Format for printing

This FAQ answers some of the most frequently asked questions about the calculator.   Remember, the calculator is merely a tool -- it is not your bible to retirement planning. What it will do is give you some approximations and general projections to verify that you are on the right track to meet your monetary retirement goals. The rest of the lessons will help you refine those projections and create a complete and realistic plan.

1. Are retirement withdrawals from savings/investments increased to account for income taxes due on the withdrawals?
   
   
2. How do you reflect an employer profit sharing plan with NO employee contribution?
   
   
3. How do you reflect contributions to a 403(b) or 457 plan?
   
   
4. How do you reflect a non-deductible contribution to a traditional IRA?
   
   
5. Will the calculator assess penalties for withdrawals from tax-deferred plans before age 59 ½?
   
   
6. Is there a clear button for all the pre-entered data?
   
   
7. Can you reflect one date for your retirement and a later date to begin taking pension payments?
   
   
8. When using the Your Monthly Savings (Not Tax-Deferred) section, does it matter if I use the First or Second Savings Account?

1. Are retirement withdrawals from savings/investments increased to account for income taxes due on the withdrawals?

In the discussion of expenses in early, middle, and late retirement, the calculator says it "...provides you with the opportunity to input living expenses (excluding taxes on income) for three phases of retirement." It also says in an explanation of which savings to use first "Your tax-deferred accounts are used in order from lowest to highest interest rate. Taxes you owe upon withdrawal are paid immediately from the same account." No similar statement is made of or implied about taxable accounts. Are all retirement withdrawals from savings/investments from both taxable and tax-deferred accounts increased to account for income taxes at the income tax rates entered into the calculator?

Answer: Withdrawals for income from all accounts, both taxable and tax-deferred, are increased to reflect any income taxes that may be due on such withdrawals. Tax rates are those specified by the user in the calculator. Therefore, the retirement living expenses entered into the calculator should exclude any income taxes on income. If the expenses entered into the calculator do include income taxes, the net effect will be to cause savings before retirement to be higher than would otherwise be required.

2. How do you reflect an employer profit sharing plan with NO employee contribution?

Some participants receive employer contributions to a profit sharing plan to which they do not contribute themselves. The 401(k) area is the only place to enter profit sharing contributions, but it demands an employee as well as an employer contribution. Aside from entering a contribution of $1 for the employee, is there a workaround to this problem?

Answer: No, other than also entering $1 as an employee contribution in the 401(k) area, there is no other way to enter an employer-only profit sharing plan contribution in the present version of the calculator.

3. How do you reflect contributions to a 403(b) or 457 plan?

The calculator has no place where contributions to a 403(b) or a 457 plan may be entered. While both plans are similar to a 401(k) plan, both have slightly different maximum employee contribution limits. Where can a user best enter 403(b)/457 plan contribution data into the calculator?

Answer: Since the 401(k) and 403(b) plans were so close in contribution maximums, a separate input box for 403(b) contributions was not included. Additionally, the calculator was designed to take into effect the most common types of plans available to most individuals, and the 457 did not fit that category, so no separate input boxes were developed for it, either. The 401(k) input boxes would be the best place to enter data for the 403(b) and 457 plans.

4. How do you reflect a non-deductible contribution to a traditional IRA?

The calculator will not allow a nondeductible contribution to a traditional IRA. The best place to enter this IRA contribution is in the "Other" tax-deferred category or in the taxable account area, but be aware that the calculator will distort the taxation issue on withdrawal. Besides this imperfect solution,

there is no other way to enter a nondeductible contribution to a traditional IRA into the calculator.

 

5. Will the calculator assess penalties for withdrawals from tax-deferred plans before age 59 ½?

If someone retires at an age younger than 59 1/2 and must take withdrawals from tax-deferred accounts for income, how does the calculator handle the taxation and penalty issues regarding that withdrawal?

Answer: The calculator allows withdrawals from tax-deferred accounts as soon as the individual retires. The withdrawals are taxed, but are not assessed an early withdrawal penalty. A future enhancement to the calculator will incorporate that feature.

6. Is there a clear button for all the pre-entered data?

Other than writing over them, is there a way to clear all default entries in the calculator.

Answer: No, not currently. A future enhancement to the calculator will include a simple reset button to do just that.

7. Can you reflect one date for your retirement and a later date to begin taking pension payments?

Answer: The calculator is currently designed to begin withdrawing from the pension fund as soon as retirement occurs. Therefore, there is no way in its present configuration you may enter a pension that's payable at an age later than retirement age.

8. When using the Your Monthly Savings (Not Tax-Deferred) section, does it matter if I use the First or Second Savings Account?

Answer: Yes, if you have only one account, use the "First Savings Account" line and the calculator will work fine. If you use the "Second Savings Account" line, with all three fields of the First Savings Account (current balance, rate of return, monthly investment) set at zero, the calculator will not work correctly. If you have two accounts, use both lines, and this will also work fine. It's only the Second line, alone, that is a little fussy.
 

 
Copyright © 2001 The Motley Fool, Inc. All rights reserved. Without limiting the rights under copyright reserved above, no part of this Seminar may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of The Motley Fool, Inc.