Category: Medicare

Here are some important things to keep in mind regarding your federal benefits if you believe your spouse will need your health insurance in case you die before them.

Your federal health insurance is an important consideration when deciding what type of death benefits you’ll need to have set for your spouse in retirement. 

You must leave some level of survivor benefits for your spouse to continue on your Federal Employees Health Benefits (FEHB) plan after you die. Because of this, most federal employees carry at least the minimal amount of survivor annuity benefit, even if the spouse won’t need the income replacement after death. If your spouse needs this health insurance, you should take at least the minimal survivor benefit.

Are You Insurable?

On the other hand, if you want to leave no survivor benefit and instead get private life insurance to replace your income after your death, there are two essential things to consider.

The first is, as previously said, your spouse’s health insurance. If your spouse relies on your FEHB, you should consider purchasing at least the minimal survivor annuity.

Second, can you even obtain private life insurance? You cannot simply assume that you’ll be able to purchase whatever private coverage you choose. You must first qualify.

Life insurance is acquired with your health first, then with your money. Poor health can lead to higher life insurance premiums, and you might even be denied coverage, making the survivor annuity the most cost-effective alternative in some cases.

Good health can have the opposite impact. These criteria do not apply to survivor annuities; you’re automatically eligible for coverage at a standard 10% cost.

Be A Smart Consumer

There’s no simple method to evaluate which of the different levels of survivor annuity benefits and life insurance alternatives is best for you, as it ultimately boils down to personal preference. That is why we recommend hiring an insurance specialist to conduct a needs analysis for your particular situation.

Let’s consider the case of Kevin, who, like many federal employees, wishes to ensure that his family is provided for in the event of his death.

As a FERS employee, he’ll get an annuity when he retires at the age of 58. He is debating his survivor annuity options for his wife, Sara, who is also 58. He understands that if he doesn’t get a survivor annuity, he will get a larger annuity benefit for the rest of his life. Still, he also doesn’t want Sara to struggle if he dies before her or to be left without federal health insurance.

As a FERS employee, Kevin can choose 50%, 25%, or 0%. For the example, we’ll assume Kevin opts for the 25% option for the purpose of health benefits.

Also, let’s suppose Kevin has a high-three of $110,769 with 32 and a half years of service when he retires.

Pension Maximization

Kevin may be able to take the larger annuity while still providing for his wife’s security in the case of his death.

He can use a technique known as pension maximization, which involves using life insurance to replace a portion of Kevin’s annuity at his death. That necessitates estimating how much Kevin is likely to pay if he chooses private insurance over the survivor benefit option.

The process of maximizing your pension begins with evaluating the future value of your spouse’s survivor annuity. In Kevin’s example, we multiply $750 by a fixed number depending on Sara’s age. In this way, we can calculate the future value of Sara’s survivor benefit, which is roughly $150,000. (We’ve left out the calculation since it’s complicated, varies by individual, and only offers an estimate; you should see an expert for this.)

Once he has determined the amount of the federal annuity, he might be able to replace it with a combination of term and permanent life insurance policies. By looking at the premiums, Kevin can compare the costs of private plans to the expenses of the survivor annuity.

Analyze life insurance products carefully and confirm the length of time the coverage is guaranteed. As a bonus, several life insurance companies include various types of long-term care coverage in their policies.

Blindly accepting the default survivor benefit isn’t a good idea. You’re in control and not OPM.

Your surviving spouse will most likely need your pension income. Do your homework and be a savvy customer by being aware of all of your alternatives. Understand how your survivor annuity decisions will influence your spouse’s federal health insurance coverage. No matter whether you pay for life insurance premiums, take the pension cut that comes with survivor benefits, or both, know that it won’t be cheap.

Contact Information:
Email: [email protected]
Phone: 2129517376

Many reasons can cause a federal worker to leave government employment before they are eligible to do so. For those interested in taking this step, five years of service or more can aid the decision without the worker having to forgo pension payment. The only condition is that the worker must have opted out of taking money out of pre-saved retirement funds and must be ready to wait for some time before they can be on the annuity payroll.

This system is known as deferred retirement, and there are rules guiding the process under FERS and CSRS. For employees that the latter covers, deferment ends at the age of 62 regardless of the age a worker files for it. So by age 62, a worker who defers annuities will start receiving payment under the system.

FERS workers who have put in a minimum of five years will be eligible for deferment payment at age 62. Workers who have put in 20 years will start getting previously deferred annuities at age 60, while those who put in at least 30 years will start receiving deferred annuities at their minimum retirement age. Workers who put in less than 30 years but more than ten years of service could also begin receiving reduced pensions when they reach their MRA. The reduction will be about 5% annual deductions until they are age 62.

To avoid the deduction, it is best to wait out the years and receive full payments later.

Recall the following about minimum retirement ages of workers based on the year of birth:

A person born before 1948 will reach his/her MRA at 55 years. Workers born in 1948 will add two months to that to make 55 years and two months. A two-month increase continues until 1953-1964. Workers born during these twelve years will reach their MRA at age 56. Again, two months of increase continue until 1970 and succeeding years. Workers born in this period will reach their MRA at age 57.

Under deferred retirement, after the waiting period, retirees will receive their deferred annuities until they die. The disadvantage in this system is that the benefits remain unchanged through the years until retirees start receiving them. As the years go by, inflation and other factors will reduce the value of the benefits.

Lastly, being eligible for deferment before age 62 will stop entitlement for SRS (special retirement supplement). The flip side here is that as soon as such a worker clocks age 62, he or she will be entitled to a Social Security benefit.

Many reasons can cause a federal worker to leave government employment before they are eligible to do so. For those interested in taking this step, five years of service or more can aid the decision without the worker having to forgo pension payment. The only condition is that the worker must have opted out of taking money out of pre-saved retirement funds and must be ready to wait for some time before they can be on the annuity payroll.

This system is known as deferred retirement, and there are rules guiding the process under FERS and CSRS. For employees that the latter covers, deferment ends at the age of 62 regardless of the age a worker files for it. So by age 62, a worker who defers annuities will start receiving payment under the system.

FERS workers who have put in a minimum of five years will be eligible for deferment payment at age 62. Workers who have put in 20 years will start getting previously deferred annuities at age 60, while those who put in at least 30 years will start receiving deferred annuities at their minimum retirement age. Workers who put in less than 30 years but more than ten years of service could also begin receiving reduced pensions when they reach their MRA. The reduction will be about 5% annual deductions until they are age 62.

To avoid the deduction, it is best to wait out the years and receive full payments later.

Recall the following about minimum retirement ages of workers based on the year of birth:

A person born before 1948 will reach his/her MRA at 55 years. Workers born in 1948 will add two months to that to make 55 years and two months. A two-month increase continues until 1953-1964. Workers born during these twelve years will reach their MRA at age 56. Again, two months of increase continue until 1970 and succeeding years. Workers born in this period will reach their MRA at age 57.

Under deferred retirement, after the waiting period, retirees will receive their deferred annuities until they die. The disadvantage in this system is that the benefits remain unchanged through the years until retirees start receiving them. As the years go by, inflation and other factors will reduce the value of the benefits.

Lastly, being eligible for deferment before age 62 will stop entitlement for SRS (special retirement supplement). The flip side here is that as soon as such a worker clocks age 62, he or she will be entitled to a Social Security benefit.

2021 Contribution Limits for Traditional and Roth IRAs 

The contribution limit for Roth and traditional IRAs for 2021 is $6,000, or $7,000 if the individual is aged 50 or above; the numbers remain unchanged from 2020. But certain restrictions can affect how much you can save or the tax you can deduct on your returns. Investors can contribute to their IRA account for the 2021 tax year from January 1, 2021, until April 15, 2022.

Only “Earned Income” Can be Contributed

To contribute to an IRA, you must have earned income. There are typically two ways an individual can get earned income; you can either work for someone else who pays you or own a business or farm.

Wages, salaries, bonuses, tips, commissions, and income from self-employment are classified as earned income. Additionally, the IRS considers disability retirement benefits as “earned income” until the individual reaches an age when he/she should have received a pension or annuity if they didn’t have a disability.

There are, however, certain types of income that don’t count as “earned income,” including child support, alimony, interest, and dividends from investments, income from rental properties, retirement income, unemployment benefits, Social Security, and income received while an inmate is in a penal institution.

If your earned income for the year is less than the contribution limit, you can only contribute to that amount. For instance, if you earned 4,000 for the year, you can only contribute up to $4,000 to your IRA.

Spousal IRAs

If an individual doesn’t have earned income, but their spouse does, they can open a spousal IRA, which allows a person with earned income to make contributions on behalf of their spouse who doesn’t have earned income. The spousal income can be either a traditional or Roth IRA.

To be eligible, the couple must be married and file joint tax returns. One of the spouses must also earn enough “earned income” to cover for both contributions.

2021 Roth IRA Income Limits

While anyone can make contributions to a traditional IRA regardless of their income, you can’t contribute to a Roth IRA if you make too much money, except if you use what’s called a “backdoor” Roth IRA.

2021 Traditional IRA Deduction Limits

There are no contribution limits to traditional IRAs, except if your spouse has a workplace 401(k) or some other workplace retirement plan. Here’s a breakdown of the 2020 IRA deduction.

These categories of people are exempted from any deductions:

• Married couples filing jointly or as a qualifying widow(er) with modified AGI of $125,000 or more and covered by a workplace plan.
• Married filing jointly with modified AGI of $208,000 or more and your spouse is covered by a workplace plan.
• Single or head of the household with modified AGI of $76,000 or more, and you’re covered by a workplace plan.
• Married filing separately with modified AGI of $10,000 or more and either spouse is covered by a workplace plan.

Modified Adjusted Gross Income (MAGI)

The Modified AGI can be close or identical to your adjusted gross income. To get this figure, the IRS takes your AGI and makes certain deductions, including rental losses, passive income or loss, student loan interest, qualified tuition expenses, tuition and fees, losses from a publicly traded partnership, IRA contributions, and Social Security.

To calculate MAGI, first know your AGI. It’s on line 8b of Form 1040. Then use Appendix B, worksheet one from the IRS publication 590-A, to obtain your MAGI.

Making Excess IRA Contributions

While it’s good to max out your contributions, it is essential not to go overboard. If you exceed the IRA limit, the excess contribution will be charged a 6% penalty. This is why it is crucial always to pay attention to the contribution limits. 

The Saver’s Credit

Low- to moderate-income earners may be eligible for a savers’ credit, which offers a dollar to dollar reduction of the taxes you owe. If eligible, you can earn a credit of 10% to 50% of your contributions. 

Conclusion

Contribution limits apply to various types of IRAs. If you are self-employed or a business owner, the contribution limit for SEP IRAs and Solo 401(k) plans is 25% of yearly compensation up to $58,000. If your employer has a match plan, you can take salary deferrals up to $13,500 for 2021.

2021 Contribution Limits for Traditional and Roth IRAs 

The contribution limit for Roth and traditional IRAs for 2021 is $6,000, or $7,000 if the individual is aged 50 or above; the numbers remain unchanged from 2020. But certain restrictions can affect how much you can save or the tax you can deduct on your returns. Investors can contribute to their IRA account for the 2021 tax year from January 1, 2021, until April 15, 2022.

Only “Earned Income” Can be Contributed

To contribute to an IRA, you must have earned income. There are typically two ways an individual can get earned income; you can either work for someone else who pays you or own a business or farm.

Wages, salaries, bonuses, tips, commissions, and income from self-employment are classified as earned income. Additionally, the IRS considers disability retirement benefits as “earned income” until the individual reaches an age when he/she should have received a pension or annuity if they didn’t have a disability.

There are, however, certain types of income that don’t count as “earned income,” including child support, alimony, interest, and dividends from investments, income from rental properties, retirement income, unemployment benefits, Social Security, and income received while an inmate is in a penal institution.

If your earned income for the year is less than the contribution limit, you can only contribute to that amount. For instance, if you earned 4,000 for the year, you can only contribute up to $4,000 to your IRA.

Spousal IRAs

If an individual doesn’t have earned income, but their spouse does, they can open a spousal IRA, which allows a person with earned income to make contributions on behalf of their spouse who doesn’t have earned income. The spousal income can be either a traditional or Roth IRA.

To be eligible, the couple must be married and file joint tax returns. One of the spouses must also earn enough “earned income” to cover for both contributions.

2021 Roth IRA Income Limits

While anyone can make contributions to a traditional IRA regardless of their income, you can’t contribute to a Roth IRA if you make too much money, except if you use what’s called a “backdoor” Roth IRA.

2021 Traditional IRA Deduction Limits

There are no contribution limits to traditional IRAs, except if your spouse has a workplace 401(k) or some other workplace retirement plan. Here’s a breakdown of the 2020 IRA deduction.

These categories of people are exempted from any deductions:

• Married couples filing jointly or as a qualifying widow(er) with modified AGI of $125,000 or more and covered by a workplace plan.
• Married filing jointly with modified AGI of $208,000 or more and your spouse is covered by a workplace plan.
• Single or head of the household with modified AGI of $76,000 or more, and you’re covered by a workplace plan.
• Married filing separately with modified AGI of $10,000 or more and either spouse is covered by a workplace plan.

Modified Adjusted Gross Income (MAGI)

The Modified AGI can be close or identical to your adjusted gross income. To get this figure, the IRS takes your AGI and makes certain deductions, including rental losses, passive income or loss, student loan interest, qualified tuition expenses, tuition and fees, losses from a publicly traded partnership, IRA contributions, and Social Security.

To calculate MAGI, first know your AGI. It’s on line 8b of Form 1040. Then use Appendix B, worksheet one from the IRS publication 590-A, to obtain your MAGI.

Making Excess IRA Contributions

While it’s good to max out your contributions, it is essential not to go overboard. If you exceed the IRA limit, the excess contribution will be charged a 6% penalty. This is why it is crucial always to pay attention to the contribution limits. 

The Saver’s Credit

Low- to moderate-income earners may be eligible for a savers’ credit, which offers a dollar to dollar reduction of the taxes you owe. If eligible, you can earn a credit of 10% to 50% of your contributions. 

Conclusion

Contribution limits apply to various types of IRAs. If you are self-employed or a business owner, the contribution limit for SEP IRAs and Solo 401(k) plans is 25% of yearly compensation up to $58,000. If your employer has a match plan, you can take salary deferrals up to $13,500 for 2021.