In order to be eligible for these programs, you have to accumulate at least 40 retirement credits while you are working and paying taxes. This is easily done, because you get the maximum four credits each year even if you work part-time. You would also be eligible if your spouse meets this requirement.
The age of Medicare eligibility is simple and straightforward. Unless the laws are changed in the future, you can enroll in the Medicare program when you are 65 years old. The situation is much more complicated when it comes to Social Security eligibility.
The full retirement age is 66 for people that were born between 1943 and 1954. There is then a two month per birth year graduation, so someone that was born in 1955 would become eligible two months after their 66th birthday. This arrangement continues until 1960; people born during this year and after become eligible at the age of 67.
It is possible to accept a reduced benefit when you are as young as 62. That may sound enticing, but the reduction would be between 25 percent and 30 percent, so it is significant.
You can go in the other direction and earn delayed retirement credits if you do not apply when you are eligible for your full benefit. If you do this, your benefit would go up by 8 percent for every year that you delay until you are 70 years old.
The way that the accounts are taxed is different, and this is the primary divergence. You make contributions into a traditional individual retirement account before you pay taxes on the income, and the reverse is true with a Roth IRA.
When you take money out of a traditional account, the distributions are looked upon as taxable income since you did not pay taxes on the contributions. You are not required to pay taxes on distributions that you take from a Roth account.
There are no mandatory distributions with a Roth account at any time, but you have to start taking mandatory minimum distributions from a traditional account when you are 72 years old.
Before the enactment of the SECURE Act at the end of 2019, the age for mandatory distributions from traditional IRAs was 70.5. Another change makes it possible for traditional IRA account holders to continue to contribute into the account on an open-ended basis.
Previously, contributions into traditional individual retirement accounts had to stop when account holders reached the age of 70.5. Roth account holders have always been able to contribute into their accounts without any age limitations, and this has not changed.
When it comes to taxes on the distributions, they are the same. The beneficiary of a Roth account would not have to pay taxes, but distributions to a traditional account beneficiary would be looked upon as taxable income by the IRS.
There is a huge change within the SECURE Act that eliminates the estate planning strategy called the “stretch IRA.” Under the old parameters, a non-spouse beneficiary was required to take mandatory minimum distributions, but they could be spread out based on the beneficiary’s life expectancy. Now, there is no minimum amount that must be withdrawn annually, but there is a 10 year rule in place. Beneficiaries have 10 years after the death of the original account holder to distribute all assets in either type of account.
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If you have any questions about individual retirement accounts or any other elder law or estate planning matter, we would be glad to answer them for you in person. You can schedule a consultation at our office in North Carolina if you give us a call at 704-944-3245.
Our Kentucky location can be reached at 606-324-5516 (Ashland, KY) or 859-372-6655 (Florence, KY), and there is a contact form on this website that you can use to send us a message.