As we begin 2019, we wanted to outline the updated contribution limits and several age milestones which will present potential planning opportunities in the coming year. But before you read further, please click here for LJI Wealth Management’s 4th Quarter Market Review and be sure to read pages 18-20 on diversification and the “lost decade”.
Common Contribution Limits
Traditional & Roth IRA’s – Increasing to $6,000/yr; catch up contribution of $1,000/yr for those age 50 and older.
- For the Roth IRA, you can make a full contribution if your income is under $122,000 for a single tax filer and less than $193,000 for married filers.
- Conversely, if you are a single filer and make more than $137,000, or married making more than $203,000, you cannot make any contributions to a Roth IRA (phaseout ranges apply for partial contributions).
- For Traditional IRA’s, the amount you can deduct from your taxes is a bit complicated depending on whether you or your spouse are covered under an employer-sponsored plan, as well as your income level.
401(k) Plans – Increasing to $19,000/yr; catch up contribution of $6,000/yr for those age 50 and older (also for Solo 401k, 403b, and most 457 plans).
SEP IRA’s & Solo 401k’s – For the self-employed and small business owners, the amount you can save in a SEP IRA or a Solo 401(k) is $56,000 for 2019 (up from $55,000 for 2018).
SIMPLE IRA’s – The contribution limit for SIMPLE IRA’s is increasing to $13,000. The SIMPLE catch-up limit is $3,000 for those reaching the age of 50 in 2019.
Health Savings Accounts – Contribution limits for Health Savings Accounts (HSA’s) are $3,500 for individuals and $7,000 for families. HSA’s are beneficial for those with qualifying health insurance plans. The contributions can be tax-deductible while money coming out for qualified health expenses are tax-free. If the money in an HSA is not used for health care related needs prior to age 65, it can be used for non-medical reasons and the account holder will pay taxes on withdrawals. If they are used for medical expenses after age 65, the distributions are still tax-free. This can be a great tool to help pay for Medicare premiums in retirement as well as long-term care expenses.
Other Important Age Milestones
Age 50 – You can increase your annual contribution to your 401k by $6,000, while those contributing to a Roth or Traditional IRA can add an additional $1,000. With retirement rapidly approaching, this offers a great opportunity to supercharge your savings.
Age 55 – If you have a 401k that is still with a past employer, you may be able to access it without the 10% early withdrawal penalty. Keep in mind you will still pay ordinary income tax on the withdrawals, but this could help you bridge the gap until you’re eligible to draw from IRA’s or Social Security. If this is something you’re interested in, check with your plan sponsor to see if it is an option in your plan.
Age 59 ½ – At this point you’re able to withdraw money from your IRA’s without paying the 10% penalty for being under age 59 ½. While there is no penalty, the withdrawals will still be taxed as ordinary income unless they are an eligible distribution from a Roth IRA or the basis from a non-deductible IRA.
Age 60 – You may be eligible for Social Security Survivorship Benefits if you are a widow or widower.If you are eligible, be aware that taking SS at the soonest eligible date will reduce your benefit by as much as 28.5%.
Age 62 – You’re eligible for reduced Social Security, however, like the Survivorship Benefits mentioned above the amount will be permanently reduced by up to 25%. You will likely want assistance analyzing whether taking Social Security early at a reduced benefit makes sense within the context of your overall financial plan, health, etc.
Age 65 – Medicare is now part of your overall health care decision. You’re given a 7-month window to enroll (3 months prior to your 65th birthday, the month of your birthday, and 3 months following that month). If you happen to be contributing to a Health Savings Account, you’re no longer able to do so. The upside is that you can take money from the Health Savings Account for any reason without penalty. Taxes on withdrawals will still apply. It’s also important to consider the numerous Medicare Supplements that are available. While choice is generally a good thing, there can be a lot of confusion as to the type of coverage you need, and the costs involved. We can put you in contact with a trusted expert who can assist you.
Aside from Medicare being an important milestone, any Disability Income policies should be reviewed if you’re still working (or if you’re collecting benefits). Many benefits will stop paying at age 65 and coverage generally ends at that time.
Age 66 – This is considered full retirement age (exact age varies by birth date) and you are entitled to your full Social Security Benefit at this point. If you’re still working, or do not need the income, it’s worth analyzing whether you should begin taking benefits since taxation and increased benefits for waiting could be a factor in your decision.
For those who haven’t done so, we recommend reviewing your Social Security statement on an annual basis. You can now create an online login at https://www.ssa.gov .
Age 70 – Even if you’re still working, this is the age that will give you the maximum Social Security payout. Benefits no longer accumulate after this point.
Age 70 ½ – While age 59 ½ allows you to access your IRA penalty free, age 70 ½ means you must start taking Required Minimum Distributions from your retirement accounts such as IRA’s and 401K’s (no need to take from your Roth IRA).There is some flexibility with regards to your first distribution, but we recommend you talk with us and your tax advisor in order to make an informed decision.If you are charitably inclined, there are some planning techniques that can be incorporated with this distribution as well.
Should you or your loved ones have any questions regarding the above, please do not hesitate to contact LJI.Best wishes for a safe & prosperous New Year.
Sincerely, Your LJI Team