Thank you for asking great questions again this year! I love hearing from you and learning from your experiences. Here are the top eight personal finance lessons based on your questions in 2016.
1. A few key strategies can stretch your Social Security benefits. Readers had a lot of questions about the tiny Social Security cost-of-living increase for 2017 and the rising income levels that are hit by Social Security taxes. They wanted to know about steps they could take to increase their benefits -– such as working a few extra years, working after they start receiving benefits and minimizing the tax hit when benefits kick in. See How to Calculate the Impact of Working Longer on Your Social Security Benefits, Who Gets Hit by the Social Security Earnings Test and 5 Ways to Avoid Taxes on Your Social Security Benefits.
2. Knowing how to navigate the Medicare system can help you reduce your premiums, fill in coverage gaps and make the most of your benefits. With 10,000 baby boomers turning 65 every day, it’s no surprise that I received a lot of questions about Medicare. Many readers had questions about what they need to do to sign up for Medicare at age 65 and special decisions to make if they’re still working, which was a large part of 7 Important Financial Moves If You Turn 65 in 2016. Readers also had a lot of questions about the best way to fill in gaps in Medicare coverage and how to reduce those costs if you’ve been hit with rising medigap premiums. See What You Should Know About Medigap Pricing and How to Save on Medicare Supplement Insurance. Also see How the Medicare Part D Coverage Gap Will Affect You in 2017 for an explanation of how the doughnut hole in prescription-drug coverage works and how you can reduce your costs.
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Because of the small Social Security cost-of-living increase for 2017, understanding how much Part B premiums are rising ended up being a complicated issue. See Retirees to Pay More for Medicare in 2017. Quite a few readers who are on Medicare are subject to the high-income surcharge (which kicks in if you earn more than $85,000 if single or $170,000 if married filing jointly) because they’re still working or they took withdrawals from their tax-deferred accounts or converted a traditional IRA to a Roth. That boosts their Medicare Part B and Part D premiums. See Managing Medicare Part B Premium Increases for more information about who is subject to the high-income surcharge and how you can get it reduced if your income has gone down because of certain life-changing situations.
3. A health savings account not only offers tax breaks for health care costs; it also lets you build up tax-free money for medical expenses in retirement. More people have high-deductible health insurance plans through work than in the past, so I received a lot of questions about the rules for health savings accounts, who can benefit from them and how to make the most of the triple tax break. See HSA vs. IRA: Which One to Fund First? and How to Make Your Health Savings Account Grow. You asked about how to stash even more money in an HSA, such as the rules for saving in both an HSA and an FSA, as well as the rules for making catch-up contributions to an HSA and rolling over an IRA to an HSA.
I also heard from a lot of people who were still working past age 65 and wondering whether they could delay signing up for Medicare so that they could continue to contribute to an HSA (especially if their employer contributed to the account); see Medicare, Social Security and Your Health Savings Account. Even after you sign up for Medicare and can no longer make new HSA contributions, there are still plenty of eligible expenses for which you can use funds in the account, including premiums for Medicare Part B and Part D and Medicare Advantage plans. See Use a Health Savings Account to Pay Medicare Premiums Tax-Free.
4. You may be able to contribute more than you thought to your retirement savings. Many of you maximize contributions to your IRAs and 401(k)s, and you wanted to know about special circumstances under which you could add even more to your tax-advantaged accounts. See What You Need to Know About Making IRA and 401(k) Contributions in 2017 and the Rules for Catch-Up Contributions to Retirement Accounts.
Readers who are self-employed –- or who have freelance income on the side -– asked about maxing out their special retirement savings plans (see How Self-Employed Workers Can Save for Retirement), and some readers who work in public sector or teaching jobs asked about special rules that let them double their tax-advantaged retirement plan contributions.
I also received a lot of questions about the special rules for saving for retirement when you’re in the military and very important decisions service members need to make about their retirement savings options in 2018 – see Big Changes Coming to the Military Retirement System. As the spouse of a military retiree, these questions are dear to my heart.
5. You still have plenty of tax-advantaged opportunities to save even after age 65. I was surprised to hear from so many readers who were still working at age 65 – and even after age 70 – and who wanted to continue to contribute to their retirement savings. See Even Retirees Working Part-Time Can Contribute to a Roth IRA, Contributing to Retirement Accounts When You Haven’t Fully Retired, Tax-Smart Ways to Save When You’re Too Old for a Traditional IRA, Making Roth IRA Contributions While Receiving a Pension and Converting a Traditional IRA to a Roth in Retirement.
6. Mastering the required minimum distribution rules can save you money. I always hear from a lot of readers who are turning 70½ and want to make sure they understand the rules for taking required minimum distributions from their retirement savings accounts. See FAQs About Required Minimum Distributions for Retirement Accounts, Taking Your First Required Minimum Distribution and How to Calculate Your Life Expectancy When Taking RMDs. Workers who have been saving in a self-employed retirement account also wanted to know the rules for withdrawing the money. See Required Minimum Distributions for the Self-Employed.
And readers were very happy when Congress permanently passed a law permitting anyone 70½ or older to give up to $100,000 tax-free from their IRAs to charity each year, which counts as their RMD but isn’t included in their adjusted gross income. See Donate Your RMD Tax-Free to Charity in 2016, Reporting an RMD to Charity on Your Tax Return and FAQs About Giving Your RMD to Charity.
7. Giving generously to charity leads to generous tax breaks, too. In addition to a lot of interest about giving RMDs to charity, many of you asked about other ways to support your favorite causes while reducing your tax bill. See 4 Smart Ways to Give to Charity, The Tax Benefits of Donating to a Donor-Advised Fund and How to Endow a Scholarship to Honor a Veteran.
8. Many tax breaks and special programs help parents pay for child care, save for college and teach their kids about saving for the future. I also heard from many younger readers who are juggling saving for retirement with paying the cost of raising kids and saving for college. They wanted to know about tax breaks that could help them stretch their money. See What Parents Should Know About Taxes on Custodial Accounts, Tax-Free Interest on Savings Bonds for College Tuition, How to Open an ABLE Account for a Child With Special Needs, Tax Breaks for Child Care: Flexible Spending Accounts vs. Tax Credits and Take a Tax Write-Off for Summer Camp Costs.
Parents also wanted to help their kids start saving for their future and had questions about contributing to a Roth IRA for a child with earned income and how that could affect financial aid for college. See Roth IRAs Are for Kids, Too, and How a Student’s IRA Is Counted for Financial Aid.
Keep sending me your questions! I can’t answer all of them personally, but I read them all and answer as many as possible. I also pass many of them along to colleagues who are experts on the topics. Your questions also give us great ideas for articles and columns. You can write to me at askkim@kiplinger.com. You’ll see links to all of the columns I’ve written over the past year in the Ask Kim archives.
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Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
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Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
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It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
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How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
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Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
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Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
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Make the Most of the New Military Retirement Plan
retirement The government is offering a new retirement option so that service members who leave the military before qualifying for a pension can still receive some benefits.
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How Changes in Income Affect Medicare Premiums
Medicare Medicare beneficiaries can see their premiums go up if their income rises, although for some that increase will be only temporary.
