The majority of seniors look forward to retirement, and the last day of work is often a joyous occasion. All seniors should have a solid financial plan in place before leaving work though. More than 40 percent of seniors have at least one savings account, and a large percentage of seniors have a 401k savings account. Individual retirement accounts are also common among retirees. Some senior citizens receive money from an annuity or a pension and almost 25 percent of private sector workers have a traditional pension. Most seniors have less than $70,000 saved for retirement, and more than 50 percent of senior citizens receive half of their income from Social Security. When you retire, you still need to grow your savings. An investment professional can help you accumulate more wealth.
The Saver’s Credit
If your gross income is less than $30,750, you may qualify for the saver’s credit. For couples, your gross income must be less than $61,500. The tax credit is based on how much money you contribute to your IRA. The tax credit applies to IRA contributions up to $2,000 for singles. The credit applies to married couples contributions that are up to $4,000. The credit is worth up to 50 percent of the amount you contribute to the IRA account.
Tax-free IRA Charitable Contributions
When you turn 70 years old, you usually have to withdraw money from your traditional IRA. You also have to pay taxes on the money as well. You can avoid the distribution tax by transferring the money to a qualified charity. The transfer limit is $100,000.
The MyRA
When you have a MyRA account, you invest in treasury savings bonds and your savings will not decline. The money is transferred to a private IRA account when you have $15,000 in the account. The transfer will also occur when the account is 30 years old.
Employer Contributions and Your Tax Refund
Most companies offer a retirement savings plan. Some employers will match your contribution. If you are going to take advantage of this option, you should make sure that you are fully vested in the company. If you are not fully vested, you may not be able to take the employer’s 401k contribution to another company. When you are selecting funds, you should always consider the expense ratio. You should invest in low-cost funds. Investment fees can reduce your savings. Your annual 401k disclosure statement can help you identify low-cost funds. If you deposit your tax refund into your IRA account, your savings will grow faster. Your tax refund can be deposited into a Roth IRA, traditional IRA or a MyRA.
Tax-Free Retirement Income and Other Investments
If you have a Roth IRA, your savings will not accrue taxes while the money is in the Roth IRA account. If you do not make any withdrawals until you are at least 59 years old and you will not have to pay taxes on the money. The savings account must be at least five years old. Also, you may want to keep some of your investments outside of your retirement accounts and have your bank do portfolio management on them from time to time. Ordinary income is taxed at a higher rate. Long-term capital gains are taxed at a lower rate.
The average retiree lives on less than $20,000 a year, and some seniors are surprised by the unexpected expenses that come with retirement. Medicare is not a comprehensive insurance plan and only covers preventive care, but you will need a more comprehensive health insurance policy. You should also consider the annual inflation rate. If you rent your home, your rental fees will increase every year. Your utility bills will also increase as well.
