Important Birthdays Over 50
Most children stop being "and-a-half" somewhere around age 12. Kids add "and-a-half" to make sure everyone knows they're closer to the next age than the last.
When you are older, "and-a-half" birthdays start making a comeback. In fact, starting at age 50, several birthdays and "half-birthdays" are critical to understand because they have implications regarding your retirement income.
Most children stop being "and-a-half" somewhere around age 12. Kids add "and-a-half" to make sure everyone knows they're closer to the next age than the last.
When you are older, "and-a-half" birthdays start making a comeback. In fact, starting at age 50, several birthdays and "half-birthdays" are critical to understand because they have implications regarding your retirement income.
Age 50
At age 50, workers in certain qualified retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions. Those who participate in 401(k), 403(b), and 457 plans can contribute an additional $7,500 per year in 2023. Those who participate in Simple Individual Retirement Account (IRA) or Simple 401(k) plans can make a catch-up contribution of up to $3,500 in 2023. And those who participate in traditional or Roth IRAs can set aside an additional $1,000 a year.1,2
Age 59½
At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10% federal income tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) and 403(b) plans (457 plans are never subject to the 10% penalty). Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored retirement plans are taxed as ordinary income.
Age 62
At age 62 workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for each $2 an individual earns above an annual limit. In 2023, the income limit is $21,240.3
Age 65
At age 65, individuals can qualify for Medicare. The Social Security Administration recommends applying three months before reaching age 65. It's important to note that if you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application.4
Age 65 to 67
Between ages 65 and 67, individuals become eligible to receive 100% of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100% of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they'll become eligible to receive full benefits.5
Age 73
In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a traditional Individual Retirement Account and other defined contribution plans. You may continue to contribute to a traditional IRA past age 70½ as long as you meet the earned-income requirement.
Understanding key birthdays may help you better prepare for certain retirement income and benefits. But perhaps more importantly, knowing key birthdays can help you avoid penalties that may be imposed if you miss the date.
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The Stock Market vs. Stocks in the Market
Since 1926, the US stock market has rewarded investors with an average annual return of about 10%. But it’s important to remember that returns in any given year may be sky-high, extremely poor, or somewhere in between.
Anyone who lost their shirt when First Republic Bank stock lost its value had too much invested in it.
Read the article from Dimensional HERE.
Bulls, Bears, and Long-Term Benefits of Stock Investing
Since 1926, the US stock market has rewarded investors with an average annual return of about 10%. But it’s important to remember that returns in any given year may be sky-high, extremely poor, or somewhere in between.
The stock market’s ups and downs are unpredictable, but history supports an expectation of positive returns over the long term. For the best shot at the benefits the market can offer, stay the course.
Read the article from Dimensional HERE.
Understanding FDIC Insurance
It's natural to wonder exactly how a bank safeguards your money. Fortunately, the Federal Deposit Insurance Corporation (FDIC) insurance exists for this very reason: to help protect your funds once deposited. Read on to explore the purpose of FDIC insurance, how it works, and what it covers.
It's natural to wonder exactly how a bank safeguards your money. Fortunately, the Federal Deposit Insurance Corporation (FDIC) insurance exists for this very reason: to help protect your funds once deposited. Read on to explore the purpose of FDIC insurance, how it works, and what it covers.
What Is FDIC Insurance?
The FDIC is an independent government agency that helps protect bank depositors from the loss of uninsured deposits at an FDIC-insured bank. This organization oversees FDIC deposit insurance, which provides some protection to bank customers if an FDIC-insured institution fails. In other words, FDIC insures your money at the bank up to certain limits.
A bank failure is an unlikely situation, but it does happen. When this occurs, the FDIC provides depositors with an insurance payout. That can be up to $250,000 per depositor per institution for each account ownership category. When two banks failed in Q1 2023, regulators took steps above and beyond the $250,000 limit to protect deposits.
Remember that if your bank is an FDIC-insured institution, you don't need to apply for FDIC insurance because coverage is automatic.
The Purpose of FDIC Insurance
FDIC insurance covers traditional deposit accounts of up to $250,000 per depositor. These traditional deposit accounts include the following:
Checking accounts
Savings accounts
Certificates of deposit (CDs)
Money market bank deposit accounts
Prepaid cards (assuming they meet all FDIC requirements)
Certificates of deposit (CD) are time deposits offered by banks, thrift institutions, and credit unions. They may offer a slightly higher return than a traditional bank savings or checking account, but they may also require a higher deposit amount. If you sell before the CD reaches maturity, you may be subject to penalties.
Bank savings accounts and CDs generally provide a fixed return, whereas the value of money market funds can fluctuate. Money market funds are investment funds that seek to preserve the value of your investment at $1.00 a share. However, it’s possible to lose money by investing in a money market fund.
In addition, the FDIC also insures retirement accounts in which plan participants have the right to direct how they invest the money, including:
Traditional or Roth Individual Retirement Accounts (IRA) savings accounts
401(k)s or other self-directed defined contribution plans
Section 457 deferred compensation plan accounts, whether self-directed or not
The FDIC may also insure an employee benefit plan that is not self-directed, such as a pension plan.
Once you reach age 73, you must take the required minimum distributions from a Traditional IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. One can make these withdrawals under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Once you reach age 73, you must take the required minimum distributions from your 401(k), 403(b), 457 plan, or other defined-contribution plans in most circumstances. Withdrawals from defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
FDIC Insurance Limitations
Now that we understand what FDIC insurance covers let's also look at what it doesn't cover. The FDIC states that it does not cover the following:
Stocks
Bonds
Mutual funds
Life insurance policies
Annuities
Municipal Securities
Safety deposit boxes or their contents
US Treasury bills, bonds, or notes
Stock prices' return and principal value will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, an investor will receive the interest payments due plus your original principal, barring default by the issuer.
Mutual funds are sold only by prospectus. Please carefully consider the charges, risks, expenses, and investment objectives before investing. Your financial professional can obtain a prospectus containing this and other information about the investment company. Please read it carefully before you invest or send money.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If one surrenders a policy prematurely, the policyholder also may pay surrender charges and have income tax implications. Consider whether you are insurable before implementing a life insurance strategy. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If, before age 59½, one makes a withdrawal, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability.
Municipal bonds are subject to various risks, including adjustments in interest rates, call risk, market conditions, and default risk. Certain municipal bonds may be difficult to sell. A municipal bond issuer may be unable to make interest or principal payments, leading to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value. If one purchases a bond at a premium, it may result in realized losses. As a result, the interest on a municipal bond may be taxable after purchase.
Municipal bonds are free of federal income tax. Municipal bonds also may be free of state and local income taxes for investors who live in the area where the bond was issued. If a bondholder purchases a share of a municipal bond fund that invests in bonds issued by other states, the bondholder may have to pay income taxes.
The federal government guarantees U.S. Treasury bonds, bills, and notes on timely principal and interest payments. However, if you sell a Treasury before maturity, it may be worth more or less than the original price paid.
FDIC Insurance and You
As mentioned above, the FDIC insures up to $250,000 for a single or joint account per depositor; This means that you can have either one account or multiple accounts at the same bank, but only $250,000 may be insured.
But some strategies may enhance your coverage. Hypothetically, you could set up a revocable trust and identify one or more beneficiaries to possibly increase your coverage. Each beneficiary may receive $250,000 of coverage. For example, a revocable trust account with one owner that names three unique beneficiaries can insure themselves up to $750,000.
Remember, using a trust involves complex tax rules and regulations. Before moving forward with a trust, consider working with a professional familiar with the rules and regulations.
What Is a Roth 401(k)?
While many people are familiar with the benefits of traditional 401(k) plans, others are not as acquainted with Roth 401(k)s.
While many people are familiar with the benefits of traditional 401(k) plans, others are not as acquainted with Roth 401(k)s.
Since January 1, 2006, employers have been allowed to offer workers access to Roth 401(k) plans. And some have introduced offerings as part of their retirement programs.
As the name implies, Roth-401(k) plans combine features of 401(k) plans with those of a Roth IRA.2,3
With a Roth 401(k), contributions are made with after-tax dollars – there is no tax deduction on the front end – but qualifying withdrawals are not subject to income taxes. Any capital appreciation in the Roth 401(k) also is not subject to income taxes.
What to Choose?
For some, the choice between a Roth 401(k) and a traditional 401(k) comes down to determining whether the upfront tax break on the traditional 401(k) is likely to outweigh the back-end benefit of tax-free withdrawals from the Roth 401(k).
Please remember, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax professional before adjusting your retirement strategy to include a Roth 401(k).
Often, this isn’t an “all-or-nothing” decision. Many employers allow contributions to be divided between a traditional-401(k) plan and a Roth-401(k) plan – up to overall contribution limits.
Considerations
One subtle but key consideration is that Roth 401(k) plans aren’t subject to income restrictions like Roth IRAs are. This can offer advantages to high-income individuals whose Roth IRA has been limited by these restrictions. (See accompanying table.)
* This is an aggregate limit by individual rather than by plan. The total of an individual’s aggregate contributions to his or her traditional and Roth 401(k) plans cannot exceed the deferral limit – $20,500 in 2022 ($27,000 for those over age 50).