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Be Wise With Money

Season of Change

Reorganizing finances saved widower against huge tax implications

Thrivent members Lee Holden and his wife, Nancy, had their golden years all mapped out. "We were always saving for retirement," says Lee, 62, a substation superintendent at an electric co-op. Between a 401(k) and his pension, the couple had created a healthy nest egg.

But when Nancy died unexpectedly in May 2010, everything changed.

Lee realized that the plans they had for retirement – travel, vacations, time with family – could still happen, but for one person, not two. He knew he needed to take a look at his financial strategy. For years, Lee and his wife had worked with Thrivent Financial representatives Debra Jans and Dennis Vernon. Lee turned to them again. And since Thrivent Financial representatives can't provide accounting or tax advice and services, they included Lee's accountant and attorney.

The Thrivent team asked Lee when he expected to retire, what he was planning to do during his retirement years and how much money he thought he'd need for day-to-day living.

"The first thing we noticed was that the amount he needed to live on was far less than what his required minimum distribution would be. That was a huge red flag," says Vernon. "If we didn't make some changes, once he reached age 70½, he'd still have to take out the full amount required by law – even if he didn't need the money. We also learned his pension plan required withdrawal decisions be made at age 62, even if he was still working."

The bottom line? Lee would have huge tax issues unless he reorganized his finances.

To help ease his tax burden, his financial team suggested that Lee convert his retirement savings into a Roth IRA. With a Roth IRA, the money is taxed as it goes in but comes out tax-free. The plan is to convert funds into the Roth over the next seven to nine years. "We'll do it in bits and pieces so that Lee doesn't get hit with a huge tax bill all at once," says Jans. This conversion into a Roth also will give Lee the flexibility of tapping tax-free cash as he needs it, since he paid the taxes in the conversion.

As Lee gets closer to retirement, he continues to meet with his Thrivent Financial team who help him tweak his retirement strategy. Much like most things in life, "it's a work in progress," says Jans.

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