For the first time since 2013, the IRS is raising the contributions limits for IRAs. The maximum contribution for 401(k) accounts and IRAs is increasing by $500 for 2019. If you have not already done so, now is the time to plan for contributions into your retirement accounts in 2019. Check out the tables below for the new contribution limits and Social Security increases:
Retirement Contribution Limits
Retirement Program
2019
2018
Change
Age 50 or older
catch up
401(k), 403(b), 457 plans
$19,000
$18,500
+$500
add: $6,000
IRA: Roth
$6,000
$5,500
+$500
add: $1,000
IRA: SIMPLE
$13,000
$12,500
+$500
add: $3,000
IRA: Traditional
$6,000
$5,500
+$500
add: $1,000
Social Security
Item
2019
2018
Change
Wages subject to Social Security
$132,900
$128,400
+$4,500
Annual Social Security
employee tax:
$8,239.80
Average estimated monthly
retirement benefit
$1,461
$1,422
+$39
Don’t forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.
You’ve done your retirement homework. Your assets are reviewed, you know your financial needs, and your retirement tax plan is in place. Are you ready to enjoy retirement? Probably, but not without a plan to address what happens to many after they retire – boredom. Here are some ideas.
Go to school. Many colleges and communities offer classes for retired students. Pick topics of interest and take advantage of this cost-effective way to stay alert through learning. Examples could be local history classes with field trips, photography classes, writing and gardening. As an added benefit, you will meet others with your shared interest while you continue learning.
Pick up part-time work. Consider picking up a few hours at a local retail establishment. The work can be rewarding and provide some additional spending money.
Many retirees volunteer at libraries, museums and parks. Others volunteer at their local church, deliver meals and help young people with literacy. The possibilities are endless.
Schedule physical activity. Staying physically active will keep your body and mind in shape. Create a weekly routine that keeps you moving. Volunteer to take the grandkids to swimming lessons while the parents are working. Bike or walk to do everyday chores.
Look for combinations. With a little creativity, you can combine some of these ideas. For example, if you coached your kids in soccer, why not consider refereeing kids games? You might earn a little pay while staying connected with kids, and getting some physical activity.
Stay Connected. When you retire, many of your social connections will change. This is especially true for work connections and availability of friends that are still working. Look for other ways to make new connections. Participate in community events. Reach out through volunteer efforts to meet new people.
Test out your dreams. If you’ve always dreamed of moving to a new place in retirement, you may want to test-drive it first. A dream move may turn out to be different than you anticipated. You may miss your kids and friends. Services and connections you take for granted may become a problem. By renting a place and staying in the new location prior to committing, you will be prepared with a fallback plan if it does not work.
These are but a few ideas to help transition into a satisfying retirement. There are many resources to provide additional ideas.
If you reached age 70½ last year, April 1 could be an important deadline. It’s the last day you can take your required minimum distribution (RMD) for 2017 from your traditional IRAs. If you miss that deadline, the penalty may be a 50 percent excise tax on the amount you should have withdrawn.
How the rules work
Once you reach age 70½, you must start taking annual distributions from your traditional IRAs. Normally these distributions must occur by Dec. 31 of each year. But a special rule lets you defer your very first RMD until April of the year after you reach age 70½. So if you turned 70½ last year, April 1 is the deadline for your 2017 distribution. Be aware that you’ll still need to take your 2018 RMD before the end of this year. Note that RMD rules don’t apply to Roth IRAs.
Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than 10 years younger than you are.
RMDs and tax planning
Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally you should start planning for RMDs several years before you reach age 70½. But whether you’re planning in advance or looking at a distribution on April 1, contact our office for more detailed advice.
If you’re still working, this deadline may also apply to your other retirement accounts.
Once you reach age 70½, the IRS imposes required minimum distribution (RMD) rules that say you have to withdraw at least a minimum amount from your retirement plans each year or face stiff tax penalties. Since the withdrawals are considered ordinary income, planning in advance can help you prepare for the impact on your federal income tax return. Here are two suggestions to help you avoid surprises and avoid unnecessary costs.
Make a list of your accounts.The rules require an RMD calculation for each plan. With traditional IRAs, including SEP and SIMPLE plans, you can take the total distribution from one or more accounts, in any amount you choose. You can also take more than the minimum. However, withdrawals from different types of retirement plans can’t be combined to meet the minimum distribution threshold. Say for instance, you have one 401(k) and one IRA. You have to figure the RMD for each and take separate distributions. Failing to take distributions from each type of plan, or taking less than is required, could result in a penalty of 50% of the shortfall.
Pay attention to the date distributions must begin.The general rule says you must withdraw your RMD by December 31, starting in the year you turn 70½. The rules provide one exception: You have the option of postponing your first withdrawal until April 1 of the following year. This can be important if your RMD will increase taxable income enough to put you in a higher tax bracket. For example, if you plan to retire on your 70th birthday, which falls in the first half of the year, and you get a substantial retirement bonus. Postponing the first withdrawal until January of the next year can help you avoid a large increase in your income during the year you turn 70.
Delaying income can be a sound tax move. But because you’ll still have to take your second distribution by December 31, you’ll receive two distributions in the same year, which can increase your taxes. It’s important to plan carefully and know what to expect so that you won’t be hit with a higher tax bill than you may be prepared for, whenever you decide to take your first RMD.
Contact us before year-end to discuss your retirement plan distributions. We can help you create a sound plan that keeps you in control of your tax situation.
Did you inadvertently miss the 60-day time limit for making an IRA or retirement plan rollover? You may be able to avoid taxes and possible penalties by notifying your account trustee with a “self-certification.”
When you take a distribution from your IRA or qualified plan with the intention of depositing it, or “rolling it over,” into another IRA or qualified plan, the 60-day rule says you’re required to complete the rollover within 60 days of receiving the distribution. In the past, when you missed the deadline, you generally had to request relief from the IRS. That meant paying a fee and going through a process to obtain a written statement waiving the rule.
Now, the IRS says that in some cases you can “self-certify” by submitting a written letter to your financial institution or trustee explaining why you missed the 60-day deadline. Your error must be one of eleven allowable reasons, such as death or serious illness in your family, severe damage to your principal residence, or misplacing and never cashing the distribution check.
After your death your retirement accounts, life insurance policies, annuities and accounts at financial institutions will be governed by beneficiary designations already in place. If those designations are outdated, unspecific or wrong, your assets may not be distributed the way you would like.
All the funds from your retirement accounts, life insurance policies, annuities and accounts at financial institutions are governed by the beneficiary designations in place at the time of your death. If those designations are outdated, unspecific or wrong, your assets may not be distributed the way you would like. Make sure these assets reach the individuals and organizations you choose by following these guidelines for assigning beneficiaries:
Be specific and stay current. If you name a beneficiary, your assets can pass directly to that person or entity without going through a legal process called probate. Remember to update these designations, if necessary, following life events such as divorce, remarriage, births, deaths, job changes and retirement account conversions.
Think about unexpected outcomes. Be alert to the effect of taxes and try to avoid unintended consequences. For example, if the money in your accounts is distributed directly to your heirs, they may be stuck with a large unexpected tax bill. For wealthier heirs, estate tax may also play a role. In 2016, the estate tax exclusion is $5.45 million and the top estate tax rate is 40%. Another concern: If one of your designated beneficiaries is disabled, his or her government benefits may be reduced or eliminated by the transfer of assets. You may want to consult an attorney to establish a special needs trust to ensure your loved one is not adversely affected by your generosity.
Name contingent beneficiaries. If your primary beneficiary dies or is incapacitated, having a backup (contingent) selection named will ensure that your assets are properly distributed. In some cases, a primary beneficiary may choose to disclaim, or waive, the right to the assets. In that case, contingent beneficiaries can step up to primary position.
Practice good record keeping. Keep your beneficiary designation forms in a safe location, and maintain current copies with your financial institution, attorney, or advisor.
Beneficiary designations are an important part of estate planning. If you keep them up to date, well planned and carefully organized, you can be confident that your assets will reach your intended beneficiaries and be a valuable legacy for your loved ones.
