Retirement savers will get the option to participate in a new type of retirement account next year, the myRA. There will also be fewer Social Security claiming options for married couples and a small Medicare premium increase for some beneficiaries. Here are some of the important ways retirement benefits will change in 2016.
Introducing the myRA. The myRA is a new type of Roth retirement account launched in late 2015 that has no fees and is guaranteed by the government never to lose value. There is only one investment option, a Treasury savings bond with a variable interest rate that has averaged 3.19 percent over the past 10 years. The savings bond interest is not taxed while in the account and won’t be taxed at all if you leave it in the account until after age 59 1/2. Savers who earn less than $131,000 for individuals and $193,000 for couples are eligible to contribute up to $5,500 per year, or $6,500 if they are age 50 or older. However, once the account balance grows to $15,000, or the account turns 30 years old, the money will be transferred to a private sector Roth IRA. “MyRA is designed to remove common barriers to saving and give people an easy way to get started,” says U.S. Treasury Secretary Jacob Lew. You can contribute via direct deposit through your employer, by setting up a payment using your checking or savings account or direct a portion of your tax refund to the account.
No more claiming Social Security twice. Some married individuals who are 66 or older have been claiming Social Security benefits twice. They first collect spousal payments and then later switch to payments based on their own work, which will then be higher because they claimed it at an older age. However, workers who turn 62 in 2016 or later will not be able to claim both types of payments, but must select one or the other. “If you are 63 years old today, you will still have the option of doing this at age 66,” says Tim Steffen, a certified financial planner and director of financial planning at Robert W. Baird & Co. “For anybody who is not 62 by the end of the year, the option of a restricted application is going away.”
Stricter Social Security suspended payment rules. Social Security beneficiaries who don’t need the money are allowed to suspend their payments and then resume higher payments at a later date due to the accumulation of delayed retirement credits. In the past, spouses and dependent children could claim payments based on your work record while your payments were suspended and continued to grow. However, beginning in May 2016, suspending your payments also suspends payments for anyone else receiving payments based on your work. “If filing and suspending was your optimal strategy, in order to do it you want to make sure you do it in the next 6 months,” says Laurence Kotlikoff, an economics professor at Boston University and co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” After that, spousal payments will not be paid while the retired worker’s payments are suspended.
Higher Medicare Part B premiums for some people. Most Social Security recipients will continue to pay the same $104.90 Medicare Part B premium in 2016. This is the case because Part B premiums are prevented by law from climbing faster than Social Security payments for most existing beneficiaries and there will be no Social Security cost-of-living adjustment in 2016. However, people who newly enroll in Medicare Part B in 2016 will pay a slightly higher Medicare Part B premium of $121.80 per month. This increase was a last-minute fix in the 2016 budget bill that prevented a much larger premium increase to $159.30 for new beneficiaries. As in previous years, high income beneficiaries will pay higher Medicare Part B premiums. The Medicare Part B deductible will increase from $147 in 2015 to $166 in 2016.
Bigger saver’s credit threshold. It will be slightly easier to qualify for the saver’s credit in 2016. The adjusted gross income limit to claim the credit will climb by $250 to $30,750 for individuals and by $500 to $61,500 for married couples. “The Saver’s Credit is a tax credit above and beyond the advantage of tax-deferred savings when contributing to a 401(k), 403(b) or IRA,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies. This valuable tax credit for low- and moderate-income retirement savers is worth between 10 and 50 percent of the amount contributed to a retirement account up to $2,000 for individuals and $4,000 for couples.