1. How can I estimate how much I will need during retirement?
This question comes up often because when we prepare financial plans for clients, we usually ask how much they want to spend during retirement. Understandably, the question is not easy to answer. When preparing a financial plan, we initially assume a person will need 70 percent of their current living expenses during retirement and increase or decrease the amount based on the likelihood of meeting the target that goal. For example, if your current annual living expenses are $120,000, we would begin your financial plan assuming you will spend $84,000 a year during retirement. If the results of your plan are unfavorable, we will recommend a combination of the following: save more, retire later, and/or reduce how much you plan to spend during retirement.
2. My son is about to start college. How can I withdraw money from my 529 plan to pay for my son's college?
It is very easy to withdraw money you have accumulated in a 529 plan. You can either have the funds wired or mailed to you personally and you pay the college expenses, or you can have the 529 plan sponsor pay the school directly. The 529 plan sponsor will issue you a 1099Q to reflect the disbursement, but it will not indicate whether the withdrawal was qualified or non-qualified. You must keep records to show the funds were used to pay for college related expenses. If you need help setting up a college savings account, please contact us.
3. What is the wash-sale rule?
We recently received this question from a friend who is aware of the wash-sale rule, but did not fully understand its nuances and as a result, his loss was disallowed. A wash-sale occurs if you sell an asset to recognize a loss and repurchase the same or similar asset within 30 days. Suppose you own shares of the S&P 500 index ETF (SPY) for which you paid $180 per share and the price is now $150 per share. If you sell SPY to recognize the $30 per share loss, you must wait at least 31 days before you can repurchase SPY (or another S&P 500 index fund) to be able to recognize the $30 loss. Most people, including our friend, assume the wash sale rule applies only on future purchases, but the IRS guideline (publication 550) is very clear: "A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you" repurchase those shares. In our friend's case, he purchased additional shares 30 days before selling them and thus his loss was disallowed.
Have a financial question? Contact ACap Asset Management at info@acapam.com or 818-272-8511.
Ara Oghoorian, CFA, CFP® is the president and founder of ACap Asset Management, Inc., a “Fee-Only” investment management firm located in Los Angeles, CA specializing in helping doctors and physicians make sound financial decisions. Visit us at www.acapam.com