There are some advantages to working past 65. However, if you don’t manage them correctly, it could cost you, says the article “Working past 65? Don’t overlook these 3 key facts about your employee benefits” from CNBC.
There are a number of reasons why people keep working, from saving more for their retirement to maintaining their employer-subsidized health insurance plans and increasing Social Security benefits. Some people actually enjoy their work and the social interactions it provides and don’t necessarily want to stop. Whatever the reason, benefit enrollments need to be navigated carefully.
Health Insurance and Medicare. Once you celebrate your 65th birthday, you are eligible for Medicare. The catch is, you need to coordinate your workplace coverage with your participation in this federal healthcare program. Whether you are required to enroll, depends upon the size of your company. If you work at a company with fewer than 20 employees, chances are you’ll have to sign up. Medicare will become your primary insurer. If your company has more than 20 employees, it must continue to provide you with health insurance, regardless of your age.
When you finally sign up for Medicare, you have a seven-month initial enrollment period to sign up. If you miss that window, you may be subject to a 10% late-enrollment penalty on your Medicare Part B premiums. The penalty is applicable for each 12-month period for which you were eligible but didn’t sign up.
If you are older and still employed, you are eligible for a penalty-free, eight-month special enrollment period, once you or your spouse lose workplace coverage.
Do a side-by-side comparison of workplace benefits versus Medicare before you make the decisions. You should note that COBRA does not count as qualified employer coverage.
Health Savings Account and Medicare
As long as you have a high-deductible plan with a health savings account (HSA) at work, you cannot contribute to it once you’ve signed up for Medicare. You can save money on a pre-tax basis in an HSA and have it grow tax-free. When you make withdrawals for qualified medical expenses, those distributions are also tax-free. However, if you don’t sign up for Medicare because you have your health insurance through an employer, you can continue to contribute to your HSA.
Required Minimum Distributions
What if you are close to turning 70½? That is when you’ll need to start taking required minimum distributions from your 401(k) or individual retirement accounts. These withdrawals are taxable. If you are still working, here’s the advantage: if you are participating in a 401(k) plan, you might not have to take this distribution until you retire. It depends upon your plan—so be prepared to read some fine print or ask your HR department for details.
There are some exceptions. If you own more than 5% of the company, you still must take the RMDs. You can only postpone RMDs from the 401(k) at your current employer. If you have IRAs and 401(k)s from any other employers, you’ll need to take those withdrawals. Here’s another bit of good news—if your company’s plan allows it, you may be able to roll your IRA back into the 401(k) and delay it altogether, if you don’t need the money. Speak with an estate planning attorney or financial advisor to be sure that your situation permits this.
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Reference: CNBC (Nov. 5, 2019) “Working past 65? Don’t overlook these 3 key facts about your employee benefits”