IRA and Retirement Planning FAQs

As an elder law and estate planning firm, we help people prepare for the eventualities of aging. If you start to develop a retirement plan at the right time with full knowledge of all the relevant factors, you can enjoy your golden years with security and comfort. The FAQs below will give you a foundation of information, and you can give us a call at 775-823-WILL (9455) if you would like to discuss your future with one of our attorneys.

When will I become eligible for Medicare coverage?

When you pay payroll or self-employment taxes, you earn retirement credits that lead to eligibility for Medicare and Social Security. A minimum of 40 credits is required. In 2018, you receive one credit for each $1,320 in earnings, and the figure has always been quite modest. You can earn up to four credits each year, so you would get the same four credits if you earn $7,000 or $700,000 in a given year. Once you have accumulated at least 40 credits, under currently existing law, you become eligible for Medicare when you reach the age of 65. However, it is worthwhile to note that there have been discussions about raising the Medicare eligibility age in an effort to reduce costs.

Does Medicare pay for everything once I become eligible?

The answer to this question is a resounding no. Medicare is broken up into four sections: Part A, Part B, Part C, and Part D. The first portion pays for hospitalization, and there is no monthly premium for Part A if you are fully vested in the program. The bad news is that there is a deductible per benefit period, and there are significant copayments for long hospital stays.

Part B pays for outpatient treatments and visits to doctors. There is a monthly premium for this coverage, and in 2018, most people pay $134. There is a $183 deductible, and after the deductible has been paid, Medicare will pay for 80 percent of the approved visits, and you would be required to pay the other 20 percent.

Part C allows you to couple your Medicare benefit with a private insurance plan that has added features. Medicare Part D is the prescription drug portion of the program, and there are deductibles, copayments, and premiums that must be paid out-of-pocket when you carry this coverage.

Aside from these copayments, deductibles, and premiums, there is a huge gap in Medicare coverage. Many senior citizens will require help with their day-to-day activities at some point in time. In fact, the figure is 70 percent according to the United States Department of Health and Human Services.

Nursing homes and assisted living communities are very expensive, so this is a situation that you should definitely prepare for in advance. Medicaid is a government program that will pay for long-term care, and we help clients position their financial assets with future Medicaid eligibility in mind.

Is the Social Security eligibility age the same as Medicare?

No, the age of Social Security eligibility depends on the year of your birth. For people born between the years 1943 and 1954, the Social Security eligibility age is 66. It then goes up by two months per year, so if you were born in 1955, you will become eligible for your full Social Security benefit two years after your 66th birthday. This two-month per year graduation ends in 1960. People that were born in 1960 and after become eligible to receive their full Social Security benefit at the age of 67.

The above parameters are applicable to the full Social Security benefit that an individual is entitled to. However, there is another option available. You can choose to receive an early Social Security benefit when you are as young as 62 years of age. This can sound appealing, but the benefit would be reduced by 25 percent to 30 percent depending on the exact year of your birth.

In addition to the early retirement option, there is a possibility on the other end of the spectrum. You can choose to delay your application for Social Security benefits until you are as old as 70. If you do this, you will receive an increased benefit. It will go up by eight percent for every year that you delay.

How do individual retirement accounts work?

Though there are some variations, for the most part, two different types of individual retirement accounts are utilized: traditional IRAs and Roth individual retirement accounts. With a traditional IRA, you make pretax contributions. This provides you with an immediate benefit, because your taxable income will be reduced by the amount of these contributions.

You can start to take penalty free withdrawals from a traditional individual retirement account when you are 59.5 years old. Unfortunately, even if you do not need the money, you must take mandatory minimum distributions six months after your 70th birthday. If you pass the IRA on to an heir, the beneficiary could withdraw money from the account or liquidate it entirely, but income taxes would be applicable.

A good financial strategy that can be applied here is a concept called the “stretch IRA.” The beneficiary can choose to take only the mandatory minimum distributions. The younger the beneficiary, the lower the mandatory minimum distribution. Through the utilization of this strategy, the assets in the account can continue to grow in a tax-deferred manner for the longest possible period of time.

Roth IRAs function in the reverse manner when it comes to taxation. Assets are placed into the account after taxes have been paid. The same 59.5 rule applies with regard to the age at which you can make penalty-free withdrawals. Since taxes have already been paid, you are not required to take anything out of the account at any time. This is one reason why a Roth IRA can be an excellent financial planning tool. The other is the fact that the beneficiary that you leave the account to would not be required to pay taxes on withdrawals, and the stretch approach would yield maximum benefits.

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