HOW TO SAVE FOR RETIREMENT AFTER AGE 70

For most of us, we live the first 18-21 years of our lives without worrying about where things come from. From the moment we are born we are provided food, shelter, and love. Soon thereafter, we realize we must work really hard and long hours to cover the basic necessities and to buy the things we really want.

Most people spend 20-30 years working before considering retirement. If we are lucky and smart, we’d have listened to the wise advice of saving for retirement by investing some of that hard-earned money.  This article touches on some of the options available to saving for retirement. 

Here are some options:

• ROTH IRA & ROTH 401(k)
• TRADITIONAL 401(k) & 403(b)
• SEP (Simplified Employee Pension) IRA
• HSA (Health Savings Account)

Contributions to a retirement account if you are still working after age 70 can enable a senior to access tax benefits and possibly reduce tax burdens. If still earning income, contributing to a ROTH IRA, 401(k) or 403(b) plan, SEP-IRA or a (HSA) health savings account (if not enrolled in Medicare) are tax-advantaged opportunities.

ROTH IRA: Federal tax law allows you to contribute to a Roth IRA when income limits are met and you have earned compensation whether in a regular paycheck or contract work  via a 1099. In 2018, working persons over age 50 can contribute up to $6,500 (this includes a 1,000 catch-up contribution) to a ROTH IRA. You may be able to contribute an additional $6,500 for a non-working spouse if your earned income is greater than $13,000. You can’t contribute more than you earn!

Because ROTH IRA contributions are made with after-tax dollars, the money can be withdrawn tax-free without penalties. Any growth or earnings in the account and distributions made in retirement is free from federal taxes. ROTH IRA’s are not subject to RMD’S (Required Minimum Distributions) after age 70 and a half which means the money can continue to grow in the account, generating tax-free earnings. 

Another benefit is tax-free ROTH IRA money for your beneficiaries after you die. Please discuss with an estate-planning professional before making the ROTH IRA part of an estate plan.

401(k) and 403(b): You can continue contributing annually to your employer’s 401(k) plan or 403(b) for as long as you’re employed regardless of your age. For employees over 50, the 2018 contribution limit is $18,500 plus $6,000 in catch-up contributions for a grand total of $24,500. Be mindful that your employer may offer both a traditional and a Roth 401(k), however, a traditional 401(k) offer tax deferral and a Roth 401(k) is similar to a ROTH IRA, in that you contribute after-tax income and won’t owe taxes when making withdrawals from the Roth 401(k). 

A ROTH 401(k) is subject to RMD’s (Required Minimum Distributions)! Required Minimum Distributions (RMD’s) on both the traditional and Roth 401(k)s kick in after leaving your employer.

A few things to consider when debating whether to contribute to a Roth 401(k) or a Roth IRA:

1. Contribution limits are higher for a Roth 401(k)
2. A Roth 401(k) has no income limit for eligibility
3. After a 5-year aging requirement has been satisfied and at least one of the required four conditions are met for withdrawals (age 59 and a half, death, disability or qualified first-time home purchase), withdrawals from a ROTH IRA are tax and penalty free.
4. You are not required to take an annual RMD from a Roth 401(k) until you leave your employer.

SEP IRA (Simplified Employer Pension): A tax-advantaged retirement savings plan for self-employed people and small businesses. You are allowed to contribute after age 70 but must begin taking RMD’s once you attain age 70 and a half. In 2018, the annual contribution limit for a SEP IRA is $55,000 or 25% of eligible income, whichever is less.

HSA (Health Savings Account): Annual pre-tax contributions for qualified medical expenses. However, if you are enrolled in Medicare, you are not eligible to contribute to an HSA.  The 2018, you can contribute a maximum of $10,900 to an HSA if age 55 or older unless enrolled in a family plan. If over age 65, all withdrawals from your HSA are penalty free and federally tax-free when used to pay for qualified medical expenses.

• Taxation of HSA contributions and withdrawals may vary by state, please consult your tax advisor on whether or not an HSA is beneficial to you.  ​