Wednesday, December 11, 2013

Funding Retirements (Post IRS Age)

Hi there! Mrs Y here. Last week we talked about passive income as part of our funding towards early retirement, but that should not be the only source for our retirement. Our retirement funding strategies should be divided into two segments: pre-IRS age and post-IRS age. Here are a few other items we are considering for the post-IRS age (59 1/2):

401K/IRA

Even though you won't be able to withdraw without a penalty until much later into retirement, it is still wise to put away money into these investments. Make sure to contribute to your maximum employer matching. The employer matching piece is additional funds as part of your total package. No contribution means you lose that money your company is willing to pay you. So think wisely and contribute to your 401k today. Of course if you have a better alternative investment, there is no need to reach the IRS max ($17,500 in 2013).

Roth IRA 

It is very much the same as IRA but contributions are after tax. For high income earners out there, double check the limit on your contribution as you might only qualify for a partial contribution. This helps if you are self-employed or your employers do not offer a 401k plan, or you just want to save additional money.

Health Saving Accounts

A health saving account is a tax-advantage health saving account for taxpayers who are enrolled in high-deductible health plans. Many employers offer the option and will provide additional funds if the employee selects that health care option. The difference between this and a flexible spending account is that the funds you contribute do not expire. These funds can be rolled over if not spent within the contribution year. Some accounts offers investment options when the account balance reaches certain amounts. You can find the contribution limits on the IRS website.

Now once you reach the age of 65, you will be able to use the funds for non-medical expenses without any penalty. However, it will be treated as income and will be subject to tax.  It is very much like an IRA if used after age 65. This can be used like additional savings, if you already reach the contribution limits for the year for your IRA.  More information can be found here.

All the funds above are subjects to a tax penalty until a much later age (about 20-25 years after our planned retirement age).

It is almost the end of the year. Did you put enough in your 401k or IRA yet?

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