READER QUESTIONS
Q: What are the 2022 limits for Roth IRA contributions? What is the deadline if I file for an extension?
A:
If you are under 50, the limit is $6,000, as long as you have earned income up to that amount and your income as a single filer is less than $144,000 ($214,000 for a joint return). If you are 50, or older, the limit is $7,000; there is no upper age limit. The deadline for filing is April 18. Filing for an extension will not affect the deadline. If you are making a 2022 contribution, tell your custodian the contribution is for a “prior year.” Otherwise the contribution will count for 2023.
Q: I plan on withdrawing funds from my Roth CD and reinvesting the funds in other non-Roth investments. In my Roth account, which I have held for over 10 years, I have rolled over the CDs as they have matured. Will the amount I withdraw from the Roth CD be taxable?
A:
As long as you are 59 ½ or older, there will be no income tax due. However, it is not clear to me why you are taking the money out of a Roth account unless you need the funds for spending. If you are reinvesting the proceeds, why can’t you continue to keep the funds in a Roth account? Apparently, you have kept the Roth account for over five years and are not subject to taxes or penalties if you have reached 59 ½. I suggest that you keep the funds in a Roth account. Once you withdraw the funds from a Roth account and reinvest elsewhere, you lose the Roth advantage for both you and your beneficiaries.
Q: I have established a health savings account (HSA) for myself. Can I make withdrawals from my account for health expenses for my wife?
A:
No. You can only make tax-free withdrawals from your HSA for your health care expenses, not for other family members. If your healthcare expenses for other family members are significant, you should determine if the additional insurance premium justifies a “family” HSA. You can switch to a family account next year if you determine the additional premium cost is justifiable because of the expected health care costs associated
with other family members.
Q: I currently have an HSA. I plan on enrolling in Medicare within the next year. When should I stop contributing funds to my account?
A:
You should stop your contributions at least six months prior to enrolling in Medicare. Otherwise, you will be subject to penalties.
Q: I have to make a pension decision by the end of May. I am 69 ½ and in good health. Following are the two choices.
1. Pension is $3,150/month with 3% annual increase compounded annually. My wife will receive 50% after my death.
2. Pension is $3,150/month with 1.5% annual increase not compounded annually; $50,000 lump-sum at retirement. My wife will not be receiving any independent pension and will need the pension income if I pre-decease her. My wife is my age. Which option would you recommend? Investment options?
A: The life expectancy for a 70-year-old is 87, and given your good health, you could live into your 90s. Even so, it is important for you to make a decision that will protect your wife if you predecease her within the next 10 years.
For these reasons, I recommend that you take option 2 and consider taking out a 10-year term life insurance policy (perhaps for about $100,000). Since you are in good health, the premium for a 10-year term policy will not be prohibitive.
I also recommend that when you retire, you invest the lump sum of $50,000 conservatively, for example in a money market fund or in Treasury bills. You can expect a return of over 4% now. I also recommend that you consider using a two-year CD ladder investment from the money-market fund. By using the ladder approach, if interest rates rise, you can obtain higher returns when you renew every two years.