Got Kids in Grade School? Start Their Financial Education Now Dear Readers: The new school year is just around the corner, and as I think about the importance of financial education, I want to remind all parents — and grandparents — that it's never too early to help kids learn about money. So as …Read more. Renting Out Your Vacation Home -- What Are the Tax Rules? Dear Carrie: My husband and I are considering buying a small vacation home and are also contemplating renting it out part of the year to help cover the cost. Can you explain the tax rules for rental income, and are we entitled to any tax deductions?…Read more. How Much Insurance Do You Need in Retirement? Dear Carrie: I'm 63 and will leave my full-time job in six months. In an effort to cut back, I'm looking at all my expenses, and it seems like I'm paying an awful lot in different types of insurance premiums. What do I really need at this point in …Read more. Roth Versus Traditional 401(k) -- Which Is Better? Dear Carrie: I've been contributing to a regular 401(k) for eight years, but my employer just started offering a Roth 401(k) plan. How can I decide which is best? — A Reader Dear Reader: The sheer numbers of retirement accounts can make …Read more.more articles
For Older Workers: How Long Can You Contribute to Your 401(k)?
Dear Carrie: I am over 73 years old. Can I still contribute to my 401(k) and, if so, how much per year? —A Reader
Dear Reader: You can indeed! As long as you're working and your employer offers a 401(k) plan, you're eligible to contribute to it. How much you can contribute depends on your income and the specifics of your company's plan, but theoretically, you could sock away up to $22,000 each year in your 401(k). Workers of any age can contribute up to $16,500, and because you're over 50, you're eligible to contribute an additional $5,500 as a "catch-up" contribution.
Saving is generally never a bad thing, but saving through a 401(k) plan or other tax-advantaged account is especially rewarding. You're saving with pretax dollars. Earnings grow tax-free. And if your company matches some or all of your savings, you really get an extra boost.
WORKING: GOOD FOR THE WALLET
One of my most familiar refrains is the importance of saving for retirement—and that's true for virtually everyone, especially people who are planning on leaving the workforce. But one way to reduce the drain on your savings is to continue to work.
—Current income means you reduce or postpone dipping into capital for current living expenses, so your retirement savings can potentially continue to grow.
—If you're still working, you can delay taking Social Security benefits until you've reached the IRS-defined "full retirement age"— the longer you wait, the greater your benefit, up to age 70 (check SSA.gov for details). In your case, you're already eligible for your maximum Social Security payment, and I'm assuming you're receiving it.
In fact, working becomes much more attractive for those past the full retirement age; if you take an early, reduced benefit and continue to work or go back to work part time, you'll lose part of your retirement benefit. But after you reach the full retirement age, you can earn as much as you like with no penalty.
—If you're lucky enough to work for a company with a pension plan, working longer may result in a higher benefit.
—As long as you're working, you generally don't need to start taking the IRS-mandated "Required Minimum Distributions" from your 401(k) plan, which normally must begin in the year after the year that you turn 70-and-a-half, unless you have an ownership interest of more than 5 percent in the company, in which case distributions are required.
But if you have another retirement plan, including a traditional IRA, SEP IRA, SIMPLE IRA or even another 401(k), 403(b) or 457 plan, you must take minimum distributions, regardless of whether you're working or not. Finally, I should point out that Roth IRAs never require a minimum distribution.
—And this is at the heart of your question, of course, if you're working for a company with a defined-contribution plan like a 401(k), working means the chance to shelter current income from taxes and take advantage of any employer match.
You didn't ask about how to invest your 401(k) savings, and I can't give specific advice about where to put your money. But I do want to point out that your time horizon will have an impact on your investment decisions. For example, if you know for a fact that you'll need this money in a couple of years, you'd likely want to invest differently — more conservatively — than if you were planning on leaving these assets invested for decades. It might be a good time to meet with a financial planner and get a holistic overview of your financial situation, both assets and needs.
AND WORKING CAN BE GOOD FOR THE SOUL
There are tons of financial reasons to keep working past what many people consider the age of retirement, but I think people should consider working longer (or going back to work) for non-financial reasons as well.
I believe working is good for you! It's easy to complain about hours and the demands of the working world, but working can be stimulating and energizing. It can give you a sense of purpose. Add structure to your day. And for a lot of people, the workplace offers a social outlet as well.
Probably most of us fantasize about retirement, especially when the alarm goes off on another Monday morning, but being productive and engaged can generate benefits that cannot be measured in dollars and cents.
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at email@example.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2011 CHARLES SCHWAB & CO., INC. MEMBER SIPC DIST BY CREATORS SYNDICATE, INC.