Lifetime Money Bundle: 3 Sturdy Streams IRA, SS, PP

Preparing a lifetime money bundle with 3 sturdy streams of income like the Roth IRA, (Social Security) SS and a retirement pension plan (PP) requires a solid plan.

We are often told that our retirement plan needs require a saving account with a million dollars or more to live comfortably.

Additionally, some retirement specialists state that retiring and living on less than $55K per year will cause the individuals to have to live below their means. I totally disagree with that statement. However, I do believe that being able to live off of $55,000.00 per year is a lot easier than $30,000.00 per year.

Retirement is a big concern for many individuals especially teachers, and other professions that make less than $50K per year for the first 10 to 12 years of their career. I was one of those who could not start early retirement savings. Therefore, for me to create the lifetime money bundle required that I use the 3 sturdy savings resources that are now available before I hit 65 years of age.

Currently, I am reviewing and putting together a retirement plan that uses a combination of a Roth IRA, Social Security (SS), and the retirement pension plan (RP) offered to teachers as state employees. These three sources of income will allow me to develop my lifetime money bundle.

Table Of Content

Starting Early When Saving Your Lifetime Money Bundle
Roth IRA: A Sturdy Income Retirement Stream
Roth IRA: Age-Related Income Limits
Roth Sturdy Backdoor Conversion Options
IRA Yearly Contribution Deadlines
IRA Spousal Contribution Requirements
IRA Withdrawal Timelines
Roth IRA Withdrawal Time Restraints
Roth IRA Lifetime Money Bundle Benefits
Using SS As Part Of Your Lifetime Money Bundle
Including PP As You Develop Your Lifetime Money Bundle

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1. Start Early When Saving Your Lifetime Money Bundle

First, you really do benefit from starting early. Exactly what is early? Now that I can look back, I believe that early means in your teenage years if possible.

I am sure that teaching your children how to save when they get their first job will help them in the years to come. As a teenage worker, I saved money but never thought about long-term savings accounts like retirement.

When I first started teaching, I was not able to save $100.00 per check, so I started with $25.00 per check. The problem is that I never increased the $25.00 to at least $30.00. Even though, it may seem like $25.00 per paycheck is really nothing, you will find that after years of saving, the $25.00 does add up to more than you expected. Later, after years of working, I figure out how to increase my savings to $100+ per paycheck.

2. Roth IRA: a sturdy Income retirement Stream

How can you make the Roth IRA work best for you during pre-retirement planning?

Everything in life usually works better if you take the time to plan it out. Therefore developing a retirement plan that includes a Roth IRA also needs some thought. When you are developing your plan, you may want to consider some of the following contribution rules.

What are the contribution limits of a Roth IRA?
Are the contribution limits only affected by my income level?
Can my spouse and I contribute to the same Roth IRA account?
If my income limits exceed the Roth income guidelines, is there another way to qualify?
How much can I contribute each year?
Are there any age limits connected to contributions?
What is the Roth IRA backdoor?
Will I be taxed if I use the Roth IRA backdoor strategy?

The Roth Income rules are pretty rigid and do not allow much flexibility. Therefore, I highly recommend that you read, understand and follow them so that you are not penalized for any mistakes.

The first and most important rule for the Roth IRA is that your income is earned income and that it exceeds the total amount of your contributions.

The second rule is that the earned income limit for a Roth IRA in 2021 is $140,000.00 per year for a single person. If you are on a teacher’s salary in Michigan, you probably do not have to worry about exceeding the earning income limit.

Third, as a married couple, the contribution for a Roth IRA for 2021 is a little more than for a single person. If you are married, and you and your spouse file your income tax jointly, your income is limited to $208,000.00 per year.

3. Roth IRA: Age-Related Income Limits

In addition to income limits, Roth contributions also have age-related contributions. These catch up contribution limits are stated and imposed by the IRS. If you are less than 50 years young, you can contribute a maximum of $6000.00 per year. Likewise, if you are over 50 years young, you can contribute a maximum of $7000.00 per year.

4. Roth Sturdy Backdoor Conversion Options

FYI, if your earnings are over the income limits as a single person or married filing jointly, you have the option to use the backdoor Roth IRA conversion strategy to convert your 401K, 403b, and other forms of IRAs to the Roth IRA.

I highly recommend that you speak to your current IRA provider if you think you want to convert some of your traditional retirement funds through a backdoor strategy.

5. IRA Yearly Contribution Deadlines

Consequently, yearly Roth IRA contributions end with the tax filing deadline for each year.

Therefore, when the contributions for that tax year-end, (usually April 15th, unless extended by the IRS) the IRA contributions also end for that tax year.

For the 2020 Tax year, the IRS extended IRA Contribution Dates. “In extending the deadline to file your 1040 series tax returns to May 17, the IRS is automatically postponing, to the same the time, for individuals to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs) to May 17, 2021.”

6. IRA Spousal Contribution Requirements

Can a husband and wife both contribute to the same Roth IRA?

This contribution can be a bit tricky. In reviewing an article by Forbes concerning a Spousal IRA or Roth IRA contributions.

I found that “Under a spousal IRA, you can make a contribution of up to $6,000 (or $7,000 if 50 or older) even if your spouse has no earned income. Under this special type of IRA, you can make a contribution to Roth or traditional IRA accounts for both you and your spouse, as long as you have sufficient earned income to support both contributions.”

Therefore, because the rulings on what can and cannot be done for IRA contributions change each year the dual contributions into one account is something you should discuss with your representative.

7. IRA Withdrawal Timelines

How long must I keep my Roth IRA before I can make withdrawals? You must wait 5 years after you open your Roth IRA before you can start random distribution withdrawals. You also must be at least be 59 1/2 years young.

Therefore, if you are a late bloomer as I am, and you waited until 60 to open your Roth IRA, you must wait until you are 65 to begin your withdrawals.

8. Roth IRA Withdrawal Time Restraints

Are there any special withdrawal rules?

Here are 2 backdoor withdrawal rules as of April 2021 for the Roth IRA.

First, as I stated earlier, you must wait a minimum of 5 years after opening to make tax-free withdrawals.

Second, the Roth IRA that is categorized as a conversion is not considered as a contribution, you cannot access the funds for five years after the conversion.

Third, Roth IRA conversions are usually taxable because they are coming from untaxed money.

What happens if you exceed your contribution limits? The contribution limits are rigid and as with most rigid limitations, there are penalties for bypassing the rules.

9. Roth IRA Lifetime money Bundle Benefits

What is the number 1 benefit of the Roth IRA?

It offers tax-free growth while you are working toward retirement.
It offers tax-free withdrawals after you are retired.

How are income taxes affected by Roth IRA contributions?

According to the IRS.gov Roth IRA newsletter, the rules that apply to a traditional IRA are the same except for the following:

You cannot deduct contributions to a Roth IRA
If you satisfy the required qualified-distributions rules, your distributions are tax-free
Your contribution limits are governed by the IRS

10. Using sS as part of Your lifetime money bundle

When is the best time to apply for Social Security (SS) benefits? Why?

As you prepare for retirement, you are probably including the social security benefits that most Americans receive at age 62 or later as a part of your lifetime money bundle. After reviewing some literature and a retirement age chart that shows important information you should know and understand about retirement age benefits.

Your review should include the number of years you have worked and the approximate social security benefits available to you. As you become older, you can set up a my-account with SSA.gov. This account allows you to review important information concerning your SS benefits. You can also find important information concerning your:

personal retirement benefit estimates
spouse’s benefits
current situation if you are not receiving benefits
application for social security
social security statement

11. including PP as you develop your lifetime money bundle

What is a PP?

The PP stands for retirement pension plan. In late August and early September of 2012, the state of Michigan stopped providing a 100% state paid retirement plan for teachers. When the change was made, teachers who were not close to the required retirement years were required to opt in to paying 6% to 8% of their retirement through additional contributions to the state of Michigan.

Before the State of Michigan, other companies such as General Motors committed that same action in February 2012. No matter how much you want to save money and bundle it for life, the bottom line is that you must be fully committed to your goal.

Conclusion

We began by discussing the need for a plan for preparing a lifetime money bundle with 3 study income streams. We stated some of the retirement requirements stated by various finance planners.

We moved forward into discussing that retirement planning is an important issue for teachers and many other professionals who do not make over $50K per year in their first 10 to 12 years on the job. Then we moved into a very extensive discussion about the Roth IRA. We also stated some of the benefits and limitations involved with a Roth IRA.

After that, we discussed the use of social security as another income stream for a retiree. Finally, we discussed the retirement pension plan offered by the state of Michigan to teachers.

Resources

5 Roth IRA rules you must know before opening an account https://www.forbes.com/sites/jrose/2020/03/08/5-things-you-must-know-roth-ira-before-opening-an-account/?sh=5a054579452d

What is a backdoor Roth IRA https://www.forbes.com/advisor/retirement/backdoor-roth-ira/