Money

Work Matters

Is Part-time Retirement Right for You?

By James Lineweaver

When you were younger, your first job was probably part time. Those were the days, right?

You had few expenses and made enough money to do the things you wanted to do. You had lots of time for family, friends and hobbies. Many people want to go back to a similar work schedule, especially as they approach retirement age. Rather than working part time in retirement, we like to think of it as a part-time retirement.

Full Time Versus Part Time

There are many reasons to consider part-time retirement. First, people are living longer. According to the National Institute on Aging (a division of the U.S. National Institutes of Health), in 1950 the average man retiring at age 65 could expect to live another 13 years and a 65-year-old woman another 15 years. Today, men average an additional 17 years and women another 20 years beyond what we think of as typical retirement age.

Second, people want to have meaningful work. A 2013 Gallup poll found that 61 percent of employed Americans say they plan to work part time after they retire. And most of those people said they plan to do so because they want to — not because they need the money.

Finally, work can be good for your health. Many studies point to the benefits of a part-time retirement. A 2009 study in the Journal of Occupational Health Psychology found that those who worked in retirement were healthier than those who didn’t. Another study reported by the American Psychological Association in 2014 found that working in retirement can delay mental decline.

What Do You Want?

In our 24 years helping clients plan their ideal retirement, a common theme is that many struggle with retiring from something, rather than retiring to something.

Money is a tool, and usually we look at how it can be used to our benefit. But that tool can be used to benefit others through gifting and charitable giving. If you have a desire to share your financial success, incorporate those thoughts into your financial plans.

After you determine who gets your money, you need to decide when the giving will occur. If the gifts are to individuals, as of 2016 donors can give $14,000 to each person and the gifts do not need to be reported on tax forms or subjected to gift taxes.

If you are married, both you and your spouse each can give up to $14,000 without triggering tax on the gift. For example, together, couples can give $28,000 to an individual. Gifts above that amount are not subject to gift taxes until the couple’s accumulated lifetime gifts to all exceeds $10.68 million. However, they must be reported on the giver’s tax returns by filling out Form 709. Those gifts can be specified to be used now or for a long-term benefit such as funding a 529 College Savings Plan, a Roth IRA or a saving and investment account.

CHARITY GIVING

If the gift is to a charity, it may be tax-deductible. To deduct a charitable contribution, taxpayers must file Good Gifts Charitable Giving and Your Financial Plans By James S. Lineweaver Form 1040 and itemize deductions on Schedule A. Charitable gifts can be made now, or planned for the future. Future gifts can be specified in your will or by naming a charity as a beneficiary on a retirement account or life insurance policy.

Planned gifts are both smart and generous. If you need money for your lifetime expenses, they are available, and the remaining assets benefit your desired charity. If you don’t itemize deductions on your 1040, once you reach age 70 1/2 you can transfer up to $100,000 a year from your IRA directly to charity as a Qualified Charitable Distribution (QCD), without that distribution counting as part of your adjusted gross income.

A change in tax rules that went into effect in 2015 created potential problems for investors who roll money from one IRA into a new IRA. Now, with a new ruling, the IRS is offering relief for some who inadvertently violate the rules.

Prior to 2015, if you owned more than one IRA, you could roll over each one once a year. As long as you completed the rollover within 60 days of the payout, there was no tax. After the 2015 U.S. Tax Court opinion, such IRA rollovers could be very costly. The new rules allow only one rollover in any 12-month period.

You can avoid trouble by using direct IRA-to-IRA transfers. With a transfer, the IRA custodian sends the money directly to the new IRA custodian. There are no tax consequences and you are not required to report anything on your income tax return. An individual is permitted to make as many transfers a year as they would like.

A rollover may appear similar to a transfer but it is a very different operation. With a rollover, if the distributed assets are not contributed back into a qualified retirement account within 60 days, the distribution is considered a withdrawal and becomes taxable. Additionally, if you are under age 59 1⁄2, an extra 10 percent penalty for an early withdrawal may apply.

With the one rollover per year rule, all additional rollovers are treated as distributions, and the full amount is included on your tax return.

Realizing there could be circumstances where meeting the 60-day rollover rule could be difficult, the IRS in Revenue Procedure 2016-47, which went into effect Aug. 24, 2016, will grant a waiver. Taxpayers can self-certify that due to certain circumstances — such as a death or serious illness in the family, an error by the financial institution, severe damage to your residence, incarceration or a postal error — the time limit was not met, and avoid the penalties associated with the 60-day rollover rule.