On June 12, 2014, the U.S. Supreme Court—in a unanimous decision—ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.
Retirement funds make up a significant part of the tangible wealth of most Americans. Both the federal and state governments provide incentives for individuals to contribute to these funds, namely:
- current year reduction of taxable income when money is contributed to a qualified plan;
- beyond the reach of most creditors; and
- employers can deduct their contributions to employee plans.
Bottom line, retirement plans are very effective at accomplishing their primary objective to supplement the contributor’s retirement. A person who starts saving at a young age can accumulate a sizable nest egg for retirement. And there should be an overall savings in income tax when the retiree withdraws money at a lower marginal tax rate thus realizing a significant lower overall income tax over his or her lifetime.
What you don’t know about Social Security benefits can hurt you and your spouse for the rest of your lives. Here are three traps to avoid when taking your benefits.
The Key Takeaways
- The longer you can postpone taking your Social Security benefits, the larger the amount you and your spouse will receive over your lifetimes.
- Continuing to work after you start receiving benefits early can temporarily reduce the amount of your benefits.
- It is important to seek the advice of a retirement specialist who can help you navigate the rules of Social Security to your best benefit.