The oldest of the 75 million baby boomers have begun turning 70 in 2016. Becoming a septuagenarian is a milestone in itself, but it also means that soon the IRS will likely be expecting you to start cashing out your tax-deferred retirement savings that you may have spent decades building up. 

If you don’t start taking what are called required minimum distributions (RMDs) from your non-Roth individual retirement account (IRA) or 401(k) accounts and pay taxes on the withdrawals, you will face a 50 percent penalty on what should have been withdrawn but wasn’t.  But more than this, how you structure these distributions can have a profound effect on your own retirement and on what you leave your heirs.

Congress created the rules governing the minimum distribution of retirement plan funds to encourage saving for retirement and to allow retirement assets to build up tax-free during the plan owner's working years. You do not pay tax on income you put into a tax-deferred retirement plan when earned or on investment income or gains on the account itself. However, the funds you withdraw upon retirement are treated as taxable income in the year you take the distribution. And if your children withdraw the funds from a tax-deferred account that they inherit from you, they will be taxed on such distributions at their income tax rates.

Not everyone with a retirement account must take RMDs, however.  Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions, as long as the employee doesn’t own at least five percent of the company.  (You still have to take RMDs from SEP or SIMPLE plans, although you can continue contributing to them as well.) Also, funds up to $125,000 invested in a qualifying longevity annuity contract (QLAC) are not counted in calculating your regular RMDs and distributions are not required until age 85.

When to Start the Withdrawals?

The first decision 70-year-olds have to make is when to begin their RMDs.  Ordinarily, your RMD must be made by December 31 of each year.  But recognizing that people may need some extra time to adjust to this new landscape, the IRS allows you to defer your first RMD until April 1 of the year following the year you turn 70 ½.  Those who will turn 70 in the second half of the year will be 70 ½ in 2017, which means they can wait until April 1 of 2018 to make the withdrawals.  (If you turn 70 in the first half of 2016, you must make the withdrawals by April 1 of next year.)

But waiting as long as possible may not be in your interest.  If you delay until April 1 of the year after you turn 70 ½, you could have a hefty tax bite because you would have to take your second year distribution by December 31 of the same year. This additional income could push you into a higher tax bracket for that year and also affect the tax that might be due on your Social Security benefits and maybe even increase your Medicare tax for the following year if your income rises above $200,000 (for single filers; 2016 figure).

Making the Calculation

You must withdraw a small percentage of your tax-advantaged retirement savings each year after age 70.  The exact amount for a year is determined by dividing the fair market value of your retirement account(s) as of the previous year’s end by the applicable distribution period. A simple chart gives your distribution period in years. If, for example, you had $100,000 in a retirement account on December 31 of last year and you were 73 as of that date, you would have to withdraw $4,049 from the account by the end of this year ($100,000 divided by your distribution period of 24.7 years).

The distribution period is different if the sole beneficiary of your IRA is your spouse and he or she is more than 10 years your junior.  In this case, consult the “Joint Life and Last Survivor Expectancy” table in the Appendix of the IRS's Publication 590. To see this publication, go to: https://www.irs.gov/pub/irs-pdf/p590b.pdf.

Also, just because you missed a required withdrawal or didn’t withdraw enough doesn’t mean you’ll automatically get hit with the 50 percent penalty.  You can ask the IRS to waive the penalty by filing Form 5329 with your tax return, saying that you were confused or had poor financial advice.

Advance Planning Helps

Planning in advance can help you avoid ending up in a higher tax bracket or paying higher Social Security or Medicare taxes once you start taking your RMDs. One strategy is to convert some of your retirement funds to Roth IRAs in years prior to turning 70. The RMD rules do not apply to the Roth IRA owner, although you will pay taxes when you convert. The ideal time to convert would be after you retire and may be in a lower tax bracket. You can also, of course, start making withdrawals from tax-deferred accounts early, before you are required to do so, as long as you have reached at least age 59 ½.

Another technique is to make a qualified charitable distribution (QCD). Investors aged 70 ½ or older may transfer as much as $100,000 a year from an IRA directly to a charity without having it count as taxable income. A QCD can be used to meet part or all of an RMD obligation (as long as it’s less than $100,000) and no income tax will be due on the withdrawal. 

Managing your RMDs can be a tricky proposition, particularly for those with multiple accounts. You want to avoid pushing yourself into a higher tax bracket, but you also don’t want to under-withdraw and face a 50 percent penalty, or miscalculate your year-end account balance because your account custodian wasn’t aware of current year recharacterizations and conversions. For these reasons, it’s a good idea to consult with a financial advisor or your elder law attorney well before crossing the threshold into RMD land.

For ElderLawAnswers' article on taking money out in retirement, click here.

For an IRS article on RMDs, click here.

As referenced by links in the above article, the website Investopedia has many articles on RMDs. Here's a basic one. 

For more on retirement planning, click here.

[This article was originally published on December 18, 2012.  The links were updated on August 16, 2018.]

Inheriting an IRA may seem like a good thing, but there can be tax consequences if you aren't careful. If you inherit an IRA, you should check with an attorney or financial advisor as soon as possible to find out your options.

IRAs are personal savings plans that allow you to set aside money for retirement and get a tax deduction for doing so. Earnings in a traditional IRA generally are not taxed until distributed to you. At age 70 1/2 you have to start taking distributions from a traditional IRA. Earnings in a Roth IRA are not taxed, nor do you have to start taking distributions at any point, but contributions to a Roth IRA are not tax deductible. Any amount remaining in an IRA upon death can be paid to a beneficiary or beneficiaries.

Spouse as beneficiary

If you inherit your spouse's IRA, you can treat the IRA as your own. You can either put the IRA in your name or roll it over into a new IRA. The Internal Revenue Service will treat the IRA as if you have always owned it. If you are not yet 70 ½ years old, you can wait until you reach that age to begin taking minimum withdrawals. If you are over 70 ½ and were 10 or more years younger than your spouse, you can use a longer joint-life expectancy table to calculate withdrawals, which means lower minimum withdrawal amounts. If you inherit a Roth IRA, you do not need to take any distributions.

You can leave the account in your spouse's name, but in that case you will need to begin taking withdrawals when your spouse would have turned 70 ½ or, if your spouse was already 70 ½, then a year after his or her death. If you want to drain the account, you can use the “five-year rule.” This allows you to do whatever you want with the account, but you must completely empty the account (and pay the taxes) by the end of the fifth year after your spouse's death.

Non-spouse as beneficiary

The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. You can choose to take distributions over your lifetime and to pass what is left onto future generations (called the “stretch” option). The required minimum distributions will be calculated based on your life expectancy. This allows the money to grow tax-deferred over the course of your life and to be passed on to your beneficiaries, if you wish. If you want to do this, you must retitle the IRA into an inherited IRA and take your first distribution by December 31 of the calendar year following the year the decedent died. For more on stretching out an IRA, click here. 

If you choose not to stretch the IRA, you will have to withdraw it all within five years of the original IRA owner's death. This can lead to a large tax bill–unless the IRA is a Roth, in which case the distributions are tax-free.

Trust as beneficiary

If the IRA names a trust as the beneficiary, the trust may not be able to take advantage of the opportunity to stretch withdrawals across decades. Stretching an IRA may still be an option, however, if the trust is considered a “see-through” or conduit trust. If you have inherited an IRA in a trust, contact your attorney to find out your options.

Estate tax

If the decedent's estate was subject to an estate tax, the IRA beneficiary may be able to get an income tax deduction for the estate taxes paid on the IRA.

For information on how to include an IRA in your estate plan, click here. 

 

Federal law requires that beginning on April 1 of the year after you reach age 70 1/2, you must begin withdrawing a minimum amount from your non-Roth individual retirement account (IRA) or 401(k) accounts. These withdrawals are called required minimum distributions (RMDs).

But what if you die after age 70 1/2 and before all the account funds have been distributed? In the eyes of the law, death is no excuse not to take RMDs from an IRA or 401(k). Your heirs must take the final RMD before they can take control of the account.

Congress created the rules governing the minimum distribution of retirement plan funds to encourage saving for retirement and to allow retirement assets to build up tax-free during the plan owner’s working years. But lawmakers built in provisions so the money wouldn’t simply keep accumulating tax-free forever. The funds you withdraw are treated as taxable income in the year you take the distribution. If you don’t start taking the RMDs from your retirement accounts and pay taxes on the withdrawals, you will face a 50 percent penalty on what should have been withdrawn but wasn’t.

The rules for inheriting an IRA as a spouse are different than the rules for a non-spouse beneficiary, but regardless of who is inheriting the IRA, the heir must take the RMD for the year the account owner died. The full RMD must be taken by December 31 in the year the account owner died, even if he or she died at the beginning of the year. To take the RMD, beneficiaries must contact the custodian of the account and submit a death certificate. If the account owner died before he or she was required to begin distributions, then the beneficiaries do not need to take an RMD.

The money from the RMD will go directly to the beneficiary listed on the account, not the estate. That means it will be taxable income for the beneficiary. If there is more than one beneficiary, it will be split evenly.

To find out the best way to deal with an inherited IRA, contact an elder law attorney. To find one near you, go here: https://www.elderlawanswers.com/elder-law-attorneys

For more information about inheriting an IRA, click here.

At the doctor's office and want to know if a procedure is covered by Medicare? There is an app for that. Medicare has launched a free app that gives beneficiaries a quick way to see whether the program covers a specific medical item or service. 

The “What's Covered” app allows you to search or browse to learn what's covered and not covered under Medicare Parts A and B, how and when to get covered benefits, basic cost information and other eligibility details. You can also see a list of covered preventive services.  The app does not give results for extra benefits that Medicare Advantage plans may cover but that Original Medicare does not, such as certain vision, hearing or dental benefits. 

Examples of the types of questions the app can answer include:

• When are mammograms covered?
• Is home health care covered?
• Will Medicare pay for diabetes supplies?
• Can I get a regular cervical cancer screening?
• Will my Medicare benefits cover a service to help me stop smoking?

Although the app provides beneficiaries with basic information, it doesn’t provide personalized information. It doesn't ask details about each user's specific insurance information, so it doesn't take into account the user's supplemental insurance, co-insurance, and deductibles. Essentially, the app provides another way for Medicare beneficiaries to get the same information that is available online and in the Medicare handbook.

The app is part of an initiative by the Centers for Medicare and Medicaid Services (CMS) focused on modernizing Medicare and empowering beneficiaries. Other initiatives include:

• Enhanced interactive online decision support to help beneficiaries better understand and evaluate the coverage options and costs of original Medicare compared to Medicare Advantage plans.
• New price transparency tools that let consumers compare the national average costs of certain procedures between settings, so people can see what they’ll pay for procedures done in a hospital outpatient department versus an ambulatory surgical center. 
• A new webchat option in the Medicare Plan Finder.  
• New easy-to-use surveys across Medicare.gov so consumers can tell CMS what they want.

To get the new “What's Covered” app, go here: https://www.medicare.gov/blog/whats-covered-mobile-app.

Just as we create estate plans for our eventual demise, we also need to plan ahead for the possibility that we will become sick and unable to make our own medical decisions. Medical science has created many miracles, among them the technology to keep patients alive longer, sometimes indefinitely. As a result of many well-publicized “right to die” cases, states have made it possible for individuals to give detailed instructions regarding the kind of care they would like to receive should they become terminally ill or are in a permanently unconscious state. These instructions fall under the general category of “end-of-life care decision making.”  Depending on the state in which you live, this may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

The Health Care Proxy (Health Care Power of Attorney)

If an individual becomes incapacitated, it is important that someone have the legal authority to communicate that person’s wishes concerning medical treatment. Similar to a power of attorney, a health care proxy allows an individual to appoint someone else to act as their agent, but for medical, as opposed to financial, decisions. The health care proxy is a document executed by a competent person (the principal) giving another person (the agent) the authority to make health care decisions for the principal if he or she is unable to communicate such decisions. By executing a health care proxy, principals ensure that the instructions that they have given their agent will be carried out. A health care proxy is especially important to have if an individual and family members may disagree about treatment.

In general, a health care proxy takes effect only when the principal requires medical treatment and a physician determines that the principal is unable to communicate his or her wishes concerning treatment. How this works exactly can depend on the laws of the particular state and the terms of the health care proxy itself. If the principal later becomes able to express his or her own wishes, he or she will be listened to and the health care proxy will have no effect.

Appointing an Agent

Since the agent will have the authority to make medical decisions in the event the principal is unable to make such decisions for him- or herself, the agent should be a family member or friend that the principal trusts to follow his or her instructions. Before executing a health care proxy, the principal should talk to the person whom he or she wants to name as the agent about the principal’s wishes concerning medical decisions, especially life-sustaining treatment.

Once the health care proxy is drawn up, the agent should keep the original document. The principal should have a copy and the principal’s physician should keep a copy with that individual’s medical records.

Those interested in drawing up a health care proxy document should contact an attorney who is skilled and experienced in elder law matters. Many hospitals and nursing homes also provide forms, as do some public agencies.

Medical Directives (Advance Directives)

Accompanying a health care proxy should be a medical directive, also called an advance directive. Such directives provide the agent with instructions on what type of care the principal would like. A medical directive can be included in the health care proxy or it can be a separate document. It may contain directions to refuse or remove life support in the event the principal is in a coma or a vegetative state, or it may provide instructions to use all efforts to keep the principal alive, no matter what the circumstances. Medical directives can also be broader statements granting general authority for all medical decisions that are important to the principal. These broader medical directives give the agent guidance in less serious situations.

With the strict new health care privacy rules now in force, it’s more crucial than ever that everyone consider creating an advance medical directive that specifically names those persons who are entitled to access to health care information about them.  Under the privacy rules of the Health Insurance Portability and Accountability Act (HIPAA), which became effective in April 2003, doctors, hospitals and other health care providers may no longer freely discuss a patient’s status or health with spouses or other family members — unless the providers have in hand signed consent forms from the patient. Remember: a general power of attorney for financial matters will not suffice. The instrument must refer specifically to HIPAA.

For an article on state roadblocks that prevent the wider use of advance directives, click here.

Living Wills

Living wills are documents that give instructions regarding treatment if the individual becomes terminally ill or is in a persistent vegetative state and is unable to communicate his or her own instructions. The living will states under what conditions life-sustaining treatment should be terminated. If an individual would like to avoid life-sustaining treatment when it would be hopeless, he or she needs to draw up a living will. Like a health care proxy, a living will takes effect only upon a person’s incapacity. Also, a living will is not set in stone; an individual can always revoke it at a later date if he or she wishes to do so.

A living will, however, is not necessarily a substitute for a health care proxy or broader medical directive. It simply dictates the withdrawal of life support in instances of terminal illness, coma or a vegetative state.

Also, do not confuse a living will with a “do not resuscitate” order (DNR). A DNR says that if you are having a medical emergency such as a heart attack or stroke, medical professionals may not try to revive you. This is very different from a living will, which only goes into effect if you are in a vegetative state. Everyone can benefit from a living will, while DNRs are only for very elderly and/or frail patients for whom it wouldn’t make sense to administer CPR.

For more information on end-of-life decision-making from the Mayo Clinic, click here.

POLST: A New Approach

Although advance directives or “living wills” provide general guidance on what type of care a patient would like, they are not consistently followed, in part because they don’t give health care professionals explicit instructions for making critical decisions about a patient’s care. 

An alternative has emerged in recent years and has been implemented or is being developed in 38 states: the Physician Orders for Life-Sustaining Treatment (POLST).  The POLST uses a standardized medical order form to indicate which types of life-sustaining treatment a seriously ill patient wants or doesn’t want if his or her condition worsens.  For details, click here.

It is a very good idea to create advance directives in order to plan for the possibility that you may one day be unable to make your own medical decisions. In doing so, there can be confusion about the difference between a living will and a “do-not-resuscitate” order (DNR). While both these documents are advance medical directives, they serve different purposes.

A living will is a document that you can use to give instructions regarding treatment if you become terminally ill or are in a persistent vegetative state and unable to communicate your instructions. The living will states under what conditions life-sustaining treatment should be terminated. If you would like to avoid life-sustaining treatment when it would be hopeless, you need a living will. A living will takes effect only when you are incapacitated and is not set in stone — you can always revoke it at a later date if you wish to do so.

When drawing up a living will, you need to consider the various care options and what you would like done. You need to think about whether you want care to extend your life no matter what or only in certain circumstances. A living will can dictate when you want a ventilator, dialysis, tube feeding, blood transfusions, and other life- saving or life-prolonging options. 

A DNR is a different document. A DNR says that if your heart stops or you stop breathing, medical professionals should not attempt to revive you. This is very different from a living will, which only goes into effect if you are in a vegetative state. Everyone can benefit from a living will, while DNRs are only for very elderly and/or frail patients for whom it wouldn't make sense to administer CPR.

In addition to a living will, you will also need a health care proxy or broader medical directive. For more information about end-of-life care decisions, click here.

Parents want their children to be taken care of after they die. But children with disabilities have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with a disability, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.

Special Needs Trusts
The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits.

There are three main types of special needs trusts:

• A first-party trust is designed to hold a beneficiary's own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary's benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary.
• The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary's access to benefits and the funds can be used to pay for the beneficiary's supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the “payback” provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government.
• A pooled trust is an alternative to the first-party special needs trust.  Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary's needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust.

Life Insurance
Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If you've established a special needs trust, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child's care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents' estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies. 

ABLE Account
An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money.

Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. (For a directory of state programs, click here.)

Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary's heirs.  

Get Help With Your Plan
However you decide to provide for a child with special needs, proper planning is essential. Talk to your attorney to determine the best plan for your family. 

Medicare covers preventative care services, including an annual wellness visit. But confusing a wellness visit with a physical could be very costly. 

As part of the Affordable Care Act, Medicare beneficiaries receive a free annual wellness visit. At this visit, your doctor, nurse practitioner or physician assistant will generally do the following: 

• Ask you to fill out a health risk assessment questionnaire 
• Update your medical history and current prescriptions
• Measure your height, weight, blood pressure and body mass index
• Provide personalized health advice 
• Create a screening schedule for the next 5 to 10 years
• Screen for cognitive issues

You do not have to pay a deductible for this visit. You may also receive other free preventative services, such as a flu shot. 

The confusion arises when a Medicare beneficiary requests an “annual physical” instead of an “annual wellness visit.” During a physical, a doctor may do other tests that are outside of an annual wellness visit, such as check vital signs, perform lung or abdominal exams, test your reflexes, or order urine and blood samples. These services are not offered for free and Medicare beneficiaries will have to pay co-pays and deductibles when they receive a physical. Kaiser Health News recently related the story of a Medicare recipient who had what she assumed was a free physical only to get a $400 bill from her doctor’s office.

Adding to the confusion is that when you first enroll, Medicare covers a “welcome to Medicare” visit with your doctor. To avoid co-pays and deductibles, you need to schedule it within the first 12 months of enrolling in Medicare Part B. The visit covers the same things as the annual wellness visit, but it also covers screenings and flu shots, a vision test, review of risk for depression, the option of creating advance directives, and a written plan, letting you know which screenings, shots, and other preventative services you should get. 

To avoid receiving a bill for an annual visit, when you contact your doctor's office to schedule the appointment, be sure to request an “annual wellness visit” instead of asking for a “physical.” The difference in wording can save you hundreds of dollars. In addition, some Medicare Advantage plans offer a free annual physical, so check with your plan if you are enrolled in one before scheduling. 

For more information about Medicare, click here.

Social Security survivor's benefits provide a safety net to widows and widowers. But to get the most out of the benefit, you need to know the right time to claim. 

While you can claim survivor's benefits as early as age 60, if you claim benefits before your full retirement age, your benefits will be permanently reduced. If you claim benefits at your full retirement age, you will receive 100 percent of your spouse's benefit or, if your spouse died before collecting benefits, 100 percent of what your spouse's benefit would have been at full retirement age. Unlike with retirement benefits, delaying survivor's benefits longer than your full retirement age will not increase the benefit. If you delay taking retirement benefits past your full retirement age, depending on when you were born your benefit will increase by 6 to 8 percent for every year that you delay up to age 70, in addition to any cost of living increases.

You cannot take both retirement benefits and survivor's benefits at the same time. When deciding which one to take, you need to compare the two benefits to see which is higher. In some cases, the decision is easy—one benefit is clearly much higher than the other. In other situations, the decision can be a little more complicated and you may want to take your survivor's benefit before switching to your retirement benefit. 

To determine the best strategy, you will need to look at your retirement benefit at your full retirement age as well as at age 70 and compare that to your survivor's benefit. If your retirement benefit at age 70 will be larger than your survivor's benefit, it may make sense to claim your survivor's benefit at your full retirement age. You can then let your retirement benefit continue to grow and switch to the retirement benefit at age 70. 

Example: A widow has the option of taking full retirement benefits of $2,000/month or survivor's benefits of $2,100/month. She can take the survivor's benefits and let her retirement benefits continue to grow. When she reaches age 70, her retirement benefit will be approximately $2,480/month, and she can switch to retirement benefits. Depending on the widow's life expectancy, this strategy may make sense even if the survivor's benefit is smaller than the retirement benefit to begin with. 

Keep in mind that divorced spouses are also entitled to survivor's benefits if they were married for at least 10 years. If you remarry before age 60, you are not entitled to survivor's benefits, but remarriage after age 60 does not affect benefits. In the case of remarriage, you may need to factor in the new spouse's spousal benefit when figuring out the best way to maximize benefits. 

For more information about when to take Social Security benefits, click here. 

For more information about Social Security benefits for spouses, click here.  

The number of older Americans with student loan debt – either theirs or someone else’s — is growing. Sadly, learning how to deal with this debt is now a fact of life for many seniors heading into retirement.

According to a study by the Consumer Financial Protection Bureau, the number of older borrowers increased by at least 20 percent between 2012 and 2017. Some of these borrowers were borrowing for themselves, but the majority were borrowing for others. The study found that 73 percent of student loan borrowers age 60 and older borrowed for a child’s or grandchild’s education.

Before you co-sign a student loan for a child or grandchild, you need to understand your obligations. The co-signer not only vouches for the loan recipient's ability to pay back the loan, but is also personally responsible for repaying the loan if the recipient cannot pay. Because of this, you need to carefully consider the risk before taking on this responsibility. In some circumstances, it is possible to obtain a co-signer release from a loan after the loan recipient has made a few on-time payments. If you are a co-signer on a loan that has not defaulted, check with the lender about getting a release. You can also ask the lender for payment information to make sure the borrower is keeping up with the payments. 

If the borrower defaulted and you are obliged to pay the loan back or you are the borrower yourself, you will need to manage your finances. Having to pay back student loan debt can lead to working longer, fewer retirement savings, delayed health care, and credit issues, among other things. If you are struggling to make payments, you can request a new repayment plan that has lower monthly payments. With a federal student loan, you have the option to make payments based on your income. To request an “income-driven repayment plan,” go to: https://studentloans.gov/myDirectLoan/index.action. 

Defaulting on a student loan may affect your Social Security benefits. If you have a private student loan, a debt collector cannot garnish your Social Security benefits to pay back the loan. In the case of federal student loans, the government can take 15 percent of your Social Security check as long as the remaining balance doesn't drop below $750. There is no statute of limitations on student loan debt, so it doesn't matter how long ago the debt occurred. If you do default on a federal loan, contact the U.S. Department of Education right away to see if you can arrange a new repayment plan. 

If you die still owing debt on a federal student loan, the debt will be discharged and your spouse or other heirs will not have to repay the loan. If you have a private student loan, whether your spouse or estate will be liable to pay back the debt will depend on the individual loan. You should check with your lender to find out the discharge policies. Depending on the loan, the lender may try to collect from the estate or any co-signers. In a community property state (where all assets acquired during a marriage are considered owned by both spouses equally), the spouse may be liable for the debt (some community property states have exceptions for student loan debt). 

For tips from the Consumer Financial Protection Bureau to help navigate problems with student loans, click here.