Frequently Asked Questions
IRA FAQs
I am 74 and considering a Roth conversion. If I follow through, can I count the conversion toward this year's required minimum distribution (RMD) since the conversion will be included in my taxable income?
The key rule to remember is that an RMD is not eligible for conversion. The first monies distributed from an IRA in a year for which an RMD is due are treated as an RMD and are not eligible for either rollover or conversion. However, if you would still like to move forward with your Roth conversion, you may do so in the same year, but only after your total RMD is satisfied.
I recently inherited a small IRA from my uncle. I am 40 years old. Will I be subject to a 10% penalty on the withdrawal in addition to income taxes because I am under 59 ½?
No, you will not be subject to a 10% penalty on the withdrawal in addition to income taxes because you are the beneficiary of your uncle’s IRA. The exception you qualify for is death. You will only owe ordinary income taxes on the withdrawal, not the additional penalty.
My spouse and I earned too much this year to contribute to a Roth IRA. How can we take advantage of the backdoor Roth strategy we hear so much about?
The “backdoor” Roth IRA is a valuable strategy for high earners to contribute to a Roth IRA despite exceeding the income limits. If you don’t already have one, open a Traditional IRA. Make a non-deductible IRA contribution and report the contribution on your tax return using IRS Form 8606. After making the non-deductible contribution, convert the funds from your Traditional IRA to a Roth IRA. You can do this shortly after the contribution is made. Report the conversion on IRS Form 8606 when you file your tax return. If you have no other IRAs, including SEP or SIMPLE IRA plans, your conversion will be tax-free (unless there has been subsequent gain since the contribution was made). However, if you have any other IRAs, the IRS will apply the pro-rata rule to your converted amount. This means you will owe taxes on a portion of the conversion based on the ratio of your pre-tax to post-tax contributions.
Social Security FAQs
I am 64 and taking reduced retirement benefits. Will my IRA income cause my benefits to be withheld?
No, only earned income such as wages, salary, tips, and net income from self-employment count against the limit on how much you can earn and claim early benefits without potentially having some or all your benefits withheld. Other sources of income, such as IRA or 401(k) withdrawals, dividends, rental income, or a spouse’s income, do not count toward an early filer’s claim. However, these income sources could cause a portion of your benefits to be federally income taxable.
I am married and never worked outside the home. Am I eligible for spousal benefits under my husband’s record?
Dependent spousal benefits are available to you under certain circumstances. First, you must be married to your spouse for at least one year, be 62 years old, and your spouse must be collecting Social Security disability or retirement benefits. You may be entitled to benefits before 62 if you are caring for a dependent of your spouse who is under age 16 or who was disabled before age 22.
Can I claim early benefits to supplement my earnings?
The Social Security Administration (SSA) imposes a limit on earnings for individuals who claim benefits before reaching full retirement age. For 2024, if you are under your full retirement age for the entire year, any earnings above $22,320 will result in $1 being withheld from your benefits for every $2 earned above this threshold. In the year you reach your full retirement age, the limit is higher, set at $59,520 for 2024. Earnings exceeding this amount will result in $1 being withheld from your benefits for every $3 earned. Once you reach your full retirement age, there is no limit on earnings. Keep in mind that only earned income from wages, salary, and net income from self-employment counts. Other sources of income, such as rental income, dividends, pensions, IRA withdrawals, or your spouse’s income, will not count against you. However, if benefits are withheld due to excess income, they are not truly lost; SSA will recalculate your benefit later and increase your monthly income benefit to include the missing months. Consider working with a financial professional who can help you determine what is the right choice for you.
I am a recent widow at age 62, and I don’t understand my options. SSA informed me that I should file for the higher of my benefit or my late husband’s now but someone else told me I have a choice to wait and file for one first and the other later. I haven’t filed for either benefit. Do I have a choice?
I’m sorry to hear about the loss of your husband. If you have not filed for either benefit, yes you have a choice. Depending on which of the two benefits will produce a higher benefit long-term, you can file for the smaller one first and file for the higher long-term benefit later. Compare the maximum widow’s benefit (referred to as the “widow’s PIA”) to your projected benefit at age 70. If your benefit will be higher, then file only for the reduced widow benefit now and switch to your higher benefit as late as age 70. If you are working and exceed the earnings limit (see the question above regarding the earnings limit), you may have to wait until you reach FRA, or you stop working, if earlier. If, on the other hand, the widow’s PIA is higher, file first for your reduced retirement benefit and switch to the widow’s benefit at your full retirement age to collect 100% of that benefit for the rest of your life.
I was married to my ex-spouse for more than 23 years and he earned far more than I did. Can I collect benefits under his record?
You have met the first requirement, which is that your marriage must have lasted for 10 years. Additional requirements include:
- You are at least age 62.
- Your Social benefit, if applicable, is less than the ex-spousal benefit under his.
- You are unmarried.
In addition, your former spouse must:
- Be either collecting his benefit, or
- If not, be at least age 62, and your divorce has occurred at least 2 years prior to your claim for benefits under his record.
Keep in mind that if you determine that you are entitled to ex-spousal benefits and if you remarry, those benefits will stop. The maximum benefit you are entitled to is 50% of his Primary Insurance Amount, or what his benefit is at his full retirement age. If you file early, the benefit will be reduced.
Medicare FAQs
Will I automatically be enrolled in Medicare when I turn 65?
If you are already receiving Social Security or Railroad benefits, you’ll be automatically enrolled in Medicare Part A and Part B starting the first day of the month you turn 65. About 3-4 months before your 65th birthday you will receive your Medicare enrollment packet in the mail, including your red, white, and blue Medicare card. If you want to retain coverage, sign your Medicare card and keep it. If you want to opt out of Part B because you have creditable coverage elsewhere, follow the instructions to refuse Part B (you may not opt out of Part A).
If you are not receiving Social Security or Railroad benefits, you will need to sign up for Medicare during your Initial Enrollment Period, which starts three months before your 65th birthday and ends three months after. It’s important to review your options and consider whether you want to enroll in additional coverage like Medicare Advantage or a standalone Part D plan for prescription drugs.
Click here to learn more about Medicare’s initial enrollment period.
I am turning 65 and I have health coverage at work. Do I have to enroll in Medicare?
Click here to learn more about Medicare’s initial enrollment period.