The global pandemic has forced us to rethink the way we live. Managers closed offices, employees worked remotely, and a record number of people voluntarily left the workforce because of concerns over workplace safety and a desire to find a healthier work-life balance. As we slowly emerge from the pandemic, the focus on work-life balance continues, especially for individuals
Many individuals would like to phase into full retirement by working fewer hours with more flexible schedules, while others want to stay in the workforce longer to offset
In light of this, employers are becoming more open to offering flexible working arrangements, but they should also remind employees about the benefits of having and contributing to an employer-sponsored retirement plan and a health savings account (HSA). Approaching retirement is no time to "take your foot off the gas" in pursuing the goal of financial security during retirement. Having a tax-deferred savings arrangement can help mature employees manage the financial challenges that may occur while delaying their full-time retirement date. Here are some retirement savings options that may help mature employees bridge the financial gaps in their retirement readiness.
Read more:
Retirement Plans Provide Different Ways to Save
Employees should consider contributing as much as they can afford into a retirement plan. Generally, a retirement plan, such as a
Individuals may also consider setting up a Traditional or Roth individual retirement arrangement (IRA); however, they should keep in mind that there are two distinct benefits to contributing to a retirement plan — higher contribution limits and the potential to have contributions matched up to a certain percentage by the employer. For 2023, employees may defer — plan permitting — up to $22,500 plus a $6,500 catch-up contribution ($30,000 total) into a retirement plan. IRA contributions are limited to $6,500 plus a $1,000 catch-up contribution ($7,500 total). Only individuals who will be age 50 or older by the end of the calendar year may make
One important provision to consider is that retirement plan participants must have a "distributable event" (defined in the plan document) in order to take a distribution. Common distributable events include attaining age 59½, terminating employment, or attaining normal retirement age. IRA owners may distribute their IRA assets at any time. In either a 401(k) plan or an IRA, a distribution may have tax consequences.
SECURE 2.0 may Help Bridge the Gap
With the recent passage of SECURE 2.0, Congress has stepped in to help individuals save and preserve retirement assets by increasing contribution limits and easing the required minimum distribution (RMD) rules.
Increased Limits for Certain Retirement Plan Participants
SECURE 2.0 will increase the amount of catch-up contributions for plan participants who attain age 60, 61, 62, and 63. And, starting in 2026, the higher catch-up contribution limits will be indexed on an annual basis, further increasing the amount of
Increased RMD Age
In the past, once individuals turned 70½, they were generally expected to start taking RMDs from their retirement plan. Then in 2019, Congress passed the SECURE Act, which increased the RMD age to 72. Starting in 2023, SECURE 2.0 increases the RMD age to 73, and again to age 75 starting in 2033.
No RMDs for Designated Roth Assets
Similar to Roth IRAs, designated Roth account assets in 401(k), 403(b), and governmental 457(b) plans will no longer be subject to pre-death RMD rules. This provision takes effect in 2024. As a result, designated Roth account assets will be excluded for purposes of 2024 and later years' RMDs. (Delayed 2023 RMDs [i.e., RMDs due for 2023 but paid on or after January 1, 2024] are not affected by this provision.)
Read more:
HSAs Offer More Than Health-Related Benefits
Anyone who is enrolled in a high deductible health plan should consider supplementing their retirement savings with an HSA, as the triple tax advantages offer a tax deduction in the year contributed, earnings grow tax-deferred, and distributions are tax-free if used for qualified medical expenses. But mature employees may find an HSA to be especially beneficial since distributions taken after age 65 are not penalized — though they are taxable — if the distribution is not used to pay or reimburse qualified medical expenses.
Another reason mature employees should consider contributing to an HSA is that HSAs are not subject to the RMD rules. When retirement plan participants and Traditional IRA owners reach their required beginning date, they must begin taking RMDs — whether or not they need the extra income. RMDs are generally taxable and could place individuals into a higher tax bracket which may cause issues when they enroll in Medicare: there are Medicare premium surcharges on Medicare Part B and D, known as income-related monthly adjustment amounts (IRMAs), for high-earning enrollees. Another plus is that HSA owners, a growing number of which are turning 65 and becoming eligible for Medicare, can also take tax-free HSA distributions to pay for Medicare premiums.
Read more:
Key Takeaways
With more individuals delaying full retirement, employers may have an easier time retaining their more experienced and talented employees on either a full or part-time basis — especially if they can offer employees more ways to save for retirement. While these options seem fairly straight-forward, they are in fact quite effective in providing mature employees more options for maximizing their retirement savings, while at the same time successfully managing their definition of work/life balance.
