The combined traditional and Roth IRA
contribution limit is the lesser of $5,500
or an individual’s taxable compensation.
If the individual is filing a joint return
but doesn’t have any taxable compensation of his or her own, that individual
may still be able to contribute under the
spousal IRA provisions, Oransky notes.
Meanwhile, for an HSA, the contribution limit is $6,900 if the individual has
a family high-deductible health plan,
or $3,450 for self-only HDHP coverage,
according to Oransky.
8. Contribute to your IRA now.
David Desmarais, member of the AICPA
PFP Executive Committee, has some
tips on how individuals should contribute to their IRA.
“For married couples with modified
adjusted gross income over $203,000, you
cannot make direct Roth contributions.
However, there are no income limitations
on doing a Roth conversion or nondeductible IRA contribution,” he says.
Individuals can make a nondeductible
IRA contribution and immediately roll it
over into a Roth, according to Desmarais.
“The reason why you roll it over
immediately is if there are no earnings
in the IRA before it is rolled into a Roth,
there is no income to pick up on the conversion,” he explains.
However, he noted that this doesn’t
work if the individual has other traditional IRAs that have untaxed earnings —
whether it be from unrealized gains or
prior deductible IRA contributions.
9. Take a look at your current allocation. “With increased market volatility during 2018, your various asset
classes may have drifted out of balance,”
says Michael Landsberg, member of the
AICPA PFP Executive Committee.
Landsberg suggests individuals use
the beginning of January to analyze any
material shifts that may have occurred
due to 2018 performance.
10. Make annual exclusion gifts to
heirs now. Robert Westley, a member of
the AICPA PFS Credential Committee,
suggests that individuals consider mak-
ing gifts to beneficiaries at the beginning
of the year.
“For those looking to reduce their
estate tax exposure, individuals can give
up to $15,000 to an unlimited number of
beneficiaries per year without utilizing
their lifetime estate tax exclusion amount
or paying a gift tax,” Westley says.
3 GROWING FINANCIAL RISKS
As the number of retirees 75 and older
grows, so do the financial risks they
face, and many will be unprepared to
address those risks, according to a new
report from the Center for Retirement
Research at Boston College.
“The future will see an increasing
number of older retirees relying on
relatively small 401(k) balances and
on Social Security checks that do not
stretch as far,” according to the report.
Citing research from the U.S. Social
Security Administration’s Retirement
Research Consortium, CRR identifies
three primary financial risks that retirees 75 and older face: out-of-pocket
medical expenses, financial mistakes
due to cognitive impairment and widowhood. By 2040, roughly 43 million
retirees will be 75 or older, almost double the 23 million projected for 2020.
OUT-OF-POCKET MEDICAL EXPENSES
The report cites several studies about
increasing out-of-pocket medical expenses
for retirees 75 and older, with costs ranging from an average 20% of total income
to as much as 142% for those who are 85
or older and in the top decile of health care
spenders, including long-term care costs.
“Analysts expect out-of-pocket health
costs to continue to grow faster than
retirees’ income,” states the CRR report.
COGNITIVE DECLINE AND
“Financial skill tends to deteriorate for
many in their 70s,” states CRR. It often
begins with minor misses like forgetting
to pay bills, then gradually evolves to a
complete inability to manage finances.
Having someone to help with financ-
es can mitigate this problem, and that
becomes more important “as less income
comes from Society Security [due to the
rising full retirement age] and tradition-
al pensions,” according to the report.
Compounding the problem is the
growing dependence of retirees on
defined contribution plans, which many
manage themselves and which are
therefore more vulnerable to fraud than
defined benefit pensions managed by
former employers, according to CRR. In
addition, “tomorrow’s retirees will have
fewer children to support them than
their parents did,” the report says.
The typical household nearing retirement has about $135,000 in 401(k) assets,
which if annuitized, would provide about
$600 per month, and one-third have no
savings, according to the CRR report.
Widowhood is one reason Social
Security checks won’t be as large for
some many retirees — in addition to the
rising retirement age.
Widows are entitled to the benefits
they have earned based on their own
work history, as well as survivor benefits,
based on their deceased spouse’s work
history — but they cannot collect both at
the same time. Since women are working
more and earning more relative to their
husbands, more widows in the future
will end up with less Social Security
income than many had earned previously, due to Social Security’s arcane rules.
Their standard of living will be lower,
and they will have to dig further into their
other retirement savings. “Widowhood
may affect women’s finances more in the
future than it does today,” states CRR.
Bernice Napach, senior writer for ThinkAdvisor.
com, can be reached at firstname.lastname@example.org.
Emily Zulz, staff writer for ThinkAdvisor.com,
can be reached at email@example.com.