You have probably worked more than half of your life, hence being at the “Top of the Hill.” In order for a smooth, enjoyable coast into retirement, now is the prime time to evaluate your retirement plan. Did you or will you have enough retirement money saved to live comfortably when you retire? Do you want to retire early? If you have not saved enough for retirement to meet your retirement goals, it’s not too late to start, but you need to act now. Certain rules for individuals over age 50 make it easier to catch-up and put more money into your retirement plans. Here are some to be aware of:
You can put as much as $22,000 per year ($5,500 more per year compared to individuals age 50 or less) into your plan. In 2013, you can stash away an extra $1,000 for a maximum contribution of $23,000 to your 401(k) and 403(k) plans.
You can put into an IRA or Roth IRA a combined limit of $6,000. That is $1,000 more a year compared to individuals age 50 or less. For 2013, the contribution limit increases to $6,500.
You can put up to $14,000 into your plan. That is $2,500 more than individuals age 50 or less.
If you have saved enough in 401(k)/403(b) plans and/or IRA to have enough for a comfortable retirement, consider putting money into a Roth IRA. Roth IRA will not be taxable when you pull money out during retirement, unlike the other retirement investments.
Evaluate how your money is invested in retirement plans. You might want to consider putting money into stable investments to protect the income you have. If you keep your money in riskier investments, you run the risk of not having enough time to recoup any losses before retirement if there is a downturn in the economy. Get with your bank to find out what your investment options are.
Most likely if you have kids, they have turned age 17 by now. As a result, you lose the Child Tax Credit. Keep in mind that if you support your children, you still may able to claim them as a dependent. If this is the case, remember to revisit your tax withholding. Meet with your employer to increase your withholdings (on Form W-4) so that more tax is taken out from your paycheck.
Similar to the age 35 to 50 group, you may able to take credits to reduce your taxes such as the Residential Energy Credit, Electric Car Credit, and Education Credit if you have kids (dependents) that are going to college.
If you have already set up an estate plan, such as living trust, review it at least yearly and update if it is needed. It is likely you will acquire more assets as the years pass. If you haven’t set up an estate plan yet, get with a qualified retirement planner or attorney who can advise and set up a program for you.
Like this and want more tax advice? As part of a series of tax planning strategies, we’ve broken down tax advice for specific age groups: Generation Y and Millennials, GenX’ers, those at the “Top of the Hill,” Baby Boomers and the Silver Foxes at or nearing retirement.
Being at the “Top of the Hill” has its advantages. Taxbrain is here to help you live more and tax less. Prepare and manage your taxes online. Visit Taxbrain.com and get all the free technical support you need to prepare your own taxes. Sign up for a free account today.
Vincent Mangiapane, EA
Federal Analyst, Taxbrain