IRA & Retirement Planning
As elder law and estate planning attorneys, we provide clients with comprehensive assistance so they can be appropriately prepared for each stage of life as senior citizens. First, there are the golden years that come immediately after retirement. During this interim, you can spend quality time with your family, enjoy leisure activities, and cross things off your bucket list. When you are planning for this period of your life, you should understand exactly what to expect from government programs that are going to provide an underpinning. People that do not look into all the facts thoroughly are sometimes unpleasantly surprised when they find out about the limitations.
Your Social Security benefit is based on the 35 years during which you earned the most amount of money. The more you contribute into the program, the higher your benefit will be when you obtain eligibility, but there is a maximum monthly payout. It is possible to apply for Social Security when you are as young as 62 years of age. However, if you go this route, the amount of your benefit will be reduced by as much as 30%. The age of eligibility for a full benefit depends on the year of your birth. Suffice to say that it will be somewhere between 66 and 67 years of age.We should also point out the fact it is possible to postpone the submission of your application once you reach the age of eligibility. When you do this, you earn delayed retirement credits that will increase your benefit by about 8% for every year that you wait. You can no longer earn credits after you reach the age of 70, so there is no reason to delay beyond that point. The average monthly Social Security direct deposit is not enough for most people to live on comfortably. You can register an account on the Social Security Administration website to find out exactly how much you will qualify for when you become eligible.
Unlike Social Security, the age of eligibility for Medicare is cut and dry. As long as you pay FICA or self-employment taxes for at least 10 years, you will qualify for Social Security when you are 65 years old. This will provide a solid health insurance foundation, but there are out-of-pocket expenses that you should budget for in advance. These would include co-payments, deductibles, and monthly premiums.
Individual Retirement Accounts
An individual retirement account can potentially be the piece to the puzzle that you need to add to your Social Security benefit to be able to meet your financial obligations as a senior citizen. Though there are some hybrids, the two types of IRAs that are typically used are traditional individual retirement accounts, and Roth IRAs.If you have a traditional account, you make contributions before you pay taxes on the income. When you reach the age of 59 ½, you can take penalty free withdrawals. You are required to start taking mandatory minimum distributions when you are 70 ½ years of age. Withdrawals from the account would be subject to regular income taxes, and this also applies to distributions to a beneficiary if there are assets in the account after your passing.With a Roth individual retirement account, the deposits are made after taxes have been paid. The rules are the same with regard to the age at which you can accept penalty free distributions, but you are never required to take them. There would be no taxes imposed on distributions from the account, because you made your contributions after paying taxes on the income. Because of the fact that you are not compelled to take distributions, a Roth IRA can be a great estate planning tool. The beneficiary would be required to accept mandatory minimum distributions, but they would not be taxed. To prolong the tax benefits, the beneficiary could “stretch” the individual retirement account by taking the minimum distributions that are required by law. We should point out the fact that a traditional individual retirement account can be stretched by the beneficiary as well. The distributions would be subject to taxation, but the tax-deferred accrual of earnings would be maximized.
Discuss Your Retirement With a Licensed Attorney!