The oldest baby boomers will reach age 70 in 2016. Turning 70 has several important implications for your retirement finances. Here’s how to improve your retirement prospects in your 70s.
Sign up for Social Security. If you have not yet signed up for Social Security, this is the year to do it. After age 70, there’s no additional benefit to continuing to delay your payments. “There is a lot of reason to wait until 70 because of the delayed retirement credits,” says Jeanne Gibson Sullivan, a certified financial planner for Financially in Tune in Wakefield, Massachusetts. “There’s no advantage anymore after your 70th birthday to waiting.”
Remember required minimum distributions. Distributions from traditional IRAs and 401(k) plans become required after age 70 1/2. Withdrawals are taxed at your ordinary income tax rate. There’s a 50 percent tax penalty if you skip a required minimum distribution or withdraw the incorrect amount. However, if you are still working after age 70 1/2 and don’t own 5 percent or more of the company, you can postpone withdrawals from the 401(k) plan associated with your current job until you actually retire. “You should still be able to participate in the 401(k) plan and not have to deal with required minimum distributions until you retire,” says Daniel Moisand, a certified financial planner for Moisand Fitzgerald Tamayo in Orlando, Florida. However, you will still be required to take distributions from IRAs and 401(k)s from previous jobs to avoid the 50 percent penalty.
Avoid two distributions in the same year. Required minimum distributions are typically due by Dec. 31 each year, but you can delay your first required distribution until April 1 of the year after you turn 70 1/2. Those who turn 70 1/2 in 2016 will need to take required minimum distributions by April 1, 2017. However, if you delay your first required minimum distribution until April 1, you will need to take two distributions in the same year because your second withdrawal will be required by December 31. “You might get into a higher tax bracket, and you really don’t want to do that,” says Gifford Lehman, a certified financial planner for Integris Wealth Management in Monterey, California. “You don’t really have to take it until March, but sometimes it might make sense for people to take it before they actually have to because they can end up doubling the amount they have to take in one calendar year.”
Consolidate your accounts. Required minimum distributions from 401(k) plans must be calculated and withdrawn separately from each 401(k) account. The distribution amount must also be calculated for each IRA, but the total required amount can be withdrawn from any IRA or combination of IRAs. Consolidating your retirement accounts can reduce the hassle of calculating several required distributions every year. “If you have old 401(k)s from a bunch of different employers, you might have seven or eight different accounts that you have to take the required minimum distribution from, which makes it a little bit complicated,” Sullivan says. “It’s easier the fewer number of accounts that you have.”
Watch out for savings restrictions. Your retirement account eligibility changes when you retire. You need earned income to be eligible to save in a retirement account. And after you turn age 70 1/2, you can no longer claim a tax deduction for traditional IRA contributions, even if you have earned income. However, you can continue to save in a 401(k) plan through your job in your 70s and defer income tax on the contributions.
Gather important documents. Your 70s is a great time to devise or revise your estate plan. You might want to update your will, trusts and beneficiary forms, especially if grandchildren have recently arrived. You should also fill out the documents for financial power of attorney and advance health care directives so that your wishes will be known. It’s important to notify your children of what you want to happen if various scenarios occur. “Don’t name anyone without talking to them about it first,” Lehman says. “You want to make sure they are willing to do it and willing to make decisions you would make if you were able to do them yourself.”
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The Oldest Baby Boomers Turn 70 originally appeared on usnews.com
