This guide to important dates for Medicare, Social Security and retirement may help minimize taxes and maximize income — for you or your parents.
From the Merrill Edge Minute e-newsletter.
- Help avoid unnecessary additional taxes by knowing the dates for optional and required retirement plan withdrawals.
- Your Social Security income may decrease or increase depending on the age at which you choose to begin receiving benefits.
- Minimize Medicare premiums and ensure coverage by familiarizing yourself with the program's rules and deadlines.
- Get the Retirement Deadlines Checklist
At about age 50, the rules and deadlines for Medicare, Social Security, IRAs, 401(k)s and other employer-sponsored retirement plans start to kick in. Understanding those dates and processes is crucial, both for people who are approaching that age themselves as well as for those whose parents may need some help navigating and staying on top of these deadlines.
The decisions you or your parents make during pre- and post-retirement years can be important in determining how much money will be available during retirement. Debra Greenberg, director of IRA Product Management for Merrill Lynch, offers this year-by-year guide.
The decisions you or your parents make can be important in determining how much money will be available in retirement.
You're now eligible to make "catch up" tax-advantaged contributions
to 401(k)s and other employer-sponsored retirement plans as well as to IRAs.1
See the chart below for annual retirement plan contribution limits.
||Younger than Age 502
||Age 50 and older
|Traditional3 or Roth IRAs
2016 Maximum Contributions4
(deadline for 2016 is 4/17/17)
2016 Employee Contributions
(deadline for 2016 is 12/31/16)
If you separate from service with your employer during or after the year you reach 55, you may be eligible to take a distribution from your workplace 401(k) or other employer-sponsored retirement plan without paying an additional 10% tax for early withdrawal (on top of regular income taxes). Such distributions are allowed only if you've left the employment of the company sponsoring that plan. But it's generally better to keep your tax-advantaged retirement savings or investments intact, suggests Greenberg. Also, continuing to make contributions to retirement plans while you're working full time may help your retirement account balances continue to grow.
Once you reach age 59½, withdrawals from employer-sponsored retirement plans and IRAs are no longer subject to the 10% early withdrawal tax, though you still may owe regular income tax on the distributions.
Age 62 is the minimum age at which you can choose to begin receiving Social Security benefits. But for each year you postpone taking this benefit (until age 70), your monthly check will be larger. "By age 62, you'll probably want to have determined your strategy—whether to start collecting Social Security, to keep working or to work and receive benefits, depending on your personal situation," Greenberg says. You can also choose to defer Social Security even if you are not working. If you continue to work and take Social Security, there are income limits that could reduce your benefits until you reach full retirement age.
Moreover, if you retire now and you do not work for one of the dwindling number of companies that provides continuing health coverage for retirees, you may be able to extend your group health benefits for a limited time through COBRA, a government program. However, you'll have to pay the full cost of COBRA benefits, and once they end, you'll probably need to purchase a private health insurance policy to tide you over until you're eligible for Medicare.
This is the age at which most Americans are eligible for Medicare, the federal government's retirement health insurance program that covers much of the cost of physician and hospital care and other health services. But Medicare comes in several segments—parts A, B, C and D—and the rules for signing up and receiving benefits through each one are complex. Getting Started With Medicare on the Medicare.gov site provides basic information about the program, with links to details about premium costs, enrollment deadlines and other important things to know. Age 65 is also when you need to consider purchasing a private "Medigap" insurance policy to help with copayments and deductibles not covered by Medicare.
If you were born between 1943 and 1954, age 66 is your "full retirement age" for Social Security. Your "full retirement age" is the age at which you may first become entitled to full or unreduced retirement benefits. (Different age requirements apply to those born before 1943.) For those born after 1954, full retirement age will increase by two months a year until the current maximum of age 67, for those born in 1960 and later.
Note: People who were born on January 1 of any year should refer to the previous year.
Source: Social Security Administration, Social Security Retirement Benefits, ssa.gov/pubs/EN-05-10035.pdf (accessed July 2016).
If you've waited until your 70th birthday to begin taking Social Security, you'll now get the biggest possible monthly benefit, which may be as much as 76% larger than if you had started receiving payments at age 62. Any further delay in beginning payments won't increase benefit amounts.
Source: Merrill Lynch Investment Management & Guidance calculations based on Social Security Administration calculator at socialsecurity.gov/OACT/quickcalc/ (accessed April 2016)
* Full Retirement Age is the age at which a person may first become entitled to full or unreduced retirement benefits.
When you reach age 70½ you must begin taking required minimum distributions
, known as RMDs, from Traditional 401(k)s or Traditional IRAs. RMD amounts are calculated
as a percentage of your account balances and are based on your life expectancy. If you don't take the full amount of these annual distributions within the required time frame, you'll incur a significant additional tax of 50% of the difference between what you received and the required amount you should have withdrawn. Your first distribution is actually due by April 1 of the year after you reach 70½. However, if you wait until that year to take the first withdrawal, you'll have to take a second one by December 31 of the same year. The additional income from that second distribution could put you in a higher tax bracket and has the potential to substantially increase your tax bill. Subsequent annual distributions are required by the end of each calendar year.
There's an exception to the RMD rules: If you continue to work, and you own less than 5% of the business sponsoring the plan, the plan may allow you to delay taking distributions from your 401(k) or other employer-sponsored retirement plan until the year you retire. However, you'll still need to start RMDs from all traditional IRAs according to the normal schedule. (There are no RMDs for Roth IRAs or Roth 401(k)s.)
Merrill Edge offers two services to help simplify this process for you:
- You can complete distributions online from a Merrill Edge® IRA to a linked Bank of America checking, savings or Merrill Lynch non-retirement account.
- The Merrill Edge RMD Service allows you to authorize Merrill Lynch to automatically calculate and distribute your annual RMD from your Merrill Edge IRA to your non-retirement account.
Be sure to speak with your tax advisor about requirements that may be specific to your situation.
Depending on your age, these deadlines could affect you, your older parents or your adult children nearing retirement age. Sharing this article with family members could help them prepare and make the most of opportunities to increase retirement income.