Early IRA Withdrawals

Larriva-WEBAs you approach retirement, conventional wisdom is to spend down taxable assets and delay IRA & 401k withdrawals until the Required Minimum Distributions (RMDs) begin at age 72. This can be an effective strategy. Yet, in many situations, it may be better to start early IRA withdrawals.

Counter-Intuitive Advice and Early IRA Withdrawals

When does this counter-intuitive strategy make the most sense? It’s relative to your marginal income tax-brackets over a seven- to 10-year period.

For example, a married couple both age 62 can earn up to combined income $106,150 (gross) before the $25,100 standard deduction and still be in only the 12 percent marginal federal tax bracket. If they have $800,000 in IRA/401ks, they can withdrawal some of that money and still be in a low marginal bracket.

If that couple waits until age 72, those retirement assets with 7 percent growth may double to about $1.6 million, and RMDs would start at $62,800 per year. That RMD income along with $57,000 per year for Social Security would put them in a 25 percent marginal tax bracket in the future. (See table.)

Another trap is related to future Medicare premiums (Part B), which typically begin at age 65. The more income you have in retirement, the more you will pay in Medicare premiums. If your adjusted gross income plus municipal bond interest is more than $176,000 for a married couple, then monthly Medicare can increase from about $148 monthly per person up to $505. Paying attention to the nuances in Medicare rules could save a couple up to $8,500 per year.

early IRA withdrawalsDetermining the best time for retirement distributions can be complicated. It’s smart to come up with a plan before you hand in your resignation. Your Perspective advisor will crunch the numbers and help you create the optimal strategy.

By |2021-08-16T13:12:45-07:00September 6th, 2021|Advisors, Health Care, Retirement, Taxes|

Long-Term Cost Planning

Did you know that spending often decreases at retirement? One reason is simply that our habits and desires may change. According to Genworth’s annual Cost of Care Survey, people spend less on transportation, vacations and food as they age. They often spend more on donations and gifts. Health care costs also consume a larger percent of spending as we age. That’s why long-term cost planning is critical. Understanding and planning for long-term needs can help you make the most of your finances today, while providing for your comfort and security down the road.

Unexpected events can also lead to a significant drop in spending. For example, a layoff or health event that causes early retirement can lower lifetime resources and force spending cutbacks.

Planning for expected and unexpected changes in your income and expenses down the road will help you maintain your desired lifestyle. There are many elements that inform such planning, such as:

  • Pensions, retirement accounts, other potential future income
  • Disability and long-term-care insurance
  • Medicare, Medicaid, private insurance
  • Projected inflation, rising costs of care

Most people will require some level of support services later in life. About 60 percent of seniors will need a cane, walker or wheelchair to remain mobile, according to the U.S. Health and Retirement Study (an ongoing project of the University of Michigan’s Institute for Social Research). And 20 percent will need help with bathing, eating and dressing. Cognitive decline will require more intensive care.

Knowing the full range of potential costs have been considered as part of your long-term financial plan creates peace-of-mind for you and your loved ones.

Long-term cost planning is part of our Core Client Services. That’s the value of Perspective.

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New Employee Healthcare Option for Small Business Owners

new employee healthcare optionHealth reimbursement arrangements (HRAs) are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses. Just like there are many types of qualified retirement plans, there are many types of HRAs. Effective January 1, the federal government has enacted new HRA rules that will be especially beneficial for small business owners in offering a new employee healthcare option.

Individual Coverage HRAs can now be used to reimburse premiums for individual health insurance chosen by an employee, in addition to other medical care expenses. This promotes employee and employer flexibility, while also maintaining the same tax-favored status for employer contributions toward a traditional group health plan.

The new rules also increase flexibility in employer-sponsored insurance by creating another, limited type of HRA that can be offered in addition to a traditional group health plan. These Excepted Benefit HRAs permit employers to finance additional medical care (e.g. to help cover copays, deductibles or other expenses not covered by the primary plan) even if the employee declines enrollment in the group plan.

Want more information on this new employee healthcare option? This HRA document from the U.S. Department for Human & Health Services may be helpful. You can also your advisor with any questions.

By |2020-03-18T11:01:58-07:00March 25th, 2020|Health Care, Insurance, Small Business|