Retirement plan withdrawals Unless you have a Roth IRA or 401(k), the money you withdraw from your retirement savings will be taxed as ordinary income. Social Security benefits While some people -- namely, those without much else in the way of income -- don't pay taxes on Social Security, you shouldn't count on getting those benefits tax-free. To do so, add up the amount of income you receive outside of Social Security (such as your retirement plan withdrawals) plus 50% of your yearly Social Security benefit amount. Even if your provisional income falls below the tax threshold, you might still face taxes on your Social Security benefits based on where you live. Many folks, in fact, hold investments in traditional, non-tax-advantaged brokerage accounts, and while that money is yours to access as you see fit (meaning you won't face required minimum distributions), you will pay taxes on gains or earnings from your investments. Anytime you make money from an investment held for a year or less, you'll face short-term capital gains, which are taxed as ordinary income. So if you typically lose 25% of your retirement plan withdrawals to taxes, you'll pay that same rate on investment gains for assets held less than a year and a day. Investments that pay you money might also cost you in the way of taxes. But if you learn more about the taxes you might pay in retirement, you'll be better equipped to account for them and avoiding getting caught off guard. Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.
If you’re worried about medical expenses during your retirement, you’re not alone. According to the latest Retirement Confidence Survey from the Employee Benefit Research Institute, 45 percent of American workers don’t feel confident that they will have enough money to take care of their medical expenses when they retire.
The good news is that you may be able to do something on top of socking away money into your 401(k) or IRA to plan ahead for your medical bills during retirement. Let’s review what a health savings account (HSA) is and how it can help your retirement planning. (See also: How an HSA Saves You Money)
What is an HSA?
An HSA is a tax-advantaged medical savings account available only to people who are enrolled in high-deductible health plans (HDHPs). An HDHP is health insurance that has a lower monthly premium, but a high deductible. A deductible is the amount you must pay out of pocket for medical expenses before your health insurance kicks in.
An HSA helps you pay for qualified medical expenses such as doctors’ visits and prescriptions that are not reimbursed by your HDHP. The beauty of an HSA is that you can contribute to it with pretax dollars by setting aside a portion of every paycheck, allowing you to reduce your taxable income. Depending on where you set up your HSA, you may be able to invest the money in mutual funds or other investments to help the funds grow faster. Whatever money you don’t use during the year rolls over into the following year, meaning you could have a nice amount built up by the time you retire.
For your insurance plan to qualify as an HDHP — one that allows you to use an HSA — the HDHP must have a deductible of at least $1,300 for self-coverage or $2,600 for family coverage (as of May 2017). You can only use the money in the account…