid in state and federal income taxes.

The key question is to determine how much to move between your retirement accounts and when. And the answer to that question is directly tied to your needs and unique financial situation. We recommend working with an experienced and knowledgeable financial adviser to build a comprehensive financial plan based on a foundation of tax control, excellent asset management, and a commitment to understanding your unique needs.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.

 

Trump says NATO countries spent ‘billions’ after he threatened to not defend EU

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Former President Donald Trump said NATO countries spent “billions and billions” of dollars on their collective defense after he threatened to not protect Europe if it were attacked.

Speaking at a New Hampshire rally Friday night, Trump blasted European countries for relying too heavily on Washington when it comes to defense spending. After meeting with NATO leaders during his presidency, Trump said he realized the United States was “footing the bill.”

When he raised that concern, a European leader asked him, “Does that mean if we’re not paid up, you’re not going to protect us?” Trump said.

“I said that’s exactly what it means,” he said. “And the following day, billions and billions of dollars came pouring in.”

A POLITICO report earlier this month revealed that Trump had told European Commission President Ursula von der Leyen in 2020 that the U.S. wouldn’t come to Europe’s defense if it was attacked.

Trump’s campaign had not responded to previous requests for comment on the meeting. It is unclear if Trump was referring at his Friday rally to the specific conversation with von der Leyen.

After publication of Trump’s previous comments, President Joe Biden’s campaign assailed Trump.

“The idea that he would abandon our allies if he doesn’t get his way underscores what we already know to be true about Donald Trump: The only person he cares about is himself,” Biden campaign spokesperson Ammar Moussa said in a statement.

French European Commissioner Thierry Breton, who recounted the von der Leyen meeting, called his threat “a big wake-up call.”

“Now more than ever, we know that we are on our own, of course. We are a member of NATO, almost all of us, of course we have allies, but we have no other options but to increase drastically this pillar in order to be ready [for] whatever happens,” she said at an event in the European Parliament in Brussels earlier this month.

Chicago Bears Q&A: Did GM Ryan Poles miss a chance at a big-name coach? How desirable are the coordinator openings?

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One week after deciding to retain coach Matt Eberflus and fire offensive coordinator Luke Getsy and four other assistants, the Chicago Bears are already knee-deep in offseason drama.

Who will replace Getsy? Will the Bears draft Caleb Williams or another quarterback at No. 1, or will they trade down? And what will become of Justin Fields? The questions aren’t letting up, and as he does every Wednesday, the Tribune’s Brad Biggs takes a swing at answering them.

Everyone is so focused on this big QB decision, but given the unusual amount of Super Bowl-achieving coaches available, don’t you think we could all be looking back in three or four years saying that could be the biggest miss from this offseason? — @jjg3434

It’s a fair question with such a collection of accomplished head coaches available, including Bill Belichick, Pete Carroll, Jim Harbaugh and Mike Vrabel. Detroit Lions offensive coordinator Ben Johnson is coveted, and there are other hot names such as Los Angeles Rams defensive coordinator Raheem Morris, Miami Dolphins offensive coordinator Frank Smith and Baltimore Ravens defensive coordinator Mike Macdonald, making it a fascinating hiring cycle.

Seven teams currently have openings (the New England Patriots already filled their vacancy by promoting Jerod Mayo), and there could be more in the next week as playoff teams — think the Dallas Cowboys and Philadelphia Eagles — consider changes after bad playoff losses. Carroll might not be the only surprise too. Will the Kansas City Chiefs’ Andy Reid retire at the end of the season? That’s sort of an annual question now as he turns 66 next month.

I doubt you’ll have to wait three or four years to know if the Bears made the right call in sticking with Matt Eberflus. We’ll see in another year or two if the team is on the kind of upward trajectory that leads to sustained success.

The Bears didn’t decide to keep Eberflus without thought and reflection. They spent two days in meetings at Halas Hall after the season ended, contemplating the next step. Everyone knew Harbaugh would potentially be available. That’s out there every January, right? Many figured Belichick would be out in New England, and there were rumors for several weeks that all wasn’t well in Nashville for Vrabel. It’s not like general manager Ryan Poles reached his conclusion without realizing options would be available.

Some criticized Poles for saying last week that he didn’t reach out to Harbaugh to discuss the possibility of returning to the Bears. I don’t think that was ever a realistic option. Big Ten football coaches didn’t have the best relationship with Bears President/CEO Kevin Warren when he was the conference commissioner. I understand why the question was asked, but put yourself in Poles’ shoes for a moment. Even if he did reach out to Harbaugh — and I believe him when he says he didn’t — think of the can of worms he’d crack open if he said, “Yeah, I had an exploratory call with Jim, but I am confident in the decision to keep Matt.”

That would put the coach sitting next to him at the news conference on the hot seat on Day 3 of the offseason. Until Harbaugh’s status is resolved, there would have been nonstop speculation: “What if there’s another call and they can lure Jim back to Lake Forest? What if Vrabel wants to come to Chicago? Hey, Belichick is available now and maybe Poles will call him.” The choice — whether you agree with it or not — was to stick with Eberflus, so the Bears had to appear all-in with complete belief in him as the man to lead them to the next level.

Poles explained his rationale behind retaining Eberflus, and now the Bears have to fill out his coaching staff before launching into an exciting offseason with draft and free-agent possibilities. We’ll know before long whether it was the right decision. Maybe as early as this time next year. We’ll also see what kind of impact some of these options make elsewhere.

Ryan Poles and Matt Eberflus stated their coordinator roles are extremely sought after even with a coach who seems to be entering a critical third year following massive staff turnover and a huge QB decision. Are you hearing it’s a desired spot for coaches this offseason? — @bwcole

There are only 32 coordinator jobs on each side of the ball throughout the NFL, so naturally there will be considerable interest. The offensive opening will be more attractive than the defensive job if Eberflus is going to retain defensive play-calling responsibilities.

Coaches consider a ton of factors when looking at job openings. Two loom largest, in my opinion. They are seeking stability, No. 1, and many are seeking upward mobility. So Poles and Eberflus have to sell the Bears as a situation built on a solid foundation. Younger coaches with aspirations of becoming a head coach might look at the quarterback situation, paired with an improving defense, as a good spot to enhance their resumes. Significant staff turnover on offense — the Bears need to hire position coaches for quarterbacks, wide receivers and running backs — could be viewed as a positive. Any incoming offensive coordinator will want some say in the staff he’s working with.

As I have written previously, the Bears have a head start in the process over teams going through a total staff overhaul. They have to move through an initial wave of interviews, identify a smaller pool of finalists and then rank the candidates they desire most. At that point, they need to try to get someone to make a decision.

What conclusions do you draw from the names Shane Waldron, Greg Olson, Liam Coen and Klint Kubiak that have been floated for the offensive coordinator job? Do they run similar systems as Luke Getsy? Putting QB aside, would this mean anything for continuity for the rest of the offensive personnel? — @gregfeltes

There’s a lot to unpack here, and we can add the name of Greg Roman to the list. The four you mentioned fall under the Sean McVay-Kyle Shanahan coaching tree. Waldron, Olson and Coen all worked for McVay with the Rams. Kubiak has been the San Francisco 49ers passing game coordinator under Shanahan this season.

With those four, you’re looking at a lot of base similarities to what the Bears did under Getsy, who worked for Green Bay Packers coach Matt LaFleur, another product of the McVay-Shanahan tree. Looking at McVay’s offense specifically, the running game is the foundation with a lot of formation versatility, motion, movement, misdirection and defined throws off play action. All of that can make it a quarterback-friendly system. McVay leans a lot more on pre-snap movement than the Bears did under Getsy. Maybe there are valid reasons Getsy didn’t want a lot of moving parts before the snap, but it’s an element you consistently see with McVay.

Roman, a former offensive coordinator for the Ravens and 49ers, is the outlier in this group. He has a very advanced running game and had a ton of success on the ground in Baltimore with Lamar Jackson and in San Francisco with Colin Kaepernick. His offense can be difficult to prepare for because it has a lot going on: downhill power, zone, misdirection. One knock on Roman’s passing game is it’s too vertically based. He had some poor wide receiver groups in Baltimore, but his ground games have almost always been elite.

This is an important hire for Matt Eberflus. He needs to find someone with a vision that aligns with his, a coach who brings a proven playbook but also has the versatility to adapt to what the roster looks like after the draft. I’ll reiterate what I’ve written recently: It’s a really important decision, but the quarterback pulling the trigger is ultimately more important than who is calling plays.

You can take the elite quarterbacks and drop them in any scheme for any play caller and they’re going to excel and make the players around them better. You put the best play callers and schematic wizards with lower-tier quarterbacks and your offense will struggle. I’m not minimizing the significance of the coordinator decision, but I am reinforcing that ultimately it’s about talent on the field. That’s why a lot of coaches will tell you it’s more about Jimmys and Joes than X’s and O’s.

Now that Caleb Williams has declared for the draft, who is the most likely to be the first quarterback selected? — Todd M., Schererville, Ind.

There’s a ton of work to be done by a lot of teams, the Bears included, that might be in the market for a passer. Right now, every indication I get is that Williams is the prohibitive favorite. But the draft is more than three months away and plenty can shift, especially with Drake Maye, Jayden Daniels, Michael Penix Jr., J.J. McCarthy and Bo Nix in the mix. We’ll have to see if the Bears stick at No. 1.

Odds the Bears finally make an appearance on “Hard Knocks” this summer? — O.C., Rockford

Never say never. Before we dive into this, I’ll remind you every time the topic of the HBO series has come up, the Bears have expressed zero interest in participating. My hunch is Chairman George McCaskey would rather vacation this summer in Green Bay than watch his team’s inner workings aired during training camp.

Because teams are reluctant to invite intrusive elements during camp, the league adopted guidelines that leave a few teams it can coerce into appearing on “Hard Knocks.” Any team that doesn’t meet one of these three factors can be selected:

Has a first-year head coach.
Has reached the playoffs in one of the last two seasons.
Has appeared on “Hard Knocks” in the previous 10 years.

Five teams cannot check any of these boxes: the Bears, Arizona Cardinals, Denver Broncos, Indianapolis Colts and New Orleans Saints. The Cardinals and Colts have been featured on an offshoot, in-season version of “Hard Knocks.” I don’t know if that allows them to be excluded.

In a perfect world, a team will volunteer to appear on “Hard Knocks.” If not, someone will be tapped on the shoulder. The league chose the New York Jets for the drama with quarterback Aaron Rodgers last summer when the Bears were one of four teams that could have been compelled to do the show.

If the Bears draft Caleb Williams at No. 1 and then both OTs, Marvin Harrison Jr., Malik Nabers, Brock Bowers and Rome Odunze are gone by No. 9, what do the Bears do? — @wiseguyfb

That seems unlikely for two reasons. First, in your hypothetical, only two quarterbacks would be selected in the top eight picks. Considering the number of teams with a pressing quarterback issue in the top 10 — and the top half of the first round — I think it’s likely at least three go in the first eight picks.

Just in the top eight, the Bears, Washington Commanders, Patriots, New York Giants and Atlanta Falcons have serious quarterback issues. You can’t rule out the possibility the Cardinals or Tennessee Titans could be lurking if a quarterback they love is available. That’s without considering teams that could trade into the top eight to select a quarterback, a group that includes but is not limited to the Minnesota Vikings, Broncos, Las Vegas Raiders, Saints and Seattle Seahawks.

The other issue is draft history. Going back to the NFL/AFL merger in 1970, there has never been a draft in which three wide receivers came off the board in the first eight picks. In fact, two receivers have gone in the first eight picks only 15 times. There were two drafts in which three wide receivers were selected in the first nine picks: 2017 (Nos. 5, 7 and 9) and 2003 (Nos. 3, 7 and 9).

This shapes up to be a terrific receiver class, and logic tells me if the Bears stay at No. 9, they will likely have an opportunity to choose the third receiver off the board if GM Ryan Poles wants to go that route.

I suppose it’s possible Bowers, the Georgia tight end, slides out of the top eight and there’s an early run on wide receivers, but if the Bears are picking at No. 9, I’m confident they will have a couple of intriguing options — including the possibility they could get the first defensive player off the board.

After watching the Packers and Lions play this past weekend in the playoffs, it sure looks like it’s going to be a long, hard climb to “take the North and never give it back.” It’s shaping up to be a highly competitive division for years to come. What do you think about that? — @mkrivich

The NFC North should be one of the better divisions in the league next season. The Lions (12-5 this season) are legitimate and have drafted very well under GM Brad Holmes. The Packers finished 9-8 and had some bumpy points in their season, but their record could have been significantly better considering five losses came by four points or fewer. They have the youngest roster in the league, and quarterback Jordan Love looks like he could be a nightmare for North rivals for seasons to come.

If the Vikings re-sign quarterback Kirk Cousins, they’re at least going to be competitive, and I think coach Kevin O’Connell does a really good job. If the Bears get the quarterback position figured out — that’s always the big IF in these parts — they will be in the mix. If not, it’s going to be a slog to maintain pace with the Lions and Packers.

Do you think a determination on drafting a QB at No. 1 and possibly trading Justin Fields happens by the start of the league year? — @jtbcubs

The Bears aren’t in a rush to make any decisions, and that means doing their due diligence at pro days, private workouts and top-30 visits to Halas Hall. Remember what Ryan Poles said last week. He wants to get to know everything about potential quarterbacks. That process will carry through March and likely spill into the beginning of April.

It’s possible Poles will have a pretty good indication of which direction he is leaning by mid-March, but I expect him to be really methodical so we might not have more than small clues to go on by then. Certainly if the Bears are interested in trading Fields, they’ll want some time to work through that process before the draft kicks off April 25.

Is there any realistic chance of the Bears getting the Falcons’ eighth overall pick for Justin Fields? Not sure why some NFL talking heads seem to think this is a possibility. If not that pick, is a second-round pick reasonable? — @seshwann

I’d be surprised if the Bears were able to trade Fields for a first-round pick and stunned if they got one in the top 10. The Falcons drafted tight end Kyle Pitts with the fourth pick in 2021, when Fields came out of Ohio State, and they were the first team to pass on a quarterback after Trevor Lawrence, Zach Wilson and Trey Lance went 1-2-3. GM Terry Fontenot was in charge then, and they had an opportunity to draft the Georgia-raised Fields at a time when it was clear veteran Matt Ryan was nearing the end of his career.

The Falcons have to hire a head coach to replace Arthur Smith before they chart a direction for the offseason, and Fontenot is still in place. I think it’s far more likely the Falcons would choose to draft a quarterback at No. 8 than use that pick to acquire Fields.

If the Bears choose to trade Fields, you’re probably looking at a second-round pick or perhaps a third-rounder and change in return. There is a scenario in which Fields stays put, but I think that happens only if the Bears trade down from No. 1 before drafting a quarterback. If they choose one at No. 1, I’d bet on Fields being moved.

Now that the season is over, how many “blue” players do you believe are currently on the roster? It seems like Jaylon Johnson and DJ Moore are there. Maybe also Montez Sweat. Is there anyone you think is a good candidate to take a big step next season? — @hcrestesq

Johnson and Moore certainly played to a blue, or top-line, level this season. Johnson was not in that echelon entering 2023, and he’ll have to continue to play at an elite level to be considered in that category.

Moore was just outside of blue territory before the season in the estimation of talent evaluators I spoke to. I think it’s safe to say he has reached that threshold. Are there better receivers out there? Sure. But Moore is an excellent all-around performer. There aren’t any holes in his game.

Sweat is probably on the fringe of becoming a blue player as well. He was excellent after the Bears traded for him midseason and raised the profile of the players around him. Looking ahead, the Bears are hoping right tackle Darnell Wright can improve significantly. A lot of other younger players on the roster also have room to grow.

Why was Cliff Stein let go? Andrew Billings and T.J. Edwards are arguably two of the best value contracts signed in free agency last year by any team. — @ericbonow

My assumption is President/CEO Kevin Warren has a replacement in mind to handle the web of legal issues that NFL teams deal with. Matt Feinstein was hired as director of football administration in 2022, and that job has him managing the salary cap and negotiating contracts. Stein played a role in that process in that first year, helping Feinstein along, but it was more Feinstein doing that work this season.

Stein was a talented and well-liked employee at Halas Hall for nearly 22 years. There has been an expectation for some time that Warren will make some major changes, and removing a senior vice president with a long track record of dedicated service to the organization qualifies. It could be the first in a series of moves, but I’d guess at least some within the franchise were caught off guard a bit.

The Luke Getsy firing is strong evidence the Bears are moving on from Justin Fields. If they were optimistic about Fields’ trajectory, it would be an implicit endorsement of Getsy and his work and relationship with Fields. Dropping Getsy, and moving to a new coordinator, indicates they’re not satisfied with or even hopeful about Fields’ progress. They must still reach conviction on a rookie QB, but cleaning house of the offensive staff clearly reads as doubt about Fields rather than a move to unlock Fields’ potential. — Dennis R.

Not sure what the question is here, but I disagree with your assertion. I think there’s more nuance to the decision on Getsy and the ongoing process of figuring out what to do with Fields and the quarterback position moving forward. There’s often a cause-and-effect relationship between moves, but things aren’t always tied together so closely.

The Bears didn’t force the Packers to punt one time in the final game and also managed to hold them to less than 20 points. I’d like to think that’s pretty rare. When’s the last time the Bears had a stat like that? — Jacob K., Berwyn

Good question. The last time the Bears held an opponent to 17 or fewer points without forcing a punt was a 13-10 loss to the Packers on Sept. 24, 1967. Before that, you have to go back to 1945, when they lost to the Lions 16-10 and the Cleveland Rams 17-0.

Is it the coaching philosophy that keeps Bears QBs from developing into franchise quarterbacks? Matt Eberflus stresses ball security in every press conference, as have almost all previous coaches. I can understand why young QBs get gun-shy about risky small-window throws or throwing a receiver open with this emphasis. Is this why Chicago is where QBs go to die? — Jeff J., Wyoming, Mich.

Ball security is just as paramount for Andy Reid with Patrick Mahomes as it is for Kyle Shanahan with Brock Purdy and John Harbaugh with Lamar Jackson. Turnover margin is the single greatest indicator of success week in and week out in the NFL. If you’re giving the opponent too many possessions, some with advantageous field position, it’s going to be an uphill climb to victory. I understand your point, but ball security is Job 1 for any quarterback.

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