My last financial planning article that spoke to a retirement income strategy that could be implemented through Social Security – file and suspend – has been modified or rescinded for many.
The idea was to be able to tap into your spouse’s benefits before taking your own benefit in order to have your postponed payments increase by 8% annually after you have reached your full social security age.
This rule was changed with Obama’s new budget deal which has been signed into law and will take effect in May 2016. This means if you have not looked into this and do qualify for suspend and file now, you can still take advantage of this before the law kicks in in May.
Under the new rules, retirees will only be able to claim their spousal benefit if their spouses are taking their social security income benefits. In addition, retirees will only be able to receive either their own benefits or their spousal benefit, whichever is greater. Meaning, you may not tap into your spouse’s benefit and then switch to your benefit at a later date and when distributions would be greater.
Widows will not be affected and can still claim reduced survivor benefits starting at age 60 before collecting benefits based on their own work history.
Don’t wait to get the facts!
Additional changes for 2016
While The Affordable care act has encouraged more individuals to be a participant in the health care scheme, it has also discouraged those same individuals from seeking the health care they may need. Why? The deductibles. Unfortunately, many people are signing up for the higher deductible which in many cases is $6,000 per person and then there are the co-pays. With this type of out of pocket expense along with the monthly premiums, people are treating their insurance like catastrophic coverage which is probably not the best health care strategy. This is why it’s important to understand the concept of the HSA(Health Savings Account). This is an account that you can invest in on a pre-tax basis and earn interest for the purpose of paying the out-of-pocket costs associated with your health care while working towards meeting the deductible. Being able to meet the deductible on an annual basis based by scheduling check-ups or preventative procedures isn’t as easy as you think. Some procedures or appointments may take up to 6 months to get which in many cases pushes you into a new year starting a new deductible maximum. Some health care professionals have noted complaints by patients who cannot be seen before the end of the year in order to attempt to have some of their medical services covered.
Having a HSA will certainly help eliminate some of the costs associated with health care. If you do not use the accumulations, they will continue to grow and can be used at your discretion in the future. The maximum contribution levels to a HSA account is $3,350 for self and $6,750 for a family. Keep in mind these accounts can only be established by meeting the guidelines set for high deductibles.
There’s a catch-up option for those 55 and over which is $1,000.
Social Security and Medicare Wage Base for 2016 is $118,500. This means once your gross income reaches this amount, you will not pay 6.2% on additional income. You will, however, continue to pay Medicare at the rate of 1.45%. For higher income earners, there’s an additional .9% Medicare Tax.
Medicare High Income Surcharge Bracket for retirees.
Expect to see your Medicare Part D premium increase depending on your plan. For seniors who are considered high income, increases in both your Part B coverage and your Medigap insurance coverage.
The increase will start with income earners with a Modified Adjusted Gross of more $85,000 for singles, and $170,000 for joint filers. There will not be any adjustments for inflation with regard to these income limits and this is frozen through 2020.
Starting in 2018, a Part B premium surcharges shift in a way that will add a higher percentage of costs to Medicare beneficiaries with MAGI between $133,500 and $214,000(twice that for couples). See table below:
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If your yearly income in 2014 (for what you pay in 2016) was
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File individual tax return,File joint tax return,File married & separate tax return, You pay (in 2016)
$85000 or less,$170000 or less,$85000 or less,$121.80
above $85000 up to $107000, above $170000 up to $214000,Not applicable,$170.50
above $107000 up to $160000,above $214000 up to $320000,Not applicable,$243.60
above $160000 up to $214000,above $320000 up to $428000,above $85000 and up to $129000,$316.70
above $214000,above $428000,above $129000,$389.80
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Starting in 2020, supplemental Medigap plans will no longer cover the annual Part B deductible for new enrollees. That will mean changes for Medigap C and F plans, the two most popular choices and the only ones that cover Part B deductibles.
No Changes to 403(b) or deferred compensation (457) programs for 2016. Salary deferrals up to $18,000 annually and an additional $6,000 for those 50 or older. If you plan on having your 50th birthday 2016, go ahead and take advantage of the higher amount.
If you have the ability to invest in a Roth 403(b) or 401(k), maybe it’s time to start utilizing this tax free benefit for both future tax free distributions and estate planning. For more information about the benefits you can experience, feel free to call our office and schedule an appointment.
While we strive to provide planning guidance for those who are part of the university community, we find that this information can be shared with either parents of faculty or staff and/or their children.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
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