As estate planning and elder law attorneys, we focus on matters that are of interest to seniors. With this in mind, in this post, we will answer some common questions about individual retirement accounts and retirement planning.
When can you start to receive Social Security?
There are three different options. You can choose to accept an early benefit when you are as young as 62, but it would be reduced by somewhere between 25 percent and 30 percent depending on your birth year.
The reduced benefit is an obvious disincentive, but there is another one that may be even more significant. There is an income limit for people who accept the early benefit, and it stands at $22,320 in 2024.
If you accept Social Security early and you are still working and making more than the limit, your benefit will be reduced by one dollar for every two dollars that you earn above the limit.
Full Benefit
The age for a full benefit is a bit complicated. For people who are not receiving Social Security born before 1955, the age is 66. It goes up by two months per year after that, so someone born in 1955 would be eligible two months after their 66th birthday.
This two-month-per-year graduation reaches its conclusion in 1960 when it reaches 67. People born in 1960 and any year after that become eligible for a full benefit when they are 67 years of age.
Delayed Retirement
You do not have to apply for Social Security when you reach the age of full eligibility. If you hold off, you earn retirement credits that increase your benefit when you finally receive it.
The benefit goes up by eight percent for each year that you delay until you are 70, so there is no reason to delay after you reach this age.
Is the Medicare age the same?
No, under currently existing laws, the Medicare eligibility age is 65 for anyone eligible.
Aren’t all seniors eligible for Social Security and Medicare?
Not necessarily, because you earn eligibility through your payroll or self-employment tax contributions. If you work full-time for at least 10 years, you will earn enough retirement credits to gain eligibility.
A married person who does not qualify could gain eligibility through their spouse’s work record.
When can you make withdrawals from your individual retirement account without being penalized?
You can start to take penalty-free distributions from an IRA when you are 59.5 years old. If you have a Roth account, you are free to withdraw the contributions at any age. However, the 59.5 threshold is in place for removing portions of the earnings without being penalized.
Are you required to take money out of your account if you don’t need it?
A traditional individual retirement account is funded with pretax earnings. The IRS wants to start getting some money while you are still alive, so you have to take required minimum distributions when you are 73 years of age. This will gradually go up to 75.
You make contributions into a Roth individual retirement account after taxes have been paid on the income, so you are not forced to take distributions.
Can you contribute to your individual retirement account indefinitely?
Yes, there is no age limit, and this is a change that was included in the SECURE Act that was passed at the end of 2019.
Previous to its enactment, traditional account holders had to stop contributing to their accounts when they were 70.5 years of age. This was also the age for required minimum distributions. It went up 72 after the SECURE Act was passed.
What are the rules for IRA beneficiaries?
A beneficiary that is a spouse can roll the account into their own IRA or retitle it as an inherited individual retirement account.
Non-spouse beneficiaries do not have the rollover option, and they have to take required minimum distributions. They are taxed if it is a traditional IRA, and distributions to the beneficiaries of Roth individual retirement accounts are not taxable.
Another provision contained within the SECURE Act placed a 10-year limit on the length of time that an inherited individual retirement account can remain open.
If I need nursing home care after my active retirement years are over, Medicare will pay for it, right?
The Medicare program will pay for convalescent care after injury or illness when recovery is anticipated. However, if you reside in a nursing home, there is a different designation in the healthcare arena.
This is considered to be custodial care, and licensed in-home health aides provide custodial care as well. This type of assistance is not covered by Medicare, so this is not the solution.
How expensive is long-term care?
You definitely do not want to be faced with the prospect of paying for a stay in a nursing home out of your own pocket. We practice in Warren, New Jersey. According to Genworth Financial, the median annual charge for a private room in a nursing home in our area is over $167,000.
According to research that has been conducted by the United States Department of Health and Human Services, the average stay is approximately one year. About 13 percent of seniors who receive paid care require assistance for more than five years.
Is there any way to protect your assets from nursing home costs?
Yes, you could work with our firm to obtain Medicaid eligibility. This program will pay for long-term care, and you can limit your countable assets by establishing an irrevocable Medicaid trust.
You would no longer have access to the principal, but you could continue to receive distributions of the trust’s earnings. As long as you fund the trust at least five years before you apply for Medicaid, the assets will not count.
Schedule a consultation today!
As you can see, there are a lot of things to take into consideration when you are preparing for your senior years. If you take control well in advance, you can map out a plan that will enable you to enjoy your golden years as you preserve your legacy for your loved ones.
The first step is to schedule a consultation at our Warren, NJ estate planning and elder law office, and you can do that by calling us at 908-222-8803. You can alternately use our contact form to send us a message, and if you reach out this way, you will receive a prompt response.
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