A retirement job might allow you to delay tapping your retirement savings or even boost your nest egg.
Working in retirement also affects how much you will receive from Social Security and your tax rate. Here are ten tips for making the most of a retirement job.
Delay 401(k) withdrawals
Traditional IRA and 401(k) distributions are typically required after age 70 1/2 and income tax is due on each withdrawal. However, if you continue to work after age 70 1/2 and don’t own 5 percent or more of the company you work for, you may be able to continue to defer withdrawals on your current 401(k) plan (and the resulting tax bill) until April 1 of the year after you retire.
Bump up your retirement savings
Workers age 50 and older are eligible to contribute more money to retirement accounts and qualify for a bigger tax deduction. Older employees can save up to $24,000 in a 401(k) account in 2017, $6,000 more than younger employees. IRAs also allow older workers to make catch-up contributions worth an additional $1,000 per year. Income tax won’t be due on your traditional retirement account contributions until you withdraw the money from the account.
No more IRA tax break
Most people with earned income are eligible for a tax break if they save in a traditional IRA. However, workers age 70 1/2 and older no longer qualify for a tax deduction by making a traditional IRA contribution.
Watch out for Social Security withholding
If you work and collect Social Security benefits at the same time before your full retirement age (66 or 67 depending on your birth year), part or all of your benefit could be temporarily withheld. If you earn more than $16,920 in 2017, you’ll lose $1 in Social Security benefits for every $2 in earnings above the limit. In the year you turn your full retirement age the earnings limit increases to $44,880, and the penalty decreases. However, once you reach full retirement age there’s no penalty for working while receiving Social Security payments, and your benefit will be increased to reflect your continued earnings.
Your Social Security benefit could become partially taxable.
If you earn more than a certain amount in retirement, your Social Security payments could become taxable. Income tax will be due on a portion of your Social Security payments when the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit totals more than $25,000 ($32,000 for couples).
Boost your Social Security earnings
Social Security payments are calculated based on the 35 years in which you earn the most. If you earn a higher salary now than you did earlier in your career, you could boost your Social Security payments going forward. This strategy is especially powerful if you haven’t yet worked for 35 years and had one or more zero earning years factored into your Social Security benefit calculation.
Consider delaying your Social Security payments
If you continue to work during your 60s and earn enough to pay your bills, you might be able to delay signing up for Social Security. Monthly benefit payments are increased for each month of delay up until age 70. These higher payments last for the rest of your life and can be passed on to a surviving spouse who gets a lower payment.
Don’t forget to sign up for Medicare
Medicare eligibility begins at age 65, regardless of your employment status. The government adds a late enrollment penalty to your Medicare Part B and D premiums if you sign up later. If you are working after age 65 and receive group health insurance through you employer, you need to sign up for Medicare within eight months of leaving the job or the health plan to avoid the penalty.
Look for a job that provides more than money
In addition to the paycheck, a job provides retirees with opportunities to socialize and physical and mental stimulation. Some jobs also give retirees a sense of purpose and the opportunity to help someone else.
Find a better work-life balance.
Few retirees want to keep working full time. Most older workers want a flexible schedule, which might mean working part time or part of the year. Sometimes retirees take a career break to relax before beginning a new venture.
Source: U.S. & World Report News
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