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March 28th, 2018 by

There are a number of good reasons why you may want to work part-time during retirement. Obviously, you would be earning money and relying less on your retirement savings. You may also have access to better health-care benefits. Finally, many retirees work for personal fulfillment. They enjoy staying mentally and physically active. Plus, they enjoy the social benefits of working in retirement. Some retirees just want to try their hand at something new & they aren’t ready to retire.

Others who are thinking about retirement aren’t’ ready to give up their day jobs just yet. In 2013, a phased retirement plan was introduced in some workplaces to help potential retirees ease into retirement more easily. It’s when a company allows an aging employee to “officially retire”, but keeps the employee on the payroll with the ability to scale back their number of work hours or become more selective on which projects they take on.

Earning a paycheck may enable you to postpone claiming Social Security until a later date. For each year you delay taking your Social Security benefits (from full retirement age to age 70), the annual benefit grows automatically by 8%.

Here are two more ways working in retirement could affect your Social Security benefits.

1. The Retirement Earnings Test

If you are working in retirement and receiving Social Security benefits prior to reaching full retirement age (FRA), $1 in benefits will be deducted for every $2 you earn above the annual limit ($17,040 in 2018). During the calendar year in which you reach FRA, $1 will be deducted for every $3 you earn above a higher annual limit ($45,360 in 2018), but only until the month you reach full retirement age. Fortunately, you won’t lose these benefits forever. Once you reach FRA, your lifetime benefit will increase to account for the loss amount.

2. Taxes on Benefits

If you have substantial income (such as wages or other taxable income), a portion of your Social Security benefits may be taxable. You may owe federal income tax on up to 50% of your benefits if your combined income exceeds a “base amount” of $25,000 ($32,000 for joint filers). And if your combined income exceeds a higher base amount of $34,000 ($44,000 for joint filers), you may owe tax on up to 85% of your Social Security benefits.

One size DOES NOT fit all.

Your retirement options should be in under your control. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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March 12th, 2018 by

Contributing to a Roth IRA or a designated Roth account in an employer retirement plan do not reduce current income, but qualified withdrawals are generally free of federal income tax as long as they meet certain conditions. Moreover, withdrawals from a Roth IRA can tax-free and penalty-free at any time, for any reason.

Repositioning Your Retirement Dollars

  • If you have a traditional IRA but prefer the advantages of a Roth, you can open a Roth IRA and make contributions to either or both accounts. However, you are subject to the combined annual contribution limit.
  • You could also convert all or part of your traditional IRA money to a Roth IRA. You can convert contributions to an employer’s retirement plan to a designated Roth account if the plan allows for conversions.
  • Conversions of monies to a Roth account are subject to federal income tax in the year of conversion. Under current tax law and if you meet all conditions, the Roth account will incur no further income tax liability for the rest of your lifetime.
  • The prospect of a substantial tax bill can be daunting, but paying taxes now may be a worthwhile tradeoff for potential tax-free growth and tax-free income in retirement. And because you do not have to take required minimum distributions (RMDs) from a Roth IRA, you have more flexibility when taking withdrawals.
  • To make the tax liability of a Roth conversion more manageable, you could spread out smaller conversions over several years. Recharacterizations should take place by October 15 of the year following the tax year of the conversion.

Contribution and Distribution Rules

  • Eligibility to contribute to a Roth IRA phases out at higher income levels. (Income limits also apply for tax-deductible contributions to a traditional IRA if you’re an active participant in an employer plan.) IRA contributions for 2017 can be made up to the April 2018 tax filing deadline; however, employer-plan contributions and Roth IRA conversions for 2017 must be made by December 31.
  • To qualify for tax-free and penalty-free withdrawals, distributions from a Roth IRA or a Roth employer plan account must meet a five-year holding requirement and take place after age 59½ (with some exceptions).
  • RMDs from traditional IRAs and employer-sponsored retirement plans (including Roth accounts) must start in the year you turn 70½.
  • Beneficiaries of all IRAs and employer plans generally must start taking RMDs in the year after the original account owner’s death.

These things get confusing!

With multiple accounts in different places, it can get a bit confusing to know what to do with your monies. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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March 2, 2018
March 2nd, 2018 by

IRS rules for inheriting retirement accounts are complex, and an uninformed decision could result in unexpected taxes and penalties. Your options depend on your relationship to the original owner and the owner’s age at the time of death.

Beneficiaries of both traditional and Roth IRAs must take required minimum distributions (RMDs), with one exception for spouses (described below). If the original owner died after reaching age 70½ and did not take an RMD for the year of death, you may also have to take the owner’s RMD by the end of the calendar year.

Special Rules for Spouses

A surviving spouse can roll the inherited IRA assets to a new IRA in his or her own name. If the spouse is the sole beneficiary, the inherited IRA can simply be redesignated in the surviving spouse’s name (if allowed by the account trustee). Because the spouse becomes an owner of the account, he or she can make additional contributions, name beneficiaries, and avoid RMDs from a Roth IRA. A surviving spouse must take RMDs from a traditional IRA. However, this only has to start when the surviving spouse reaches age 70½.

Options for Designated Beneficiaries

Nonspouse beneficiaries, as well as a spouse who does not treat an inherited IRA as his or her own, cannot contribute to the IRA and can only name “successor beneficiaries.” In most cases, the funds must be transferred directly to a properly titled beneficiary IRA; for example, “Joe Smith (deceased) for the benefit of Mary Smith (beneficiary).”

All designated beneficiaries typically have four distribution options:

  1. Life expectancy method. A “stretch IRA” typically involves taking RMDs over the life expectancy of the beneficiary. A non-spouse beneficiary must start taking distributions no later than December 31 of the year following the year of the IRA owner’s death. A spouse beneficiary may be able to delay payments until the year the IRA owner would have reached age 70½.
  2. Five-year rule. If the original owner died before reaching age 70½, the beneficiary can satisfy RMD rules by withdrawing all assets — in one or multiple distributions — within the five-year period that ends on December 31 of the fifth year after the IRA owner’s death.
  3. Lump-sum distribution. Regardless of the original owner’s age, the beneficiary can withdraw his or her entire share of the inherited IRA by December 31 of the year following the original owner’s death. This may be appropriate for small accounts, but you should think twice before liquidating a large account.
  4. Disclaim the inherited funds. This may be appropriate if you do not need the funds and prefer that they pass to another beneficiary with greater needs or who would be subject to lower RMDs, allowing more time for the funds to grow. A qualified disclaimer statement must be completed within nine months of the IRA owner’s date of death.

It can cost you a penalty equal to 50% if you fail to withdraw the appropriate RMD amount. Distributions from a traditional IRA are taxable as ordinary income. Distributions of Roth IRA contributions are not taxable, but the account must meet the appropriate five-year Roth holding period for tax-free distributions of earnings.

Avoid Costly Mistakes!

When there are multiple beneficiaries or the IRA goes to an estate or a trust, distribution rules become more complex. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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