Retirement Savings and Income Planning
Plan types
Defined benefit plans promise a benefit and place investment risk on the employer (PBGC-insured); defined contribution plans (401(k), 403(b), 457(b)) place risk on the employee. Know elective deferral limits with age-50 and 60–63 catch-ups, vesting schedules, ADP/ACP nondiscrimination testing, and top-heavy rules.
IRAs and Roth
Traditional IRA deductibility depends on plan coverage and MAGI; Roth IRA contributions phase out by MAGI, but Roth conversions have no income limit. Qualified Roth distributions require a 5-year clock plus age 59½, death, disability, or a $10,000 first-time home purchase.
Distributions
Required minimum distributions begin at 73 (75 for those born in 1960 or later). The first RMD may be delayed to April 1 of the following year - but then two RMDs fall in one tax year. Roth IRAs have no lifetime RMDs.
Traps
- The 10% early-withdrawal penalty has narrow exceptions: disability, death, QDRO, IRS levy, medical expenses above 7.5% of AGI, separation from service at 55+, substantially equal periodic payments under 72(t), $10,000 first home, qualified higher education, and up to $5,000 for birth or adoption.
- Social Security: claiming at 62 permanently reduces benefits (about 30% at an FRA of 67); delaying to 70 adds 8% per year. Up to 85% of benefits may be taxable.
- Sequence-of-returns risk matters most in the first years of retirement.
Worked example. A client turns 73 with a $530,000 IRA. Using the Uniform Lifetime Table factor of 26.5, the RMD is 530,000 ÷ 26.5 = $20,000.