Do you feel like it might be too late to start saving for retirement at 50 years old or older?

Debt expert Valentina Wilson is here to get you started with saving and investing, no matter what your age, situation or even your gender.

Calculate how much you need after retirement

The baby step to save and invest in your retirement is to find out how much you might need after retirement.

And therein lies the importance of the safe withdrawal rate! It implies the percentage of your accumulated wealth you can withdraw every year without running out of funds. Financial experts usually consider 4% as the safe withdrawal rate after retirement.

So, you can use a retirement calculator to get an idea about how much money you need after retirement!

Take Advantage of New Retirement Rules for Saving For Retirement At 50 +

Well, you might know that President Trump signed a new law on December 20, 2019. It’s known as SECURE (Setting Every Community Up for Retirement Enhancement) Act. There are a few changes with the retirement rules which can help you, like:

1. You can get an extra 1 ½ years to grow your money in a traditional IRA or 401k without being depleted by distributions and taxes. The Act pushes the age at which you need to take Required Minimum Distributions (RMD) from 70 ½ to 72.
   
2. Previously, contributions to a traditional IRA couldn’t be made after attaining the age of 70 ½. But now, you CAN contribute to your IRA even if you hit the age of 70 ½.
   

So, don’t wait, take advantage of more time you are getting to save for your golden years!

Make up your Time with the Help of Catch-up Contributions

Do you know about catch-up contributions?

Well, if you are 50 or above, you can make additional contributions to your 401k or IRA, known as catch-up contributions.

In 2020, you can contribute $19,500 ($500 more than the limit of 2019) to your 401k. And as you are 50 and above, you can stash $6,500 more as your catch-up contributions. So, in total, you can contribute $26,000 for your 401k.

In the case of an IRA, you can contribute a maximum amount of $6,000 in 2020. And for your catch-up contributions, you can contribute $1,000 more. That means you can contribute a maximum of $7,000 in total for the year 2020.

I would suggest you max up your contributions to your retirement account. This way, you can make up the time to some extent you have lost.

Get Rid of Debts Early

Do you have any outstanding debt?

If yes, then saving for retirement can be a distant dream for you!

Yes, you heard it right! Most likely, a substantial amount of your paycheck gets deducted to pay off your debts. As a result, you won’t be able to save that much for your retirement. So, find the best way to pay off your debts and live a debt-free life ahead! This way, you can live your life stress-free and save a substantial amount for your golden years!

Opt for a Health Savings Account (HSA)

Day by day, health care costs are rising in our country! A 2019 Fidelity report reveals that the average couple in our country will need almost $285,000 for health care costs!

To qualify for an HSA, you need to enroll in a high-deductible health insurance plan (HDHP). Every year, the IRS (Internal Revenue Service) reviews these plans and defines the minimum deductible and the maximum amount for your out-of-pocket expenses.

According to HealthCare.gov, in 2020, the IRS defines a high deductible which has:

• A deductible of at least $1,400 for an individual
  
• A deductible of a minimum of $2,800 for family
  
• Total annual out-of-pocket expenses of not more than $6,900 for an individual and $13,800 for a family.
  

How to use an HSA

So, once you are qualified for an HSA, find out how it works:

• Perhaps the best way to stash your money into your retirement account (other than 401k or IRA) and that’s too tax-free is by opting for an HSA!
  
  Use your money for qualified medical expenses so that you don’t need to pay any taxes. But always remember that once you turn 65, you can take out your money from HSA for any reason. But you will have to pay taxes on it.
  
  
• If your employer offers you an HSA, your contributions are deducted from your paycheck through a pretax payroll deduction. Otherwise, you can deposit into your HSA on your own. But you have to claim them as tax deductions while filing your income tax returns.
  
  
• Your health plan provider will give you a debit card or checks linked to your HSA account. So, you can use the balance for eligible medical expenses.
  
  
• Unused funds in your HSA roll over into next year. Your balance remains the same even if you retire or change your health plan provider.

Conclusions on How to Start Saving For Retirement At 50

The bottom line is, always remember that it’s always better late than never! So, don’t think that you can’t save for your retirement as you have already turned 50!

Follow the above tips to save and invest in your retirement at the earliest. And live happily during your golden years! Happy Women’s Day once again!

The post How To Start Saving For Retirement at 50 + appeared first on Medicare Life Health.

The first time I ever wondered, “What is a Backdoor Roth IRA?” was reading about strategies to pay zero (or lower) taxes in retirement.

A Roth IRA has a backdoor? I had no clue! I just assumed the income level requirements barred anyone making above Roth IRA contribution levels from participating. Not so!

We will look at backdoor Roth conversions in a little more detail; but first, let’s back up a bit and start with some definitions.

To Start, What is a Roth IRA?

A Roth IRA is an investment vehicle that allows you to invest after-tax money now and withdraw it later in retirement tax free.

In other words, you cannot deduct the money you put into a Roth IRA from your tax base the year you put it in. However, if you follow all the rules, you can take all the money (principal and interest) out of a Roth tax-free.

Roth Rules

Roth IRA’s have contribution limits and rules you must follow. To read more about income rules, contributions and withdrawals, please read our article, “Roth IRA Contribution Limits.” In summary, in BOTH 2019 and 2020, your Roth IRA contribution limits are:

• $6,000 for the year.
• $7,000 per year if you are older than 50.

In addition, you can find the official IRS webpage for Roth IRA’s here.

Second, What are the Strategic Uses of a Roth IRA as an Investment Tool?

The purpose of a Roth IRA as an investment tool is to provide a place where your invested funds can grow tax-free. In addition, since you already paid your taxes on your initial investments, you can take out both the money you put in and the interest it accrued tax-free.

These tax free withdrawals are a big deal in retirement. Especially if most of your retirement income is coming from your investments. Every extra dime makes a difference in retirement. Therefore, having access to funds that are not taxed means 10 – 30%+ more cash for you to live off of.

The financial community is always preparing for a rise in income tax levels. Our tax levels have been very low, for a long time. At some point, they are expected to rise. Consequently, it may be better to pay known tax levels on your investments now versus when you withdraw them later at unknown tax levels. A Roth protects you from paying much larger, unknown future amounts of tax by paying taxes now.

Here are Taxable Retirement Accounts:

• Your regular IRA accounts you funded with pre-tax dollars.
• Your social security (Taxed if you have income above a certain amount each year.)
• Any pensions.
• Your real estate income.
• All other mutual funds, stocks and other investments.

These are Your Non-Taxable Retirement Accounts:

• Your Roth IRA withdrawals.
• Any cash loans from qualified life insurance vehicles do not count towards your tax basis. (For example, Whole Life Policies and IUL’s. (Indexed Universal Life).
• A reverse mortgage payment. (Just like cash from a life insurance policy, this is considered a loan and not a distribution.)

Finally, What is a Backdoor Roth IRA Conversion?

Now that you understand how valuable tax-free withdrawals are in retirement, you probably want access to this financial tool.

However, not everyone can use a Roth IRA. If you make more than $124,000 single, or $196,000 married in 2020, you cannot contribute fully to a Roth IRA. Moreover, if you make over $139,000 single, or $206,000 married, in 2020, you cannot contribute at all. Click here to read more on contribution limits.

So, what do you do to get these tax-advantaged withdrawals in retirement? In comes the backdoor Roth IRA conversion. If you make too much money to contribute to a Roth, or if you want to put more money than limits allow, into your Roth IRA, you can use the backdoor.

How Does it Work?

• To start a Backdoor conversion, you first make qualified contributions to a traditional IRA.
• Then, you roll these contributions over to a Roth IRA.
• Of course, you must pay taxes on the contributions when you roll them over.

What Rules Apply to a Backdoor Roth IRA Conversion?

Now, you must pay close attention to the rules set by the IRS when you do a Roth conversion. If you do your conversion incorrectly, you may end up paying more taxes and fees than you bargained for.

First, make sure that you follow Traditional IRA rules for contributions including investing only earned income. Also, make sure you are within the age limits of investing in a regular IRA (70 1/2 as of 2020). Finally, make sure you pay taxes on investments where necessary. Remember, taxes now – at known levels – are better than taxes later – at unknown levels!

Conculsions

Back-door Roth IRA conversions are on the rise as a popular method to lower an investor’s tax basis in retirement. As of now, the government is okay with this as a strategy. We do not know, if this will change at some point, so take advantage of the “backdoor” while you can.

If you are looking for other ways to access tax-free cash in retirement, please read these articles:

• Life Insurance in Retirement
• What is Indexed Universal Life (IUL)?
• Best Retirement Books
• And, of course, Roth IRA Contribution Limits

The post What is a Backdoor Roth IRA Conversion? appeared first on Medicare Life Health.

Introduction

• The government changes Roth IRA contribution limits year to year.
• In this article, you will find Roth IRA contribution rules for 2019 and 2020.
• First, let’s start with a few definitions to make sure we are all on the same page.

What is a Roth IRA?

A Roth IRA is an investment account that allows you to invest after-tax money now, and then withdraw it tax-free later. Moreover, both your initial investments and your interest grow tax-free, and are taken out tax-free, if all the Roth Rules are followed.

In other words, you cannot deduct the money you put into a Roth IRA from your tax base the year you put it in. However, if you follow all the rules, you can take all the money (principal and interest) out of a Roth tax-free.

You can find the official IRS webpage for Roth IRA’s here.

What are the 2019 & 2020 Roth IRA Contribution Limits?

• In addition, if you make less than that amount of money in the year, then you can only contribute the amount of taxable income you had for the year. However, this rule includes your spouse, if you file a joint tax return. In other words, if you don’t make money (or just make a little), but your spouse does, then you can still contribute up to the max levels for both of you. Assuming your spouse makes more than the limits.
• The IRA contributions do not apply to rollovers.
• Finally, contribution limits apply to both of your traditional and Roth IRAs combined. (This is separate from your 401ks held with employers.)

Who can Contribute to a Roth IRA?

You can contribute at any age, as long as you or your spouse earn income that is taxable, and your adjusted income levels are under a certain amount. (Click here to learn what the IRS considers your “Adjusted” income amount.)

2019 Annual Income Roth IRA Contribution Limits

• You can contribute the max limit to a Roth if your income is:
  • Single = Under $122,000
  • Joint-Filed Married = $193,000
• You can contribute a reduced amount if your income is between:
  • Single = > $122,000 but < $137,000
  • Joint-Filed Married = > $193,000 but < $203,000
• You cannot contribute if you make over:
  • Single = $137,000
  • Joint-Filed Married = $203,000

2020 Annual Income Roth IRA Contribution Limits

• You can contribute the max limit to a Roth if your income is:
  • Single = Under $124,000
  • Joint-Filed Married =$196,000
• You can contribute a reduced amount if your income is between:
  • Single = > $124,000 but < $139,000
  • Joint-Filed Married = > $196,000 but < $206,000
• You cannot contribute if you make over:
  • Single = $139,000
  • Joint-Filed Married = $206,000

These are numbers for Married Filling-Jointly, For married filing separately (living with spouse at any time in the year), then you have to make less than $10,000 to contribute in both 2019 and 2020.

Are there Roth IRA Contribution Limits on Age?

Finally, there is no age limit on when you can contribute to a Roth. This is different than a traditional IRA where the age limit is 70.5 years old.

When can I take Money out?

You can start taking your money out of a Roth IRA without any penalties anytime after you turn 59 1/2 years old. Good news for people who want to retire early!

However, you are allowed to withdraw your money at any time. Just be aware of any penalties or taxes you might have to pay if you are withdrawing it early.

But, do I have to take money out?

Unlike Traditional IRAs, you do not have to take money out until after the death of the owner. This is because you have already paid your taxes on this money.

There are required minimum distributions on all other IRAs after 70 1/2 years old. This is because you have not yet paid taxes on this money, and the government wants its taxes!

Further Reading

Please reference the following articles to help you further on your retirement planning:

• The New Rules of Retirement
• The Best Retirement Books
• Life Insurance in Retirement?
• What is an IUL?
• What is Medicare?

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