Our daily roundup of retirement news your clients may be thinking about.
High-earning seniors are advised to carefully plan when they file for Social Security benefits and consider distributions from taxable and tax-deferred retirement account to avoid a big increase in taxable income, according to this article from Morningstar. That's because the bump could lead to stiff premium surcharges for Medicare Parts B and D. Seniors who received more than $85,000 in modified adjusted gross income ($170,000 for joint filers) would face as much as $294.60 in monthly surcharges.
Early retirees who want to maximize their nest egg should take advantage of the Rule 72(t) distributions so they can tap into their IRAs without paying any penalty, according to this article on CNBC. They may also withdraw from their Roth IRA, as distributions from this account is non-taxable, or tap their taxable accounts, which have no restrictions on withdrawals. "When you retire, using funds from a taxable account first and allowing tax-deferred money to continue to grow for a few more years, when you could potentially be in a lower tax bracket anyway, can be very impactful," says an expert.
Even with the help of a financial adviser, saving for retirement would be difficult if clients don't have any clear goals, according to this article on Kiplinger. To clarify their retirement goals, clients are advised to know who would benefit from their savings and what activities they intend to pursue in the golden years. They should also decide whether to spend away their savings before they die or leave something behind for their loved ones, as well as prepare in case their spouse becomes ill or handicapped.
Contributing more cash to an IRA than the annual contribution limit could be costly, as excess contribution would mean 6% extra tax, according to this article on Motley Fool. Clients who withdraw the excess money before filing the tax return won't face this tax liability, while those who missed the date may file an amended return by Oct. 15 to pull out the money, which would trigger an income tax bill plus 10% early withdrawal penalty. While 10% is bigger than 6%, clients should remember that they will face this 6% extra tax for every year they keep the money in the account.
While most Americans feel that the country is facing a retirement crisis, many experts hold a different view, saying that retirees are more financially secure than what most people think, according to this article on CNBC. "The retirement savings crisis has definitely been oversold," says an actuary. "A good indication of this is that pre-retirees have a significantly higher level of concern about whether they are financially prepared for retirement than is the case for retirees."
