Here’s How The Saver’s Credit Can Lower Your Tax Bill by $2,000

You might be eligible for 50%, 20% or 10% of the maximum contribution amount.
On the scale of great tax breaks, tax credits are the best. While deductions merely lower your taxable income, a tax credit reduces your actual tax bill dollar-for-dollar.
To be eligible for the Saver’s Credit, you must:
Seriously. Check this out.

What Is the Saver’s Credit?

Next, make your deposit.
Let’s say you do your taxes and discover you owe ,000. If you paid ,000 out of your paycheck to your retirement accounts over the course of the year and received a 0 Saver’s Credit, your tax bill would shrink to 0.
If you’re a low- or middle-income worker, you can claim the Saver’s Credit — also known as the retirement savings contributions credit — by adding money to a 401(k) or individual retirement account (IRA).
The Internal Revenue Service sets maximum adjusted gross income caps for the retirement savings contribution credit each year.
The IRS actually gives taxpayers until April 15, 2022, to make contributions to individual retirement accounts and include those investments on their 2021 taxes. Pretty cool, huh?
Not only do a lot of people forget about this credit, many low-income workers miss out on the sweet tax benefits of saving for retirement because they worry doing so will strain their tight budgets.

How Do You Qualify for the Saver’s Credit?

First, you’ll need to open a retirement account if you don’t have one already. You can open one with any brokerage firm or robo-advisor. Or, you can start contributing money to your workplace 401(k).
Your income determines the percentage of your retirement savings that will be credited to your tax bill.

  • Be 18 years or older and file a tax return.
  • Not claimed as a dependent on someone else’s tax return.
  • Not be a full-time student. (However, you’re still eligible for the Saver’s Credit if you’re enrolled in an online-only school or participating in on-the-job training).
  • Save some money in a retirement account, like an employer-sponsored 401(k).

It’s important to note that this government tax benefit is not a deduction, but a credit.
Here’s what eligible taxpayers need to do to take advantage of the Saver’s Credit.
How much the Saver’s Credit is worth depends on how much you contribute to your retirement account, your filing status and your AGI.

  • $66,000 for married filing jointly.
  • $49,500 for head of household.
  • $33,000 for a single filer or any other filing status.
Pro Tip
The maximum amount of the Saver’s Credit cannot exceed ,000 for single filers or ,000 for joint filers in 2022.

How Much Is the Saver’s Tax Credit Worth?

It’s called the Saver’s Credit, and it’s one of the most valuable tax credits available. But it’s also one of the most overlooked.

Pro Tip
Lastly, you need to file Form 8880: Credit for Qualified Retirement Savings Contributions with the IRS. If you’re using online tax software, like TurboTax, then it’s even easier to file this form with your tax return.

Finally, you must contribute new money to a retirement plan: Rollover contributions from an existing account — like a 401(k) rollover into an IRA — don’t count.
For example, a single filer earning ,000 who invests ,000 in a Roth IRA would receive a maximum credit for 50% of their contribution, or ,000.
One drawback about the Saver’s Credit is it’s nonrefundable. That means the tax credit can be used to offset income-tax liability but not as a refund. In other words if you owe no taxes but qualify for the Saver’s Credit, Uncle Sam won’t cut you a check. Bummer.

Keep reading to learn who is eligible for the Saver’s Credit and how it works.

Filing status 50% of contribution 20% of contribution 10% of contribution
Single Filers, Married Filing Separately, or Qualifying Widow(er) AGI of $19,750 or below AGI of $19,751 – $21,500 AGI of $21,501 – $33,000
Married Filing Jointly AGI of $39,500 or below AGI of $39,501 – $43,000 AGI of $43,001 – $66,000
Head of Household AGI of $29,625 or below AGI of $29,626 – $32,250 AGI of $32,251 – $49,500

When you file your 2022 taxes for the 2021 tax year, your adjusted gross income (AGI) must fall below the following thresholds to qualify for the Saver’s Credit:
If you earn too much to qualify for the Saver’s Credit, you can still receive a tax deduction by contributing to a traditional IRA.
It’s worth checking to see if you qualify for the Saver’s Credit, especially if you or your spouse were unemployed or experienced a reduction of income in 2021.

How Do I Claim the Saver’s Credit?

As you can see, people with the lowest income benefit most from the Saver’s Tax Credit.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
But a single filer earning ,000 who contributed ,000 to a Roth IRA would receive a credit of just 10% of the amount they invested, or 0.

  • Traditional or Roth IRA
  • Traditional or Roth 401(k)
  • ABLE account (if you’re the designated beneficiary)
  • 403(b) plan
  • 457(b) plan
  • A federal Thrift Savings Plan

Ready to stop worrying about money?
First, you’ll need to meet some basic requirements.

Other Information About the Saver’s Tax Credit

The Saver’s Credit is worth up to ,000 for single filers, or ,000 for married couples filing jointly.
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It’s also worth noting that the Saver’s Credit can be claimed in addition to any tax deduction you receive by making qualified retirement savings contributions.
Keep in mind that the percentage of your retirement contribution you can receive as a credit decreases as your income increases.
The Saver’s Credit is a way to put money back in your pocket when you save for retirement.
Saver’s Credit Rate for 2022
So if you contribute to a traditional IRA or traditional 401(k), you could receive double tax savings: A reduction in your taxable income equal to the amount you kicked into your retirement account plus the Saver’s Credit (if you qualify). Believe it or not, the government will pay you to save. <!–


Depending on your adjusted gross income and tax filing status, you can claim the credit for 50%, 20% or 10% of the first ,000 you contribute to a retirement account within a tax year.

Best Online Life Insurance Companies for 2022

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Additional Resources

In the old days, applying for life insurance was tedious, time-consuming, and stressful. The process took weeks to complete, much of that spent waiting on the results of a medical exam. And you didn’t know how much your policy would cost until everything was said and done — or even if you’d qualify for a policy at all.

Fortunately, the old days are over, at least for life insurance applicants who apply online. Also known as algorithmic underwriters or algorithmic insurance companies, online life insurance companies give you an up-or-down decision within minutes, often without a medical exam or many questions about your medical history. You can apply over lunch or dinner and then get on with life.

Best Online Life Insurance Companies

Not all online life insurance companies are created equal, of course. These are among the very best.

Each of the companies on this list does at least one thing really well, and our top pick offers the best overall value for the widest number of potential applicants. Here’s what you need to know about each.

Best Overall: Ladder

Ladder Life Insurance Logo

Ladder is one of the best life insurance companies. It tops our list of the best online life insurance companies thanks to a potent collection of strengths:

  • Up to $3 million in term life insurance coverage without a medical exam — double what most competitors allow
  • In-home medical exams for policies larger than $3 million — the application process remains all-online otherwise
  • Choose from 10- to 30-year term coverage options
  • Option to scale down coverage over time without reapplying
  • Approval within minutes for many applicants
  • Backed by national insurers with strong financial strength ratings

Best for Fast Approval: Bestow

Bestow Life Insurance Logo

Bestow earns its spot as one of the best no-exam life insurance companies thanks to a streamlined digital application and underwriting process that produces results in as little as five minutes. If Bestow doesn’t need any additional information from you, you can apply for life insurance and get an up-or-down approval decision during your coffee break.

Its features include:

  • Term life insurance only
  • Term lengths from 10 to 30 years
  • Policy death benefits as low as $50,000
  • Coverage up to $1.5 million per policy with no medical exam required
  • Open to applicants ages 18 to 60
  • A+ (Superior) financial strength rating from A.M. Best

Best Premium Membership Rider: Haven Life

Haven Life Logo 1

Haven Life is one of the best online term life insurance companies around, but it really shines for a reason that’s not directly related to insurance. Haven Life offers the best premium membership rider — an optional add-on filled with potentially valuable features.

That rider is Haven Life Plus. It’s free to policyholders wherever it’s offered and provides at least $150 in annual value to policyholders. It includes:

  • A customizable and legally binding will that you can store online
  • A subscription to Adaptiv, a workout video and music library
  • A subscription to Timeshifter, an app designed to fight jet lag
  • A subscription to Lifesuite, a secure digital storage vault
  • A 15% discount on eligible MinuteClinic products and services

Haven Life has some additional features worth noting, including:

  • Term life coverage up to $3 million with a medical exam
  • No-exam coverage up to $500,000 through Haven Simple
  • AgeUp, an annuity product that can supplement your retirement income after you turn 90

Best for Nontraditional Underwriting: Sproutt

Sproutt Life Insurance Logo

Sproutt is an online life insurance broker that uses an innovative model called the Quality of Life Index (QL Index) to assess life insurance applicants’ risk. 

While it doesn’t completely replace traditional considerations in Sproutt’s application process — or in the underwriting processes of the insurers Sproutt works with — the QL Index goes beyond the usual medical and lifestyle information to consider factors like:

  • How often you exercise and what kind of exercise you do
  • How much and how well you sleep
  • Your emotional health
  • Your eating habits and overall nutrition
  • Your work-life balance

Additional features:

  • Access to fully medically underwritten term life, no-exam life (simple issue life insurance), and guaranteed issue life insurance
  • Multiple types of permanent life insurance available, including whole, universal, and variable universal
  • Get quotes within minutes
  • Apply directly with the insurer with help from Sproutt agents 

Best for Guaranteed Issue Life Insurance: Ethos

Ethos Life Insurance Logo

Ethos is rare among online life insurance companies because it offers permanent life insurance. Most competitors stick with term life.

Ethos’ permanent life insurance offering is a low-value whole life insurance policy for people between the ages of 66 and 85. Its features include:

  • Death benefit between $1,000 and $30,000
  • Guaranteed issue life insurance, meaning you can’t be turned down for medical reasons
  • No expiration, meaning the policy is effective until you die or stop paying premiums
  • Guaranteed level premiums, meaning your premiums won’t increase over time
  • Accidental death is covered right away
  • Nonaccidental death coverage kicks in two to three years after the policy effective date in most cases

Ethos’s term life offering is no slouch either. Its benefits include:

  • Amount of coverage ranges from $20,000 to $1.5 million
  • 10- to 30-year terms
  • Guaranteed renewable after the term ends, albeit at a higher premium

Best for Higher Coverage Limits: Fabric

Fabric Life Insurance

Fabric offers online life insurance policies with coverage up to $5 million. That’s an unusually high limit for a streamlined, all-online application process. And Fabric offers a no-exam option for applicants with uncomplicated health histories, although not up to the $5 million coverage limit.

Additional features:

  • Accidental death coverage available up to $500,000
  • A+ (Superior) financial strength rating
  • Low pricing, with monthly rates starting as low as $1 for $1 million in coverage
  • Will-making services available
  • Secure online vault for financial and personal documents at no additional cost

Best for Price Transparency: Walnut

Walnut Life Insurance Logo

Walnut sets itself apart with what it calls “price-first” term life insurance. Basically, you know how much you’ll pay for 10-year term coverage before you apply, making it easier to fit a new monthly payment into your budget (or decide to go a different direction). You never have to take a medical exam as a condition of coverage.

Walnut also offers a broad lineup of value-adds through a premium membership program included in the cost of insurance. Starting at $10 per month, this includes subscriptions to:

  • Headspace Plus, an app offering guided meditation and self-directed therapy
  • ClassPass Digital, a library of home workout videos
  • Dashlane Premium, a password manager and auto-fill app

According to Walnut, this package is a $25 monthly value. If you want even more, upgrade to a Digital Protection membership for an additional monthly fee and enjoy:

  • 24/7 access to a cyber support helpline
  • Up to $1 million in stolen funds reimbursement if you’re the victim of identity theft

Best Online Broker for Life Insurance Only: Quotacy

Quotacy Life Insurance

Quotacy is an online insurance broker specializing in life insurance quotes. In fact, a life insurance quote is the only type of insurance quote you can get through Quotacy. 

Quotacy’s narrow focus on life insurance gives it some advantages over other online insurance brokers:

  • Access to term life policies as long as 40 years — elsewhere, policies generally top out at 30 years
  • Access to a variety of types of life insurance, including term life
  • Multiple permanent life insurance options, including whole life policies and universal life policies
  • A five-minute, all-online quote creation process
  • Dedicated agents who understand life insurance
  • A vast insurer network that ensures competitive life insurance rates

Best Online Broker for Other Policy Types and Bundles: Policygenius

Policygenius Logo

Policygenius is an all-purpose online insurance quote aggregator. Unlike Quotacy, it focuses on a variety of different types of insurance, including: 

If you’re shopping for more than one type of insurance right now, Policygenius is your best choice for fast answers. And if you’re paired with a life insurance provider that offers other types of insurance too, there’s a good chance Policygenius can hook you up with a money-saving bundle discount. 

Methodology: How We Select the Best Online Life Insurance Companies

We use several criteria to evaluate online life insurance companies and select the very best for our readers. Some relate to the application process or policy underwriting, while others speak to the overall user experience and quality of the insurers themselves.

Financial Strength and Customer Satisfaction

Third-party financial strength ratings assess insurers’ ability to pay out death benefits in the future. When possible, we use ratings from A.M. Best, a highly respected rating agency that specializes in the insurance industry.

Customer satisfaction is another important measure of insurer quality. The top authority for customer satisfaction ratings in this industry is J.D. Power, which ranks life insurance companies and life insurance products annually.

Policy Types Available

Many online life insurance companies offer term life insurance only. Those insurers that also offer permanent life insurance coverage generally require medical underwriting for it, lengthening the application process.

That said, if you prefer to have both options available when you apply, you’ll want to focus your attention on insurers that can accommodate.

Term Options

Online term life insurance policies typically range from 10 to 30 years. Some insurers offer shorter-term policies, down to five or even two years. 

Unless otherwise specified in the terms of the policy, you can renew your policy once the initial term expires. However, this may require another round of underwriting and will definitely involve a higher premium.

No-Medical-Exam Options

One of the core benefits of online life insurance is the seamless application process. This process is helped along in many cases by a lack of medical underwriting. 

The insurer might ask some basic questions about your personal and family medical history and lifestyle. It’ll check your answers against your health records as well. But it won’t require you to undergo a medical exam as a condition of coverage.

No-medical-exam coverage costs more than fully medically underwritten coverage because it provides less information about your risk of premature death. However, this is a price many would-be policyholders are willing to pay, especially if they have reason to believe a medical exam would turn up health-related red flags.

The best insurers for no-exam coverage have high coverage limits — above $1 million — and terms of at least 20 years for younger and middle-aged applicants.

Coverage Amount (Death Benefit)

Online life insurance death benefits typically range from as low as $25,000 to $50,000 for final expenses insurance to upwards of $1.5 million. If you have higher life insurance needs, look to an insurer that can accommodate — Haven Life’s coverage amounts range up to $3 million, for example.

Policy Add-ons (Riders)

Many online life insurance companies offer policy add-ons, also known as riders. Some of the most common include:

  • Return of premium riders, which reimburse the policyholder for premiums paid during the policy term
  • Accelerated death benefit, which allows terminally ill policyholders to claim a portion of the death benefit before they die
  • Accidental death rider, which pays out an additional death benefit if the policyholder dies in an accident covered by the rider

Online Life Insurance FAQs

You have questions about getting life insurance online. We have answers.

Do You Need to Get a Medical Exam When You Apply for Life Insurance Online?

Often, no. If you’re applying for a life insurance policy worth less than $500,000, you probably won’t have to get a medical exam if you don’t want to. Many insurers offer no-medical-exam coverage as high as $1 million or $1.5 million, and a few go higher still — up to $2 million or $3 million.

That said, if your top concern is paying as little as possible for coverage and you have no known health issues, opt for the medical exam. As long as the exam doesn’t raise any red flags about your health, you’ll pay less for a policy that requires one.

How Much Does Online Life Insurance Cost?

How much you pay for an online life insurance policy depends on a number of factors:

  • The policy value — coverage amount or death benefit
  • The policy term — the longer the term, the higher the premium
  • The type of policy — term life is always cheaper than permanent life
  • Your personal medical history
  • Your family medical history
  • The results of your life insurance medical exam if you take one
  • Your age when you apply
  • Your lifestyle, including whether you use or have ever used tobacco and whether you have any risky hobbies

The best way to estimate your life insurance cost is to use an online quote aggregator like Policygenius or Quotacy. 

What Do You Need to Apply for Life Insurance Online?

To apply for life insurance online, you’ll need some or all of the following:

  • A good idea of how much life insurance you need
  • Basic personal information, like your address and Social Security number
  • Basic financial information, such as your annual income
  • Your height and weight
  • Your recent medical history
  • Information about your lifestyle and personal habits

If required, you’ll need to take a medical exam in the days or weeks after you send in your initial application for coverage. Many insurers offer in-home exams, but some ask you to visit a testing facility. 

You’ll also need to give your consent for the insurer to pull your Medical Information Bureau file. This file contains important information about your medical history and previous insurance applications, helping would-be insurers check the information you provide on your application against the public record.  

Is Life Insurance Worth It?

Often, yes. One of the most harmful myths about life insurance is that only certain people need it, such as parents of young children or people with lots of debt. In fact, there are many reasons to buy life insurance:

  • Covering final expenses, such as funeral and burial costs
  • Preventing major debts from passing to a surviving spouse or partner
  • Covering higher costs borne by survivors, such as child care and health insurance
  • Covering future education expenses for your children
  • Protecting your business partners’ financial interests
  • Maintaining your survivors’ standard of living
  • Creating a store of cash value that you can borrow against during your lifetime

Chances are, at least one of these reasons applies to you. And if that’s the case, some form of life insurance is probably worth it.

How to Choose the Best Online Life Insurance Company

These are the best online life insurance companies on the market right now, but that doesn’t mean they’re interchangeable. The best choice for your life insurance needs might not be the best choice for your neighbor — or even your spouse.

To choose the best online life insurer for you, think about why you’re applying for life insurance in the first place.

Do you want an affordable term life policy that lasts until you pay off your house in 15 years? Do you want to make sure your future kids’ college education is paid for, 20 or 25 years down the road? Do you want a policy that lasts indefinitely, creating a cash value reserve that you can tap as you age and possibly establishing generational wealth for your heirs?

Likewise, think about what you want out of your relationship with your insurer, beginning with the application process. Are you willing to pay more to forgo medical underwriting? Or do you prefer a seamless, super-fast application process that produces an answer — and an active policy — within minutes?

It’s your call. Fortunately, you can’t go wrong with any of the options on this list.

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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.


When Can You File Your Taxes This Year?

The sooner you file your tax return, the sooner you’ll receive any refund due. That’s why some people like to file their return as early as possible. This year, the IRS will start accepting 2021 tax returns on January 24, 2022. That’s much earlier than last year, when you had to wait until mid-February to start filing returns.

If you’re really itching to file your return as soon as possible and made $73,000 or less in 2021, you can use the IRS’s Free File program to file your return as early as January 14. Participating providers will accept completed returns starting on that date and hold them until January 24, when they can be filed electronically with the IRS. Other tax preparation software companies and tax professionals may also accept or preparing tax returns before January 24 and hold them until the IRS itself begins accepting returns.

If you’re more of a procrastinator when it come to taxes, most people have until April 18, 2022, to file your 2021 federal income tax return or request a filing extension. Normally the due date is April 15, but since that day is a holiday in Washington, D.C. (Emancipation Day), the deadline is pushed back to the next business day, which is April 18. However, if you live in Maine or Massachusetts, you get an extra day to file your federal return – until April 19 – because of the Patriots’ Day holiday in those two states. Anyone requesting an extension will have until October 17, 2022, to file their 2021 federal income tax return (although payment of any tax owed is still due on the April 18 or 19 deadline).

Who Must File a Tax Return?

Not everyone is required to file a tax return. If your income is under a certain amount (see table below), you aren’t required to file a tax return because you won’t owe any tax.

Federal Tax Return Filing Requirements (2021 Tax Year):

Filing Status and Age at End of 2021

Income Required to File 2021 Return

Single; Under 65


Single; 65 or Older


Married Filing Jointly; Both Spouses Under 65


Married Filing Jointly; One Spouse 65 or Older


Married Filing Jointly; Both Spouses 65 or Older


Married Filing Separately; Any Age


Head of Household; Under 65


Head of Household; 65 or Older


Qualifying Widow(er); Under 65


Qualifying Widow(er); 65 or Older


However, even if your income is below the applicable threshold, you still may want to file a 2021 tax return anyway. For example, you will need to file a return to claim a recovery rebate credit if you didn’t get a third stimulus check or got less than what you should have received. There also may be other tax credits that are only available if you file a return, such as the:

If you receive monthly child tax credit payments last year, you’ll have to reconcile those payments with the total credit that you’re actually entitled to claim. (Some people may even be required to pay back all or some of the monthly payments if they received too much.)

When Will Tax Refunds Arrive?

If you have a federal tax refund coming, you could get your money back in as little as three weeks. In the past, the IRS has issued over 90% of refunds in less than 21 days. If you want to speed up the refund process, e-file your 2021 tax return and select the direct deposit payment method. That’s the fastest way. Paper returns and checks slow things down considerable.

However, don’t expect your refund before mid-February if you claim the earned income tax credit or the additional child tax credit. By law, refunds for returns claiming these credits must be delayed. This applies to the entire refund, not just the portion associated with the credits.


Dear Penny: Will My Husband’s Bad Health Choices Drain My Life’s Savings?

Dear Penny,

My spouse suffered from a stroke three years ago. He is unable to work and is receiving Social Security and is very noncompliant about his health. I am currently and have been the breadwinner for this family. 

My concern is that he is going to financially take everything I have saved and worked hard for with his consistent medical expenses. I fear he could end up in a nursing home. 

I have thought about divorce, but I know he would take half of my retirement. I am 62, and I hope to be able to retire at 65. How can I protect my retirement from the possible nursing home and medical expenses? 


Dear T.,

Watching your spouse jeopardize his health and risk your future in the process has got to be agonizing. Unfortunately, the threat of unmanageable medical bills is far too common since Medicare only covers the first 100 days of skilled nursing care.

Paying for a nursing home can quickly erase a lifetime’s worth of savings. The average cost of a semi-private room in a skilled nursing facility is over $7,700 per month, according to Genworth’s 2020 Cost of Care survey. Eventually, Medicaid will kick in — but only after someone has depleted almost all of what’s called countable assets, which include things like retirement accounts and other investments, cash, bank accounts and homes that aren’t used as a primary residence.

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When one spouse needs Medicaid but the other doesn’t, the non-applicant spouse can typically keep no more than $137,400 of countable assets. That’s not much if you’re expecting a long retirement.

But you do have options for preserving the money you’ve worked hard for over the years. It’s essential that you consult with an elder care attorney. Medicaid planning is extraordinarily complex, and the laws vary significantly by state. You can use the National Academy of Elder Law Attorneys database to search for an attorney near you.

You’re correct in that if you divorced, your husband would probably be entitled to part of your retirement. But most attorneys don’t recommend getting divorced solely to qualify one spouse for Medicaid for a host of reasons that are too complicated to delve into here.

One option you should discuss with an attorney is a Medicaid-compliant annuity. In a nutshell, Medicaid considers the income of the spouse who’s applying for coverage, but the other spouse’s income is off-limits. A Medicaid-compliant annuity takes part of your assets and converts it into a fixed income stream. The payments are based on your life expectancy, calculated according to Social Security’s life expectancy table.

For simplicity’s sake, let’s say you have $257,400 in countable assets, which would put you $120,000 above Medicaid’s threshold. You use that $120,000 to buy an annuity. If your life expectancy is 10 years, you’d immediately start to get payments of $1,000 a month, or $12,000 annually, for the next 10 years.

The insurance company makes its money by investing your principal. It’s a good tool for married couples when only one spouse needs care because, remember, the income of the other spouse isn’t used for Medicaid eligibility.

There are many rules an annuity has to follow to be considered Medicaid compliant. For example, it has to be a single premium immediate annuity, meaning you buy it in a lump sum and the payments start right away. If you’d opt to go this route, it’s important to look specifically for a Medicaid compliant annuity. Annuities advertised as “Medicaid-friendly” often don’t meet all the rules.

If you have debt, you could also use part of your assets to pay it off so you can keep your expenses minimal in retirement. Paying off a mortgage balance, a personal car loan or a credit card balance generally won’t violate Medicaid’s rules. If the two of you own your home, there’s no limit on your home equity as long as you continue to reside there.

You could have other options depending on your state. For instance, if you live in Florida or New York, you may be able to use a spousal refusal strategy, where you essentially sign a written statement refusing to contribute to the cost of your husband’s care.

These are just a few strategies that may be possible in the event that your husband needs long-term care. However, I can’t stress how important it is to consult with an experienced attorney about how to protect your assets. You may not need to take any action right away. But just knowing what options you have will set your mind at ease.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.


By: Jeanine Skowronski

A debt collector may contact people that know you, but only to find out your address, your phone number and where you work. In most cases, a debt collector may not tell anyone other than you, your spouse or your attorney that you owe money. More info here:




Retirement Checklist: 5 Things to Know Before Leaving the Workforce

Working more than 35 years can really pay off, especially if you’re making significantly more than you were in your early career because you get to replace some of those low-earning years with higher wages.
We’d love to say things get easier when you turn 65 and enroll in Medicare, but that’s not always the case.
Retirement is calling your name — but can your budget handle it? Check out these tips to avoid financial stress and worry during your golden years.
Another option is to extend your employer’s insurance benefits through COBRA for 18 months. But at an average cost of 0 to 0 per person per month, it’s a pricey option.
Let’s say you started collecting Social Security at 62 and receive ,200 a month.
Keep in mind that “taxable” doesn’t mean that’s what you pay in tax. Suppose you’re a single filer with ,000 of income: ,000 from Social Security benefits and ,000 from 401(k) withdrawals.

5 Essential Things to Put on Your Retirement Checklist


1. Know Your Social Security Full Retirement Age

But here are a few important guidelines about Medicare:
Once you reach full retirement age, Social Security will recalculate your monthly benefit amount and give you credit for the months they reduced your payment.
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You can start collecting Social Security retirement benefits as early as age 62. But if you opt in early, your monthly benefits will be reduced significantly.

  • If you were born between 1943 and 1954, your full retirement age is 66.
  • If you were born between 1955 and 1960, your full retirement age increases gradually up to age 67.
  • Anyone born since 1961 has a full retirement age of 67.

Here’s an example.
You get a larger monthly benefit by working past your full retirement age.

Pro Tip
You aren’t eligible for full Social Security benefits until you reach what’s known as your full retirement age.

2. Learn About Ways to Maximize Your Social Security Benefit

Contrary to popular belief, this federal health insurance program isn’t free and it doesn’t cover all your health care costs.
There’s a lot to know about Medicare — much more than we can cover here.
But many of those workers didn’t really quit — they retired.
If you’re married filing jointly:
Your benefit amount increases for every month you do not accept Social Security benefits, although this added benefit maxes out at age 70.
Report All Your Earnings
Marriage and Divorce Make a Difference
Like we mentioned above, you can increase your Social Security benefit by working past your full retirement age.
Work at Least 35 Years
That’s ,440 over the limit, so your yearly Social Security benefits would be reduced by ,520, or 0 a month.
Your Social Security benefits are technically income. So do you owe taxes on Social Security?
Or, if your current or ex-spouse dies, you could qualify for 100% of their benefit if you meet certain requirements.
But — and this is really important — that money isn’t gone forever.

3. Know the Social Security Earning Limits if You Plan on Working in Retirement

The Social Security Administration now bases your full retirement age on the year you were born:
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Ready to stop worrying about money?

  • Once you hit full retirement age, working doesn’t impact your Social Security benefits — no matter how much you earn.
  • If you’re not yet at full retirement age but receive Social Security benefits, you can make up to $19,560 a year without penalty. (For context, that’s $1,630 a month, or $376 a week).
  • After that, your benefits are reduced by $1 for every $2 you make over $19,560.

Make sure to report earnings you make from tips, freelancing and self-employment throughout your career. Failing to report these earnings could reduce the amount of Social Security you get later on.
Other health insurance options for early retirees include:
You can only qualify for Medicare before age 65 if you’ve been on Social Security Disability for at least 24 months. People diagnosed with end-stage renal disease or ALS also qualify.
Full retirement age used to be 65, but that hasn’t been the case for a while.
How much you receive from Social Security also depends on your marital status.
But if you make more than ,560 a year in 2022, your Social Security benefits will go down.
Waiting until you reach age 70 can result in a monthly benefit that’s 77% higher than if you claimed at 62.

4. Get Familiar With Your Health Care Options

If Social Security is your only income source, you most likely won’t pay any taxes on it. The average benefit amounts to just ,516 per year and you can make up to 25,000 before taxes kick in.
Generous federal stimulus checks, strong stock market gains and rising home values prompted some better-off Americans to retire early.

  1. If you retire before age 65, you’ll likely lose coverage at work and need to find your own health care.
  2. At 65, you’re eligible for Medicare.

Social Security uses your 35 highest-earning years to calculate your benefit, so it’s wise to stay in the workforce at least that long.
You might be able to get coverage through a spouse’s plan, assuming you’re married to someone with workplace health coverage. (If they’re on Medicare, they can’t add you to their plan).
Yes, you can work and collect Social Security at the same time.
That simply means that your income will be ,000 in the eyes of the IRS: ,000 from the 401(k), plus 50% of the ,000 from your Social Security benefits. Uncle Sam can’t touch the remaining 50%.

  • Try to find a part-time job that offers health care coverage. Just be mindful of those Social Security earning limits.
  • Find a plan on the Health Insurance Marketplace. Losing health coverage at work qualifies you for a 60-day special enrollment period on the Marketplace — the federal government’s health care shopping and enrollment service for uninsured Americans.
  • See if you qualify for Medicaid in your state. Especially if you know your income in retirement will be small.
  • Get private health insurance on your own. This can be complex and costly, especially if you’re in poor health or on a limited income.

A couple years later, you go back to work and earn ,000 in a calendar year.
If you’re a single filer:
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.

  • If you’re already receiving Social Security benefits when you turn 65, you’ll be automatically enrolled in Medicare. You don’t need to do anything else.
  • If you have coverage through a Marketplace plan, COBRA through a past employer or TRICARE for retired military members, you’re required to enroll in Medicare when you turn 65.
  • You may not need to sign up for Medicare right away if you’re still working and enrolled in your employer’s group health plan or if your spouse is still working and you’re covered under their plan. But be sure to check with your employer.
  • Otherwise, your Medicare eligibility begins around your 65th birthday, and you have a seven-month window to sign up.

For example, if you’re divorced and not remarried, you might be eligible to claim benefits based on your ex’s work record (provided that your marriage lasted at least 10 years). Doing so won’t impact their benefits.

5. Understand How Your Social Security Benefits Are Taxed

Nearly every strategy that might increase your Social Security check boils down to this: Work longer, earn more money and wait as long as possible.
Health care will likely be one of your biggest expenses in retirement.
If you have additional income, whether it’s from a job or investments, there’s a good chance at least part of your Social Security will be taxed.
In some cases, yes.

  • 0% of your benefit is taxable if your income is below $25,000.
  • Up to 50% of your benefit is taxable if your income is between $25,000 and $34,000.
  • Up to 85% of your benefit is taxable if your income is above $34,000.

Meanwhile, some Americans with modest incomes were forced into retirement due to job loss, COVID-19 health concerns and caregiving responsibilities.

  • 0% of your benefit is taxable if your combined incomes are below $32,000.
  • 50% of your benefit is taxable if your combined incomes are between $32,000 and $44,000.
  • 85% of your benefit is taxable if your combined incomes are above $44,000.

Millions of Americans quit their jobs this year as the Great Resignation took hold of the U.S. labor market.
The United State’s retiree population has grown by about 3 million since the pandemic, according to The Washington Post. That’s about double pre-pandemic retirement trends.
That’s why it’s essential to understand your health care options.
There are other ways to boost your monthly benefit, but unfortunately, there aren’t any quick fixes. <!–


In other words, making ,000 during a year that falls between 62 and your full retirement age reduces your ,200 monthly check to 0.

How to Handle an Increase in Your Long-Term Care Premiums

The cost of living rises every year, which makes paying for basic expenses more difficult. Long-term care (LTC) premiums are increasing, too. It’s become a focal point in the last several months as rates have gone up — the increased premiums can harm an individual’s quality of life and continued access to quality care. It’s an issue that hits close to home for me and my family, as my mom has seen her premiums rise by 50% over the past two decades.

According to the U.S. Department of Health and Human Services, someone turning 65 today has nearly a 70% chance of needing long-term care services and support. Currently, a growing client base who bought LTC insurance in the past is now seeing high premium increases.

While someone in their 60s and early to mid-70s may be able to manage a premium increase, the rate hike is much more difficult for those in their late 70s. The situation may have you thinking you need to reduce coverage or even forgo insurance altogether.

However, there are less drastic ways to tackle the issue and maintain premiums while handling the increased costs.

Why Are LTC Premiums Increasing?

Premiums have risen steeply over the past several years due to many factors. According to research conducted by the American Association for Long-term Care Insurance, the causes of high premiums include lapse rates, rising costs, longer lifespans and low interest rates.

Lapse rates are a big factor. Insurance companies priced policies under the assumption that 4% of policyholders would allow their policies to lapse. Yet, as the policyholders aged, only 1% discontinued their insurance, resulting in more people claiming LTC than projected.

People are living longer, too. Not only are more people submitting claims, but insurance companies are paying out for longer periods of time. Companies must maintain large reserves of cash to make sure they can keep up with the rising cost of medical care while balancing sharp decreases in interest rates that lowered returns.

It’s no surprise insurance companies are feeling the pinch, and they’re passing the pain onto policyholders.

Five Ways to Handle LTC Premium Increases

As a policyholder faced with an increase in LTC premiums, you need to find ways to cushion the blow and maintain the policy while dealing with the higher costs. Here are five ways you can go about handling the higher costs. 

1. Shorten your benefit period

Carriers typically offer different benefit periods that can range from two to five years. Shorter benefit periods mean the insurance company will have to pay out fewer claims, and that can lower your premiums.

Keep in mind that the benefit period isn’t a finite amount of time. You may be able to stretch it out longer than you think.

For example, suppose you buy a two-year policy at $100 per day — that’s 730 days of care. But your benefit period could last much longer than two years if you don’t use the full $100 per day benefit consecutively.

Essentially, the benefit period is the minimum amount of time your policy would cover you. If you have a five-year policy, you may want to consider shortening it to two or three years to lower your costs.

2. Consider a shared care policy

Shared care is a type of long-term care insurance coverage for married couples. It lets spouses take out a plan and add their partners as a “rider.” As a designated rider, you can access the funds of your spouse’s plan if you exhaust funds from your own policy.

A shared care policy can reduce costs by pooling benefits together. Then, when either of you need coverage, you can split the coverage between the two of you. It can also extend your coverage. For example, if you and your spouse each have a three-year plan, you have the potential to tap into six years of benefits.

3. Think about a longer elimination period

The longer you make the waiting period before you start receiving payments, the cheaper your premiums can be. It’s like a deductible on car or home insurance, except it’s measured in time and not dollar amount.

Most policies have elimination period options of 30, 60 or 90 days. The longer the period, the longer it takes for the insurance company to kick in and start paying benefits, and the lower your long-term care premiums can be. The downside is you may end up paying more out of pocket — you’re responsible for paying the cost of any services you receive during the elimination period.

4. Reduce your daily benefits if you must

When buying your policy, you were likely looking for the best protection available. You may want to consider reducing the daily benefit as a last resort now that premium costs are on the rise. Instead of the maximum daily benefit, you can opt to pay for some of the daily benefits yourself. Lowering your benefit amount can automatically lower your premiums.

5. Contact your provider to ask about options

Every carrier offers different policy terms, and you may have other options to make your coverage more affordable. Contact your provider to ask about ways to lower your premiums before you determine your policy is too much for your budget.

It also helps to talk with a financial professional. A financial planner can review your situation, discuss your coverage needs, recommend an affordable plan, and address ways to lower the cost of your premiums.

LTC Premiums Increases: The Bottom Line

The rising LTC rates may be a shock. But remember you’re not alone. If the LTC price increase is making the insurance unaffordable, reach out to your provider or a financial planner to discuss your options. Reducing the benefit period can help in some cases. However, you likely want to avoid reducing the daily benefit amount unless necessary — it can negatively impact your quality of life and long-term care coverage.

The most important thing to keep in mind is that you have options. It may be possible to lower your monthly premiums and maintain your coverage, so you have the help when you need it most.

Every situation is unique. In my own family’s case, in 2000, I recommended that my parents purchase long term care insurance. They selected a $125 daily benefit for four years. At the time of purchase, my mom was 54 and my dad was 68. I advised my mom to select 5% compound inflation protection and my dad 5% simple inflation. The annual premium for Mom’s policy started out at $1,224 (I looked up the exact amount) and my dad’s was closer to $2,242 ( I looked up the exact amount) due to their age differences. In 2004, my dad was diagnosed with Parkinson’s disease. His condition precipitously declined in 2012. He did require assistance with the Activities of Daily Living and started using his benefits. Dad passed away in 2015.

Since my mom purchased her policy, she has experienced three price increases. Her annual premium is now $1,865 (I just helped her pay the bill) but her daily benefit has grown to $343. Her own mom lived to 94. At some point, we may freeze benefits, but for now these premium increases are manageable.

 Many couples may be able to withstand one long term care event, but I think about the impact of the factor we cannot control: inflation, taxes, and market performance.  The bottom line is that I would not want my parents to lose financial dignity in retirement.

CEO, Blue Ocean Global Wealth

Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠, Retirement Income Certified Professional and a Certified Divorce Financial Analyst. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.


How to Donate Money and Reduce Your Taxes This Holiday Season

It’s that time of year. Neighborhoods are twinkling with decorative lights, shoppers are filling stores in search of must-have gifts – and financial advisers are busy helping clients finalize their last-minute tax planning for 2021.

It’s also the season when many charities receive the bulk of their annual donations, as the holiday spirit inspires people to give a little more. As we near the end of 2021, investors who’ve seen their portfolios grow significantly due to gains in the stock market may be feeling particularly generous, especially if the painful challenges of the pandemic have opened their hearts to giving more freely.

If that idea resonates with you, your first instinct might be to mail a check or pledge a donation online to your favorite nonprofit. While doing so may be perfectly fine, you may be missing out on certain tax advantages that come with alternative ways of giving.

Here are some ways to extend your generosity, and at the same time potentially reap tax savings.

Gain by Giving Through Qualified Charitable Contributions

If you’re age 72 or older, you need to make required minimum distributions (RMD) from your individual retirement accounts (IRAs). But if your RMD amount is more than you need to cover your expenses, you may have a great opportunity to give to charity while managing your tax bill.  Simply have your IRA provider send the RMD amount – or more – directly to the charity.

This strategy is known as a qualified charitable contribution (QCD). The QCD fulfills your RMD obligation, and the amount distributed to the charity does not count toward your income taxes, as long as it’s less than the annual exclusion limit of $100,000. And if you file a joint return, your spouse can claim a QCD for up to $100,000 as well.

While the age for required minimum distributions has been moved to age 72, the ability to use QCDs is still age 70.5. So, tax filers within this age group, regardless of whether they itemize, can make a charitable contribution under the exclusion limit directly from their IRA to a qualifying charity.

Utilize Gift Tax Exclusions 

In some situations, you may want to give directly to a person.  If this is the case, you can take advantage of the annual gift tax exclusions.

The IRS allows anyone to give up to $15,000 (in 2021) to another person, and the gift transfers without adding to the taxable income of the recipient or counting against your estate and gift tax exclusion amount. Since each individual may make gifts up to the annual gift tax exclusion amount per recipient, you and your spouse can each give $15,000 to the same person. This means you and your spouse could jointly give a friend dealing with a financial hardship, for example – or a loved one who suffered an unexpected loss – $30,000 without gift tax consequences.

We know that many people plan to leave an inheritance to family members. However, in some cases you may want to consider giving to those family members prior to your death, so that you can see your loved ones use and enjoy your gifts. This idea of “giving while living” can be another way to use the $15,000 annual gift tax exclusion.

Similarly, you can also fund a child’s or grandchild’s education by contributing to a 529 college savings plan – but keep in mind the $15,000 per person gift tax exclusion applies (though there is an accelerated five-year gifting rule that could apply, see your tax adviser).

Gift Your Winners

When people donate to their favorite charity, they usually pull out their checkbook or credit card. But there is another option to give to causes you care about that may be very beneficial this year given the markets’ record highs: You can gift appreciated stock shares that you own.  The organization can cash out the stock at the current asking price, and you won’t be taxed on the capital gains from the asset’s appreciation.

If you donate appreciated stock that you’ve held for more than a year, then you’ll generally be able to claim a potential charitable tax deduction for the full fair market value of the stock. This approach avoids paying the capital gains tax that would result if you sold the stock and donated the cash. 

As you carry out your giving plans, consider using one of these tax-savvy strategies.  They can make the holidays even happier for you and those you care about.

This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax adviser or attorney regarding their specific situation.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.  

Senior Vice President, Financial Advice Strategy and Marketing, Ameriprise Financial

Marcy Keckler is the Senior Vice President, Financial Advice Strategy and Marketing at Ameriprise Financial. She also oversees the Confident Retirement program. Marcy has been with Ameriprise Financial (formerly American Express Financial Advisors) for 21 years in a variety of positions in financial planning, marketing and interactive development.


Dear Penny: Can I Collect My Ex-Husband’s Social Security if He’s Only 54?

Dear Penny,

I’m in the process of divorce. It’s been two years since I’ve filed. My husband makes more money than I do. I’m disabled and can’t work. I hardly have an income coming in right now! 

I’m going to be 62 in four months. He is 54. Would I be able to get his Social Security if I retire at 62?

-Legally Separated

Dear Separated,

Bad news first: If you’re collecting Social Security based on a former spouse’s earnings, your ex needs to be eligible for benefits. That means if you apply after your divorce is finalized, your soon-to-be-ex would either need to be age 62 or on disability. If you applied for benefits on his record while you’re still married, he’d not only have to be eligible for benefits. He’d have to actually be taking them.

Now for the good news: Since you’re over age 60 and unable to work, qualifying for Social Security disability insurance (SSDI) benefits may be easier than you think. You may get more money each month than you would if you took retirement benefits at 62.

A lot of older workers are tempted to start Social Security retirement checks early when a health condition precludes them from holding a job. That’s understandable, because getting approved for disability can be a long and cumbersome process. But starting retirement benefits early instead of applying for disability is a mistake in many cases.

Social Security weighs a host of factors when you apply for disability, including the type of work you did previously and what job skills you learned. If your disability prevents you from doing a job that’s similar to your past work, Social Security considers your ability to adjust to other types of work.

Social Security wouldn’t deem you disabled solely based on how old you are. But by the time you’re 55, your age is considered a significant factor that affects your ability to adjust to new types of work. The rules are even more favorable for people ages 60 and older. You’re about twice as likely to collect SSDI if you’re 60 or older than you are at age 50, according to the Center on Budget and Policy Priorities.

The big advantage of taking SSDI over early Social Security is that you won’t permanently reduce your benefits. Disability checks based on the amount you’ve paid into Social Security, as if you’d already reached full retirement age. Once you reach full retirement age — which is 67 if you were born in 1960 or later — you’ll automatically convert to retirement benefits. Your payment probably won’t change. After 24 months of SSDI, you’d also automatically qualify for Medicare Parts A and B.

However, if you took retirement benefits at age 62, your payments will be reduced by about 30%. When you take benefits based on a spouse’s or ex-spouse’s record, the most you can receive is 50% of their full retirement benefit. Even when one spouse earns more, the other spouse will often get more by claiming benefits based on their own work history.

To boost your odds of success, consult with a Social Security disability attorney. Typically, they work on contingency, which means they don’t get paid unless you win your claim. If that occurs, their fees are usually capped at the lesser of $6,000, or 25% of your back pay.

If SSDI doesn’t seem feasible, it’s essential to negotiate for alimony as you finalize your divorce. Doing so could allow you to hold out for a bigger retirement benefit.

Claiming Social Security is more or less a permanent decision. If you’re unable to work, it’s vital that you try to get disability first before you accept lower payments for the rest of your life.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].

Related Posts




Required Minimum Distribution (RMD) Rules for 401(k)

When you turn 72, the IRS requires you to start withdrawing money from your 401(k) each year. These withdrawals are called required minimum distributions (or RMDs), and it’s important to understand how they work because if you don’t withdraw the correct amount by Dec. 31 of each year, you could get hit with a big penalty.

The RMD rules also apply to other tax-deferred accounts, including traditional IRAs, SIMPLE and SEP IRAs. You don’t have to take RMDs from a Roth IRA — unless it’s inherited, or it’s a Roth 401(k).

To avoid any confusion — and a potentially hefty penalty — keep reading to understand the ins and outs of RMDs.

What Is an RMD?

While many 401(k) participants know about the early withdrawal penalties for 401(k) accounts, fewer people know about the requirement to make minimum withdrawals once you reach a certain age. These are called required minimum distributions or RMDs, and they apply to most tax-deferred accounts.

Prior to 2019, the age at which 401(k) participants had to start taking RMDs was 70½. The rule changed in 2019 and the required age to start RMDs is now 72. When you turn 72 the IRS requires you to start taking withdrawals from your 401(k), or other tax-deferred accounts. If you don’t you could face another requirement: to pay a penalty of 50% of the withdrawal you didn’t take.

All RMDs from tax-deferred accounts like 401(k) plans are taxed as ordinary income. If you withdraw more than the required minimum, no penalty applies.

Why your first RMD is different

There is a slight variation in the rule for your first RMD: You actually have until April 1 of the year after you turn 72 to take that first withdrawal. For example, say you turned 72 in 2021. You would have until April 1, 2022 to take your first RMD.

But you would also have to take the normal RMD for 2022 by Dec. 31 of that year — thus potentially taking two withdrawals in one year.

Since you must pay ordinary income tax on the money you withdraw from your 401(k), just like other tax deferred accounts, you may want to plan for the impact of two taxable withdrawals within one calendar year if you go that route.

Why does the government require these withdrawals? Remember: All the money people set aside in defined contribution plans like traditional IRAs, SEP IRAS, SIMPLE IRAS, 401(k) plans, 403(b) plans, 457(b) plans, profit-sharing plans, and so on, is deposited pre-tax. That’s why these accounts are typically called tax-deferred: the tax you owe is deferred until you retire. So requiring people to take a minimum withdrawal amount each year is a way to ensure that taxes get paid on the money.

RMD Rules for 401(k) Plans

So just to recap, here are the basic RMD rules for 401(k) plans. Because these rules are complicated and exceptions may apply, especially in light of COVID, it’s wise to consult with a professional.

At what age do RMDs start?

You must take your first RMD the same year you turn age 72. For your first RMD only, you are allowed to delay the withdrawal until April 1 of the year after you turn 72.

This is a mixed blessing however, because the second RMD would be due on Dec. 31 of that year as well. For tax purposes, you might want to take your first RMD the same year you turn 72, to avoid the potentially higher tax bill from taking two withdrawals in the same calendar year.

What are the RMD deadlines?

Aside from the April 1 deadline available only for your first RMD, the regular deadline for your annual RMD is Dec. 31 of each year. That means by Dec. 31 you must withdraw the required amount, either in a lump sum or in smaller increments over the course of the year.

How do I know the right amount of my RMD?

The amount of your RMD is determined by tables created by the IRS based on your life expectancy, and the age of your spouse, if you’re married. If your spouse is more than 10 years younger than you, or less than 10 years younger, the calculation is slightly different (more details below).

You’re not limited to the amount of your RMD, by the way. You can withdraw more than the RMD amount at any point. These rules are simply to insure minimum withdrawals are met.

If you withdraw more than the RMD one year, it does not change the RMD requirement for the next year.


The basic penalty, if you miss or forget to take your required minimum distribution from your 401(k), is 50% of the amount you were supposed to withdraw. Let’s say you were supposed to withdraw a total of $10,500 in a certain year, but you didn’t; in that case you could potentially get hit with a 50% penalty, or $5,250.
But let’s say you’ve taken withdrawals all year, but you miscalculated and only withdrew $7,300 total. Then you would owe a 50% penalty on the difference between the amount you withdrew and the actual RMD amount: $10,500 – $7,300 = $3,200 x .50 = $1,600

Did COVID Change RMD Rules?

Owing to a strange overlap, there was an RMD rule change that raised the required age to 72 — but this coincided with a suspension of all RMDs in 2020 owing to COVID. Here’s what happened, and what that means for your RMDs now.

•  First, in 2019 the SECURE Act changed the required age for RMDs from 70½ to 72, to start in 2020.

•  But when the pandemic hit in early 2020, RMDs were suspended entirely for that year under the CARES Act. So, even if you turned 72 in the year 2020 — the new qualifying age for RMDs — RMDs were waived.

The waiver also applied to those who were RMD-eligible in 2019, but planned to take their first RMDs by April of 2020.

As of early 2021, though, required minimum distributions were restored. So here’s how it works now, taking into account the 2020 suspension and the new age for RMDs.

•  If you were taking RMDs regularly before the 2020 suspension, you need to resume taking your annual RMD by Dec. 31, 2021.

•  If you were eligible for your first RMD in 2019 and you’d planned to take your first RMD by April 2020, but didn’t because of the waiver, you must take that RMD by Dec. 31, 2021.

•  If you turned 72 in 2020, and are taking an RMD for the first time, then you’d have until April 1, 2022 to take that first withdrawal. (But you can take that first withdrawal in 2021, to avoid the tax burden of taking two withdrawals in 2022.)

Remember that whenever you choose to take your first RMD, whether it’s the year you turn 72 or the April of the year after, all subsequent RMDs are due on Dec. 31 each year.

How Are RMDs Calculated?

401(k) RMDs are calculated by dividing the account balance in your 401(k) by what is called a “life expectancy factor,” which is basically a type of actuarial table created by the IRS. You can find these tables in Publication 590-B.

If you’re married, there are two different tables to be aware of. If you are the original account owner and if your spouse is up to 10 years younger than you, or is not your sole beneficiary, you’d consult the IRS Uniform Lifetime Table.

If your spouse is the primary beneficiary, and is more than 10 years younger, you’d consult the IRS Joint and Last Survivor table. Here, the RMD might be lower.

How does the life expectancy factor work?

Let’s say a 75-year-old has a life expectancy factor of 22.9, according to the IRS. If that person has a portfolio valued at $500,000, they’d have to take an RMD of $21,834 ($500,000/22.9) from their account that year.

RMDs can be withdrawn in one sum or numerous smaller payments over the course of a year, as long as they add up to the total amount of your RMD requirement.

RMDs when you have multiple accounts

If you have multiple accounts — e.g. a 401(k) and two IRAs — you would have to calculate the RMD for each of the accounts to arrive at the total amount you’re required to withdraw that year. But you would not have to take that amount out of each account. You can decide which account is more advantageous and take your entire RMD from that account, or divide it among your accounts by taking smaller withdrawals over the course of the year.

Allocating your RMDs

Individuals can also decide how they want their RMD allocated — for example, some people take a proportional approach to RMD distribution. This means a person with 30% of assets in short-term bonds might choose to have 30% of their RMD come from those investments.

Deciding how to allocate an RMD gives an investor some flexibility over their finances. For example, it might be possible to manage the potential tax you’d owe by mapping out your RMDs — or other considerations.

Do Roth 401ks Have RMDs?

Yes, Roth 401(k) plans do have required minimum distributions — and this is an important distinction between Roth 401(k)s and Roth IRAs. Even though the funds you contribute to a Roth 401(k) are already taxed, you are still required to make RMDs, following the same life expectancy factor charts provided by the IRS for traditional 401(k)s and IRAs. The difference being, you don’t owe taxes on the RMDs from a Roth 401(k).

If you have a Roth IRA, however, you don’t have to take any RMDs. And if you inherit a Roth IRA from your spouse, it’s considered your own account and RMDs don’t apply.

The rule changes, though, when it’s a Roth IRA that you’ve inherited from someone who wasn’t your spouse (e.g. a parent or other relative). In that instance, you must withdraw all the funds within 10 years of the inheritance.
Because the rules surrounding inherited IRAs can be quite complicated, it’s wise to get advice from a professional.

Can You Delay Taking an RMD From Your 401(k)?

As noted above, there is some flexibility with your first RMD, when you turn age 72. You can delay your first RMD until April 1 of the year after you turn 72. (Just remember that your second RMD would be due by Dec. 31 of that year as well, so you’d be taking two taxable withdrawals in the same year.)

Also, if you are still employed by the sponsor of your 401(k) (or other employer plan) when you turn 72, you can delay taking RMDs until you leave that job or retire.

RMD Requirements for Inherited 401(k) Accounts

Don’t assume that RMDs are only for people in or near retirement. RMDs are usually required for those who inherit 401(k)s as well. The rules here can get complicated, depending on whether you are the surviving spouse inheriting a 401(k), or a non-spouse. In most cases, the surviving spouse is the legal beneficiary of a 401(k) unless a waiver was signed.

Inheriting a 401K) from your spouse

If you’re the spouse inheriting a 401(k) you can rollover the funds into your own existing 401(k), or you can rollover the funds into what’s known as an “inherited IRA” — the IRA account is not inherited, but it holds the inherited funds from the 401(k). Then you would take RMDs from these accounts when you turned 72, based on the IRS tables that apply to you.

Inheriting a 401(k) from a non-spouse

If you inherit a 401(k) from someone who was not your spouse, you must rollover the funds into an inherited IRA. And, owing to a rule change in the SECURE Act, you would be required to withdraw the money within five or 10 years, depending on when the account holder died.

The five-year rule comes into play if the person died in 2020 or before; the 10-year rule applies if they died in 2021 or later.

Other restrictions on inherited 401(k) accounts

Bear in mind that the company which sponsored the 401(k) may have restrictions on how inherited funds must be handled. In some cases, you may be able to keep 401(k) funds in the account, or you might be required to withdraw all funds within a certain time period.

In addition, state laws governing the inheritance of 401(k) assets can come into play.

If you’ve inherited a 401(k), it’s probably best to consult a professional who can help you sort out your individual situation.

How to Avoid RMDs on 401(k)

While a 401(k) grows tax-free during the course of an investor’s working years, the RMDs withdrawal is taxed at their current income tax rate. One way to offset that tax liability is for an investor to consider converting a 401(k) into a Roth IRA in the years preceding mandatory RMDs. Roth IRAs are not subject to RMD rules.

A Roth conversion can be done at any point during an investor’s life, and can be done with all of the 401(k) funds or some of the money.

Because a 401(k) invests pre-tax dollars and a Roth IRA invests after-tax dollars, you would have to pay taxes right away on any 401(k) funds you converted to a Roth. But the good news is, upon withdrawing the money after retirement, you don’t have to pay any additional taxes on those RMDs.

Paying your tax bill now rather than in the future can make sense for investors who anticipate being in a higher tax bracket during their retirement years than they are currently.

Converting a 401(k) can also be a way for high earners to take advantage of a Roth. Traditional Roth accounts have an income cap. To contribute the maximum to a Roth IRA in 2022, your modified adjusted gross income (MAGI) must be less than $129,000 if you’re single, less than $204,000 if you’re married filing jointly, with phaseouts if your income is higher. But those income rules don’t apply to Roth conversions (thus they’re sometimes called the “backdoor Roth” option).

Once the conversion occurs and a Roth IRA account is opened, an investor needs to follow Roth rules: In general, withdrawals can be taken out after an account owner has had the account for five years and the owner is older than 59 ½, barring outside circumstances such as death, disability, or first home purchase.

What Should an Investor Do With Their RMDs

How you use your RMD depends on your financial goals. Fortunately, there are no requirements around how you spend or invest these funds (with the possible exception that you cannot take an RMD and redeposit it in the same account).

•  Some people may use their RMDs for living expenses, especially if they are in their retirement years. If you plan to use your RMD for income, it’s also smart to consider the tax consequences of that choice in light of other income sources like Social Security.

•  Other people may use their 401(k) RMDs to fund a brokerage account and continue investing. While you can’t take an RMD and redeposit it, it’s possible to directly transfer your RMD into a taxable account. You will still owe taxes on the RMD, but you could stay invested in the securities in the previous portfolio.

Reinvesting RMDs might provide a growth vehicle for retirement income. For example, some investors may look to securities that provide a dividend, so they can create cash flow as well as maintain investments.

•  Investors also may use part of their RMD to donate to charity. If the funds are directly transferred from the IRA to the charity (instead of writing out a check yourself), the donation will be excluded from taxable income.

While there is no right way to manage RMDs, coming up with a plan can help insure that your money continues to work for you, long after it’s out of your original 401(k) account.

The Takeaway

Investors facing required minimum distributions from their 401(k) accounts may want to fully understand what the law requires. First, there are hefty penalties for not withdrawing the correct amount each year. Second, changes to RMD rules in 2019, thanks to the SECURE Act, raised the starting age to 72, from 70½ — and this, on top of the 2020 suspension of RMDs owing to COVID, have made RMD deadlines this year a little more complicated, especially if you’re just starting to take RMDs.

Even if you’re not quite at the age to take RMDs, you may want to think ahead so that you have a plan for withdrawing your assets that makes sense for you and your loved ones. It can help to walk through the many different requirements and options you have as an account holder, or if you think you might inherit a 401(k).

As always, coming up with a financial plan depends on knowing one’s options and exploring next steps to find the best fit for your money. If you’re opening a retirement account such as an IRA or Roth IRA, you can do so at a brokerage, bank, mutual fund house, or other financial services company, like SoFi Invest®.

Find out how SoFi can help you plan for retirement—and whatever comes next.

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