5 things workers should consider before tapping retirement accounts

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Our daily roundup of retirement news your clients may be thinking about.

Do clients understand differences in how retirees are taxed?
Data from the Institute on Taxation and Economy Policy show that the tax treatment of retirement income varies from state to state, according to this article on Morningstar. Personal income is not subject to state taxes in Alaska, Florida and five other states, with 31 states not imposing taxes on Social Security benefits. Four states do not tax all pension income but their policies differ. Retirees also qualify for extra personal exemption or standard deduction in many states.

Answers to questions about health savings accounts and Medicare
Clients on Medicare can tap their health savings account without owing taxes to cover qualified medical expenses for themselves, their spouse and dependents, according to this article on Kiplinger. However, they need to be at least 65 years old to make tax-free withdrawals for premiums for Medicare parts B and D, and Medicare Advantage plan. “This is something people need to think about when they get closer to age 65,” says an expert.

5 things to consider before tapping retirement accounts
Retirees who consider taking withdrawals from their 401(k) and other similar plans should account for the tax impact before making a decision, according to this article on personal finance website Motley Fool. They should also determine whether the withdrawals would lead to higher Medicare premiums and taxation of their Social Security benefits, as the distributions could be taxable. Those who are 70 1/2 and older should ensure that the amount they withdraw will be enough to meet the required minimum distributions to avoid a hefty penalty.

With stocks surging, Americans are saving at 12-year low
Rising stock prices and better job prospects are prompting more Americans to spend more, according to this article on The Wall Street Journal. However, clients are reducing their savings rate to free more money for their spending splurge, putting their future financial security at risk. Clients are spending using their retirement savings “out of overconfidence rather than desperation,” says an expert, adding that “everybody and their brother is renovating their kitchen and bath right now.”

Paid family leave is a great idea, but not if we hit up Social Security for the money
A paid parental leave is a concept that some lawmakers are pursuing, as the U.S. is the only industrialized country without a federal paid family leave covering the first weeks of parenthood, according to this article from the Los Angeles Times. While parental leave is linked to various benefits such as reduced infant mortality and better well-baby care, using Social Security to cover such a benefit could have several downsides. This proposal could result in an increase in the retirement age and cause more burden to women who are more likely to take such a leave and to spend more time looking after their newborn child.

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Retirement income Social Security benefits Tax planning 401(k) loans Retirement withdrawals Savings accounts