Age 49 and under. 401K contributions are limited to $17,500 in 2013. Traditional IRA and Roth IRA contributions limits are $5,500.
The income limit (AGI) for contribution to a Roth IRA in 2013 has a phaseout range from $178,000 to $188,000 for married-filing-jointly taxpayers and $112,000 to $127,000 for single taxpayers.
The income limit to make a tax-deductible contribution to a Traditional IRA in 2013 has a phaseout range from $95,000 to $115,000 for married filing jointly (if covered by an employer retirement plan also) and $59,000 to $69,000 for singles. If you are not covered by an employer retirement plan, tax-deductible contributions can be made up to $178,000 of AGI for married filers.
Age 50 and over. 401K contributions are limited to $23,000 with catch up provision. IRA or Roth IRA contributions levels are $6,500 with catch up provision.
Age 55. If you leave your job after age 55, you can begin to take 401K distributions from your former employer’s plan without paying any penalties. Income tax will still be due on the amount of the distribution.
Age 59½. Distributions from IRAs may be made without penalty. Income tax will still be due.
Age 61. Think about when you want to retire and determine when you want to start receiving Social Security if you will be eligible for it. The most likely reasons to start receiving it are: lack of employment or under-employment, lack of income from investments, or a shorter-than-average life expectancy.
Age 62. Eligibility for Social Security begins. The Social Security Administration no longer sends an annual estimate of your expected benefits. You will have to access the estimate at www.ssa.gov. Your Social Security benefit will be permanently reduced by 25-30% if you begin payments at 62 instead of your Full Retirement Age (FRA). Keep in mind that starting Social Security early may also reduce benefits available to your spouse by as much as 35%. And if you continue to work while you receive Social Security, your benefits will be reduced by one dollar for every two dollars you earn over $15,120 in 2013.If you were born on January 1st, you should refer to the previous year.
- If you were born on the 1st of the month, we figure your benefit (and your full retirement age) as if your birthday was in the previous month. If you were born on January 1st, we figure your benefit (and your full retirement age) as if your birthday was in December of the previous year.
- You must be at least 62 for the entire month to receive benefits.
- Percentages are approximate due to rounding.
- The maximum benefit for the spouse is 50% of the benefit the worker would receive at full retirement age. The % reduction for the spouse should be applied after the automatic 50% reduction. Percentages are approximate due to rounding.
Age 65. Medicare eligibility begins. From three months before you turn 65 to three months after you turn 65 you may sign up for Medicare Parts A, B and D. Sign up for Medicare Part D (prescriptions) from October 15 until December 7. If you (or your spouse) are covered by an employer-paid health plan, you have eight months after you retire before you will have to pay a penalty to join Medicare.
Age 66 or 67. Considered Full Retirement Age (FRA) for Social Security recipients. If you were born before 1954, you are eligible at age 66. From 1955 to 1959, your FRA increases from 66 years and 2 months to 66 years and 10 months. If you were born in 1960 or later, the FRA is 67. At FRA you can still continue to work without receiving reduced Social Security benefits.
Age 70. Last year to receive deferral credit for postponing receipt of Social Security benefits. There is no reason not to take Social Security at this point. If you continue to work, and your earnings are higher than previous inflation-adjusted earnings, your Social Security benefit will continue to be increased even if you are already receiving it.
The year you reach 70½. (Or, more precisely, April 1st after the year that you turn age 70 ½). Distributions from IRAs, and other tax-deferred retirement plans like 401K and 457 plans (except Roth IRAs) must be started. The distribution amount will be determined by dividing the total value of all tax-deferred retirement accounts as of the previous December 31 by your life expectancy using IRS tables. If you fail to take this distribution, or your distribution amount is less than the minimum required, the tax penalty is 50% of the amount you failed to remove from the account.
~ Allyn Hughes, CFP, CLU, ChFC — Brooks, Hughes & Jones, Partners in Wealth Management — Tacoma, WA
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U.S. debt fuels flames of the “ring of fire”
The economy was front and center Wednesday night as President Obama and challenger Mitt Romney took the stage in Denver for the first debate of this election season. No doubt subsequent debates will center on other issues, but I suspect that the economy will be incorporated into every event because “it” is the subject of this election.
Yesterday a copy of this month’s Investment Outlook written by Bill Gross crossed my desk. Bill Gross, as many of you know, is the Founder (1971) and Managing Director of PIMCO mutual funds. He could be called a “bond guru” as he manages hundreds of billions of dollars that are invested in an assortment of bond instruments. His opinions are backed up by performance and experience. When he says, “I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them”… well this gets my attention.
Gross has been studying the annual reports of the International Monetary Fund (IMF), the nonpartisan Congressional Budget Office (CBO) and the Bank of International Settlements (BIS), which describe the financial balance sheets and prospective budgets of many nations. He compiled all three studies into one “ring of fire” illustration to show relative financial health of the various countries. In the relative healthy ring are Brazil, China, Mexico, Canada and Russia. In the unsustainable “ring of fire” are Spain, Greece, Great Britain, and…you guessed it, the United States. We are second only to Japan in the developed world.
To close this “fiscal gap” would require a combination of increased revenue and decreased spending amounting to $1.6 trillion per year. “We need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to ten years.” So far the President and Congress haven’t even been able to agree on a solution that arrived at one-fourth that amount. And if one were to add in the unfunded future liabilities posed by Social Security, Medicare and Medicaid, the actual debt of the U.S. is a whopping four times higher than the $16 trillion we hear on the news.
To quote Gross, “the U.S … has been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult … If the fiscal gap isn’t closed even ever so gradually over the next few years … the damage would likely be beyond repair.”
The complete Investment Outlook including the graphic “ring of fire” is available here.
I sense we as a culture are facing a time of mutual sacrifice on the order of World War II. Every citizen is going to feel the pain for us to get out of this fiscal mess. It can be done. I’m listening to see if any of the candidates has the “nerve” to speak this truth. Our future depends on honest leadership. We as a people are up to it, but we don’t have the leisure of waiting. It is our turn at bat.
~ Nancy Jones, CFP® – Brooks, Hughes & Jones – Partners in Wealth Management, Tacoma, WA
www.BHJadvisors.com
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