4 Financially Awkward Questions

In an age when you can Google anything, we often feel pressure to know all the answers — which means asking certain things can make you feel a bit embarrassed. That’s why we’ve gathered four common financially awkward questions (or FAQs, if you will) people are afraid to utter out loud. 

What’s the difference between a traditional IRA and a Roth IRA?

You may know that an individual retirement account (IRA) is a savings account that comes with tax breaks, i.e., where you save for retirement and keep your stocks, bonds, etc. But you may want to better understand the difference between a traditional IRA and a Roth IRA.

To tell the two apart, think of the classic candy Now and Later. With a Roth IRA, you pay taxes on the money you put in now; with a traditional IRA, you pay taxes on the money later, when you withdraw it. In both traditional and Roth IRAs, your money grows tax-free while it’s in the account.

To help pick between the two, the question is this: Do you think your tax rates will be higher or lower in the future?

Each type of account has distinct advantages, though there’s bad news for high earners: some aren’t eligible for a Roth IRA because there are income limits ($140,000 for tax year 2021 for singles and $208,000 for those married filing jointly). 

How can I make sure I’m not a burden to my family as I age?

It’s difficult to face our own mortality, let alone have a conversation about it. But making a plan for the care you will need later in life, as well as an up-to-date estate plan that clearly expresses your wishes, is an incredible gift to your loved ones – and to yourself. It’s hard to put a price on knowing you have a plan to maintain your quality of life.

A good place to start is researching the local cost of long-term care (assistance with the activities of daily living, like bathing and eating), at genworth.com/costofcare. This can give you an idea of how much money you need to have set aside for these costs, or the size of a long-term care insurance policy you might need. 

My work might offer me early retirement. Should I take it?

There’s a lot to consider before you make this momentous decision, best summed up in two questions:

• Are you financially prepared to replace your paycheck?
• Are you emotionally ready to move on to the next chapter?

Take your time thinking about these two aspects. If you have your financial ducks in a row for retirement, but don’t think you can deal with the loss of your work identity, then maybe a buyout isn’t the right thing for you. Maybe instead of retiring, you take the severance and work a few more years until you’re ready. It’s a personal decision. However, you should keep in mind that if you’re offered a buyout and don’t take it, there’s a chance you’ll be managed out in a less advantageous way down the road.

I have some U.S. savings bonds that have reached maturity. What do I do with them now?

U.S. savings bonds are a little different than bonds you hold through a brokerage, which are usually cashed in automatically when they mature. In the case of a U.S. savings bond, you’re giving the Treasury Department a no-interest loan by not cashing in the mature bond. 

If you have a physical bond (not an electronic one), take it to your bank, ideally one where you have a long-established account. If that’s not possible, you’ll have to provide a government-issued form of photo ID and you’ll be limited to cashing $1,000 worth of savings bonds.

There are a few exceptions, but in general, the person whose name is on the bond is the only person who can cash it in, and that person will owe taxes on the interest earned. If you plan to give the mature bond proceeds as a gift to someone, note that you’ll have the tax liability upon cashing it in. Your other option is to transfer ownership to someone else. You can find the form for transferring a physical savings bond at treasury.gov.

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Tom King CFP®, CLU®, AEP® is Registered Principal of King Financial Partners (222 Blue Course Dr., State College, PA).  King Financial is a team of credentialed professionals specializing in retirement, investment management, wealth transfer, and estate planning. Tom can be reached at [email protected]  (814) 234-3300.

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. These policies have exclusions and/or limitations. The cost and availability of Long Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance. Guarantees are based on the claims paying ability of the insurance company. Sources: Treasury.gov; Forbes; Genworth.com; Kiplinger magazine; Raymond James Commentary and Insights

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.© 2021 Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. King Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services.