Individual Retirement Accounts (IRA)

Traditional IRA

  • An IRA can be established for those who have earned income, and you can contribute up to $6,500 ($7,500 if you are age 50 or older) per calendar year into an IRA if you have earned income that is at least equal to the amount contributed. All, some, or none of that contribution may be tax deductible.

  • For an up to date look at what contributions are allowable deductions: https://www.irs.gov/retirement-plans

  • Dividends, interest and capital gain growth within an IRA are not taxable and monies eventually removed are taxable as ordinary income in the year they are withdrawn. Withdrawals prior to age 59 1/2 may be subject to taxes, and a 10% IRS penalty.

  • Avoidance of 10% IRS penalty (but not taxes) on withdrawals prior to age 59 1/2 is available starting at age 55 if owner takes substantially equal periodic payments (Called SEPP/72t provision) based on IRS life expectancy tables. You need to do this for at least five years. The IRS will hold each distribution as taxable income, same as a post age 59.5 distribution.

  • RMD’s or Required Minimum Distributions- withdrawals are required starting after owner turns 73. A 25% penalty of the amount that should have been withdrawn is assessed for non-compliance.

Roth IRA

  • A Roth IRA can be established by most individuals regardless of age who have earned income below a certain specified threshold.

  • Dividends, interest and capital gain growth within a ROTH IRA are not taxed ongoing, and monies eventually removed are tax-free if account is owned at least 5 years and owner is over 59 1/2.

  • Unlike Traditional IRAs there are no minimum distributions or withdrawal requirements.

  • At any age, for any reason one can withdraw the amount(s) contributed (not earnings) without tax or penalties.

Converting to a Roth IRA

  • Many traditional IRA investors have the option to convert their Traditional IRAs to a Roth IRA.

  • Traditional IRA’s offer investors a tax-deductible contribution on funds going in, tax-deferred growth on all earnings while in, and taxable income when distributions are taken (no penalties if over age 59.5); whereas, Roth IRA’s offer investors a non-deductible contribution going in, tax-deferred growth while in, and tax-free income when distributions are taken from; under certain conditions.

  • Withdrawals from Roth IRAs are tax-free if the account has been open at least five years and owner is over 59.5. At any age, after the account has been open five years for any reason one can withdraw the amount(s) contributed (not earnings) without tax or penalties from a Roth IRA. Earnings will be taxable if taken prior to age 59.5.

  • Unlike Traditional IRA’s, there is no age requirement or need to begin withdrawals from a Roth IRA, hence these accounts can be held until death and passed on to spouses, children or other heirs.

    None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Maximizing Your Social Security

Government Pension Offset Rules and Provisions Affecting Your Social Security Spousal Benefits: 

http://www.ssa.gov/pubs/EN-05-10007.pdf

Windfall Elimination Provision Rules and Provisions Affecting Your Own Social Security Income:

http://www.ssa.gov/pubs/EN-05-10045.pdf

https://www.ssa.gov/benefits/retirement/planner/wep.html

Timing is Critical

Imagine that 30 years into your retirement you suddenly found out that you had made a whopping mistake when you claimed your Social Security benefits—a mistake that resulted in your leaving more than $100,000 in benefits on the table.

The unfortunate reality is that electing Social Security benefits is a one-time decision that many people get wrong. They don’t realize that when and how they elect Social Security can have a profound impact on their income for the rest of their lives.

I have software and a program to help you maximize this benefit, Contact me to set up a meeting.

Just how much of an impact can making the right decision make? Let’s look at a hypothetical case study involving a typical couple. This case does not attempt to predict results of any particular investment.

Details

  • John and Jane

  • Both retiring at 62

  • Need $65,000 in after-tax income

  • $600,000 in IRAs

Assumptions

  • IRA grows 6% annually

  • Inflation grows 4% annually

 

Social Security Mistake   

  • John takes his benefit at age 62 - $1,544 per month

  • Jane takes her benefit at age 62 - $1,163 per month

Result

  • IRAs exhausted at age 80

  • Social Security covers 50% of required income

  • Total federal taxes paid $147,000

Social Security Maximized

  • John takes his benefit at 66, then requests a voluntary suspension

  • By default, Jane also now needs to suspend.

  • Jane turns on to her income benefit at age 70 - $2,800 per month

  • John reinstates his benefit at age 70 - $3,718 per month

Result

  • IRAs last until age 87

  • Social Security covers 88% of required income

  • Total federal taxes paid $80,000

*Excerpted from the book Maximize Your Social Security, by Joe Elsasser, CFP®

Many Americans make this mistake every year, leaving tens, even hundreds of thousands of dollars on the table. They don’t realize that how much you receive from Social Security depends on three primary factors:

  1. Your earnings record

  2. When you elect

  3. How long you expect to live

While you can’t go back and change your earnings record, and you have minimal control over how long you live, you are in full control of when you elect your benefits. So, while timing isn’t necessarily everything when it comes to maximizing your Social Security benefits, it’s certainly critical to the long-term health of your finances.

Click on the "Contact Me" link to set up a strategy session today, Let's try to make the most of your benefit.

This material is being provided for general information and educational purposes only as should not be construed as investment, tax, accounting, or legal advice, or used as primary or final determinant of the best strategy for you on how and when to claim your social security benefits. It is strongly recommended that each individual meet with a Social Security representative to address your specific situation. You are encouraged to visit the Social Security Website to utilize the calculators they provide as well: https://www.ssa.gov/prepare/plan-retirement