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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Retirement is changing, whether you like it or not… whether you are prepared for it or not. Let’s lay down the new rules of retirement and how to follow them, bend them and break them for your needs.

This is the introduction article to our New Series: The New Rules of Retirement. The Next Article in the Series is Jobs For Retired People.

Rethinking Retirement

You have the freedom to define the word “retirement” to best suit you and your needs. Retirement might have been cut and dry for the previous generations, but it is all over the board for those pondering it now.

We all know the old playbook – put in your time at a company – retire after 40 years – receive your pension and social security. This playbook was scrapped for many in the baby boomer generation on. Events beyond our control may have set us back or have caught us off guard.

Depending on if this happens to you later in life or earlier in life, there are still ways to enjoy a “retirement.” Moreover, some might find the new ways of providing for retirement even more fulfilling than the old ways.

A Case Study in The New Rules of Retirement: The “Average American”

Let’s say that you are the “Average American” who is of retirement age. (We are talking – the most average of average.) You decide to retire at 66, the current full age of retirement. Right now, the average Social Security check for the Average American is $1,461 a month.

In addition to Social Security, the “Average American” will have about $172,000 in retirement savings at age 66. This is based on a (median estimate instead of average).

Then, let’s assume you made about $60,000 a year in your last years, and you are about to retire today. You estimate that you will need about 70% of that amount to live in retirement. So, you need $42,000 a year, or $3,500 a month to fund your modest American retirement. (This is all in current dollars, not future money for this example.)

To be reasonably safe, we will assume you will live to about 90 years old and your savings will stay in the stock market with a 5% rate of return in conservative investments.

Just How Screwed/Set are You – The “Average American”?

If you live to 90, for this case study, the math says you will need about $470,000 in savings to compliment your social security (in today’s dollars). However, you only have $172,000. In this scenario (living off of $42,000 a year) you are short $298,000.

You will have $2,205 a month to spend instead of $3,500
= a deficit of $1,295 a month.

This adds up to living off of $26,460 (including social security) instead of $42,000.

Plus… TAXES!

On top of this, we have not even taken into account taxes! Depending on how much you withdraw each year, and where you have your money stashed (401k? Roth?), you may need to pay taxes on your retirement income. Austin, at The Logic of Money, does a good job on quickly breaking down retirement taxes in this article here.

So, What Do You Do?

Many Americans will accept their fate and live on their fixed income, or they may decide to stay in their full-time job longer. However, that does not need to be you! Being retired does not need to be a do nothing sentence.

In Comes the New Rules of Retirement

The New Rules say you can make up the difference by making passive income and participating in side jobs. (This is what the kids call side hustling!) Moreover, you can still maintain your retired status find ways to do things you love (or hopefully come to love).

With your side job, you can showcase your skills/expertise or learn a new skill. You only need to make about $1,300 a month, so there the pressure is revealed to find something that just “pays the bills.” Retirement is a time to spend time doing things you enjoy with people you enjoy. You can tailor your experience to meet your needs with a little bit of planning and initiation.

The new rules of retirement say you have the freedom to define the word “retirement.” You can still be retired and bring in extra income in our new economy.

Passive Income and Side Jobs for Retirement

Our next articles in our New Rules of Retirement series will help you explore all the avenues of making extra money. We will explore traditional jobs as well as new jobs available to retirees who need a little extra income.

READ IT HERE: Jobs for Retired People

You can also get a jump start by reading about our favorite retirement money books here.

The post New Rules of Retirement appeared first on Medicare Life Health.

For those of you that are near retirement, but not quite there, this is your crunch time. Your money should be working in overtime by the time you are 5 to 10 years away from leaving employment. So, let’s look at some of the best retirement books that will give you the most return on your hard earned investments.

Even the busiest of individuals should spend at least a couple hours with each of these books as they have the potential to not just help you save money, but potentially earn thousands of dollars more.

It should be your goal to not only take advantage of your best earning years and best investing years, but to also use this time to set yourself up for the most advantageous tax situation possible. All of this can mean the different between a comfortable retirement and an excellent one.

Don’t want to “read”? Then listen instead!

If you are “not a reader” I would encourage you to consider listening to these books. With an Audible account, you can knock a book out a week on your daily commute. Medicare Life Health readers can get two Audible books free by clicking on this link!

The Power of Zero by David McKnight

The Power of Zero, Revised and Updated: How to Get to the 0% Tax Bracket and Transform Your Retirement by David McKnight is one of the best retirement money books out there. You could even get away with reading it in retirement to take advantage of some of McKnight’s financial recommendations.

McKnight is an expert on putting your money in the right financial accounts to get you to a place where you can keep your taxes as low as possible in retirement. He will even teach you how to structure your savings and withdrawals to keep you in the zero percent tax bracket! Even if you have thousands or millions of dollars saved to enjoy in retirement.

The best parts of this book are:

• It’s short and to the point – but packed with information.
• It gives you a game plan that is very doable for the “average retiree.”
• However, it is a different way of thinking. McKnight teaches a unique solution to how to structure your retirement accounts to keep taxes low.

Bonus Books by David McKnight: Look Before You LIRP: Why All Life Insurance Retirement Plans Are Not Created Equal, and How to Find the Right One for You

This book goes into more detail on one particular retirement finance vehicile: IUL’s or Indexed Universal Life Insurance. We have an article that introduces you to IUL’s as well. They are a good option for people that are looking for another tax advantaged way to save/use money in retirement.

You Can Retire Sooner Than You Think by Wes Moss

I like that this book is one part psychology, one part finance. Wes Moss very much wants you to be HAPPY in retirement. However, no specific amount of money saved up will make you happy. What you can do, to help in the happiness department, is to make lifestyle and money choices now that will ensure a base level of happiness later.

In addition to sharing profiles and attributes of happy retirees, Moss has five helpful money secrets of happy retirees to share with you. He distilled these secrets from his listeners on his popular radio show and also from his clients as is a financial adviser. These secrets are not revolutionary. However, they will give you a great place to start preparing for retirement. This is true especially if you are ten years out or less.

The best parts of this book are:

• Moss’s two way approach to preparing for retirement – mentally and and financially.
• The book is full of practical advice and interesting statistics.
• Moss makes a good case on the side of paying off your mortgage in the debate of mortgage vs. no mortgage.
• One of Moss’s “Secrets” covers having multiple streams of income in retirement. I think this is one of the most essential parts of retirement in this century. It will only get more important as our social structures continue to change.

Your Money or Your Life by Vicki Robin

I am recommending Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin to those of you that might need a reboot in order to make it to your retirement goals.

This book is usually recommended to younger people that are just starting to save for retirement. However, it is really a book for anybody that wants to reshape their relationship to money and retirement. Everyone should read this book (I have read it more than three times.) In this instance, I want to call out one group of near retirees that need to read this book NOW:

If you are like “most Americans” who have an average of $84,821 saved for retirement, you need to step up your game in these last few years before retirement. This book will help. It will show you how to save more money fast, so you can retire even faster.

What’s the best retirement book you’ve read?

We are now in the “New Age of Retirement”. These books will help you in defining what that means to you. Then, they will help you to get there.

Let us know what you would add to the list. What are your best retirement books? Please comment below!

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