IRA & Retirement Planning FAQs

It is important to note that everyone does not automatically qualify for these programs at some point. You earn eligibility through the accumulation of retirement credits, and the maximum annual accrual is four credits.
Anyone that works for any length of time in a year will get the four credits, because the requirement is very modest. Once you have a total of 40 credits, you will qualify for Medicare and Social Security when you reach the eligibility age.

It should be noted that if you are married and your spouse has met this 40 credit minimum requirement, you would qualify for Medicare, even if you never worked.

For Medicare, the eligibility age is cut and dried. At the time of this writing, you can enroll when you are 65 years of age. The parameters that apply to Social Security eligibility are quite a bit different.
You can choose to accept a reduced benefit when you are as young as 62 years old. For a full Social Security benefit, the age is between 66 and 67 depending on your year of birth.

The age is exactly 66 for people that were born between 1943 and 1954, and it then goes up by two months each year until 1960 when it tops out at 67 years of age.

If you want to maximize your benefit, you could delay the submission of your application beyond your age of full eligibility. If you do this, you gain retirement credits that increase your benefit by 8 percent for each year that you delay, but you can only do this until you reach the age of 70.

The main distinction is the timing of the taxation. When you have a traditional account, you make contributions before you pay taxes on the income. Because of this, distributions from the account are taxable.

With a Roth IRA, the money that you contribute into the account has already been taxed. As a result, you don’t have to pay taxes if you withdraw money from the account.

In addition to the tax structure, you are required to take mandatory minimum distributions from a traditional account when you are 72. There is no such requirement for a Roth individual retirement account.

With either type of account, you can continue to make contributions throughout your life with no age limit.

For both types of accounts, you can start to take penalty free withdrawals when you are 59.5, but there are some exceptions to this rule.

Early withdrawals are allowed to pay medical bills and higher education expenses. You can use money from the account to pay for health insurance premiums while you are unemployed, and you can withdraw up to $10,000 to help you purchase your first home.

The core tax situation is the same as it would be for the original account holder. The beneficiary of a traditional account would have to pay taxes on the income, but this is not the case for a Roth beneficiary.

When the SECURE Act became law in December of 2019, a major change was implemented that is not positive from an estate planning perspective. As it stands now, a non-spouse beneficiary of an IRA must take ownership of all assets in the account within 10 years of the passing of the original account holder.

Previously, the beneficiary could stretch out the payments over any length of time, and this approach provided significant tax benefits.