Last Week’s Question of the Week: What is the contribution limit for an IRA in 2019 for a 55 year old? Is it $5,000, $6,000 or $7,000?
ANSWER: Generally, anyone over 50 with earned income can contribute up to $7,000 into an IRA in 2019.
HOST: I know one popular area of discussion on this show revolves around understanding social security and possible changes we should be aware of for 2019.
KLAAS FINANCIAL: Yes, we do devote a lot of our radio show to covering Social Security because it remains an important piece of retirement income for many people. Typically, the Social Security Administration makes some adjustments every year and we just like to keep everyone up to date.
If you are NOT retired, this will be important for you to know:
When you earn income, including through self-employment, that is covered by Social Security, you pay Social Security taxes each year up to a maximum amount that is set by law. In 2019, the maximum taxable earnings level that you pay Social Security taxes on each year has increased to $132,000 from $128,400. That total tax (OASDI) remains at 7.65% (which includes a medicare tax (HI) of 1.45%) and it is important to note that the medicare tax has no earning limits, and is applied to all earnings PLUS the tax is hiked up by another 0.9% for wage earners making more than $200K, or married couples making more than $250K.
A positive change for our retired listeners who are collecting a social security benefit is that SS has increased benefits in 2019 — they’re up 2.8%. This was a Cost-of-Living Adjustment (COLA), based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2017 through the third quarter of 2018, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 2.8% COLA for 2019.
So with these increases, the new current average amount that a married couple both receiving benefits is now $2,448, and the average individual retired worker is now collecting $1,461 per month, or $17,532 per year.
HOST: What if I am planning on retiring in 2019, what should I watch out for with regards to my Social Security benefit?
KLAAS FINANCIAL: It is important for all of our listeners who are not yet collecting a SS benefit that you understand what your FRA is — in other words, “FULL RETIREMENT AGE” as it pertains to your SS benefit.
How do you find out what your FRA is? Visit SSA.GOV today and establish an account so you can see what age this is for you. This website is a great resource.
The term “full retirement age” (FRA) generally refers to the age you must reach to be eligible to receive full benefits from Social Security. Any age at which you start collecting before your “full retirement age” is considered “early retirement.” The youngest age at which anyone can begin collecting Social Security retirement benefits is age 62.
Early retirees (prior to their FRA) will receive a reduced benefit. That means, if you decided to retire early by Social Security Administration (SSA) standards, the monthly payouts you receive will be lower than those of older, full-age retirees – to compensate for the fact that you’re getting them sooner and will presumably be getting them for a longer period of time.
For individuals born prior to 1938, full retirement age is 65, while those born between 1938 and 1960 are on a graduated scale up to age 67.
HOST: What about if I still am working part-time in retirement?
KLAAS FINANCIAL: That’s a great question! If you are thinking about retiring this year and you decide to work part-time — before you have reached your FRA — you need to know Social Security will only allow you to earn $17,640 per year without your benefit being affected. If you earn more than that limit, $1 in benefits will be withheld for every $2 in earnings above the limit. If you have already reached your FRA then there is no longer a limit, and your SS benefit is not affected.
If you are retiring this year, and it is also the year you are turning your full retirement age, the earnings limit will be $46,920 before the agency will deduct $1 for every $3 you earn until the month you reach full retirement age.
HOST: If I am thinking about starting my benefit this year, how and when would I apply?
KLAAS FINANCIAL: To apply you can file for Retirement or Spousal Benefits online or in person.
- To apply online, visit socialsecurity.gov/retireonline.
- Call Social Security at 800-772-1213 (TTY 800-325-0778) from 7 am – 7 pm, Monday through Friday to make an appointment.
- Or, contact your local Social Security office.
When to apply for Social Security Retirement: You may apply 3 months before you turn age 62 or 4 months before you want your benefits to start.
Once you have applied, it could take up to 3 months to receive your first benefit payment. Social Security benefits are paid monthly, starting the month after your birthday. Generally, the day of the month you receive your benefit depends on the birth date of the person on whose record you are collecting.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.