Expats working in the US
If you’re lucky enough to be in a job with an employer-sponsored scheme, that’s great. It’s best to find out what sort of scheme it is, what the retirement benefits will be and then get signed up to it. Even if you’re not sure how long you will be with the company, get signed up, because even small retirement plan savings will all add up in the end and there’s plenty you can do with several small 401(k)s later down the line.
If you can’t become part of a company scheme, perhaps you are self-employed, then you could consider setting up a Keogh plan (also known as an HR 10 plan). These are fully qualified pensions also used by unincorporated businesses.
Five other notable ages for retirement planning
Apart from starting as soon as you can, there are some other notable ages that have great significance for retirement planning in the USA.
- 50: Reaching age 50 means you can contribute more money to your 401(k) and IRA accounts and this, in turn, means bigger tax deductions. Following your 50th birthday you can save up to $25,000 (2019 figure) a year into a 401(k) or similar plan (that’s $6,000 more than those aged under 50). Savers who reach 50 can also make larger catch-up contributions to their savings pot – in 2019 that’s an additional $6,000 for 401(k)s and $1,000 for IRAs.
- 59 ½: Once you reach 59 ½ you have passed the age at which early withdrawal penalties apply on traditional retirement accounts. So, by waiting to withdraw your retirement savings you will keep 10% more of your money. There are some exceptions, however, such as if you leave your job from age 55 you won’t need to pay 401(k) early withdrawal penalties on the retirement savings attached to the job you most recently left, but if you have rolled your 401(k) balance over to an IRA, you will need to wait until you reach 59 ½ for penalty-free withdrawals.
- 65: Reaching 65 is all about Medicare, the national health insurance programme in the US. There is a restricted period of eligibility to sign up for Medicare – beginning three months before your 65th birthday and ending four months after you reach the milestone. If you don’t enrol during this period, you will receive a late enrolment penalty which is added to your premiums. If you keep on working past your 65th birthday, you must sign up for Medicare within eight months of retiring or leaving a group health plan. Failure to do so could result in higher premiums. At age 65 there are also opportunities to buy a Medigap policy to cover cost-sharing requirements. This policy covers some of the additional services that Medicare doesn’t pay out for.
- 66: Anyone born between 1943 and 1954 can claim full Social Security retirement benefits when they reach 66. However, there are benefits for those who put off claiming until they are older. For example, when someone born between these years claims Social Security at age 70 they will receive 32% more – so a $1,000 monthly payment will become $1,320. For anyone born after 1954, the social security retirement age is higher and increases incrementally depending on the year you were born. If you were born after 1960, your full retirement age is currently 67.
- 70 ½: Once you reach 70 ½ you are required to start taking withdrawals from IRAs, traditional 401(k)s and Roth 401(k)s. During the year you reach 70 ½, you must take a first minimum withdrawal by April 1st that year. Following this, all subsequent withdrawals/distributions must be taken from your account by December 31st. If you miss a distribution, a 50% tax penalty will be applicable. All traditional retirement accounts are subject to income tax, but Roth accounts withdrawals are not. Also, once you reach 70 ½, if you decide to make a charitable contribution to a qualifying charity from your IRA account, you can avoid income tax on an amount up to $100,000.
Expats in the US – ask Blacktower (US) LLC
Trying to understand the different schemes, benefits and restrictions of retirement savings in the US is a complex undertaking. The financial advisers at Blacktower can advise you in light of your particular circumstances, whether you are non-resident alien, green card holder or other qualifying worker.
Our team understands that your circumstances and objectives might be different to a US citizen and we can help you with tailor-made advice on retirement saving strategies for expats that will suit your needs.
Contact us today for more information.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.