Retirement Planning in the United States

The US retirement system is built on three pillars: Social Security, employer-sponsored retirement plans, and individual savings. This guide covers the tax treatment of retirement accounts, contribution limits, withdrawal rules, and strategies for tax-efficient retirement income.

Social Security

Social Security provides a foundation of retirement income:

• Full Retirement Age: 67 for those born after 1960
• Early Retirement: Available at 62 with permanently reduced benefits (up to 30% reduction)
• Delayed Retirement: Benefits increase by 8% per year delayed up to age 70
• Taxation: Up to 85% of benefits may be taxable if provisional income exceeds $25,000 single/$32,000 MFJ

Employer-Sponsored Retirement Plans

401(k) Plans

• Employee Contribution Limit: $23,500 (2025, indexed; ~$24,000 estimated for 2026)
• Catch-Up Contribution: $7,500 for age 50+
• Employer Match: Typical 3-6% of salary (discretionary)
• Roth 401(k): After-tax contributions available with tax-free withdrawals

403(b) and 457 Plans

• 403(b): For employees of public schools and tax-exempt organizations
• 457(b): For state and local government employees (same contribution limits as 401(k))

Individual Retirement Accounts (IRAs)

Traditional IRA

• Contribution Limit: $7,000 ($8,000 age 50+)
• Deductibility: Income-dependent if covered by workplace plan
• RMDs: Required Minimum Distributions begin at age 73

Roth IRA

• Contribution Limit: $7,000 ($8,000 age 50+)
• Income Phaseout: $146,000-$161,000 single; $230,000-$240,000 MFJ (2025)
• Tax-Free Growth and Withdrawals: Contributions can be withdrawn anytime; earnings tax-free after age 59.5 and 5-year holding period

Health Savings Accounts (HSAs)

• Contribution Limit: $4,300 individual / $8,600 family (2025, indexed)
• Triple Tax Advantage: Tax-deductible contributions, tax-free growth, tax-free withdrawals for qualified medical expenses
• Retirement Strategy: Can be used as supplemental retirement account after age 65

Medicare

• Eligibility: Age 65+ or certain disabilities
• Part A: Hospital insurance (premium-free for most)
• Part B: Medical insurance ($174.70/month standard, income-adjusted)
• Part D: Prescription drug coverage (varies by plan)
• Medigap: Supplemental insurance for out-of-pocket costs

Tax-Efficient Withdrawal Strategies

• Roth Conversion Ladder: Convert Traditional IRA to Roth IRA in lower-income years
• Asset Location: Hold tax-efficient assets in taxable accounts, bonds in tax-deferred accounts
• Qualified Charitable Distributions (QCDs): Direct IRA distributions to charity (up to $100,000/year) satisfy RMDs tax-free
• Social Security Timing: Delay Social Security to maximize guaranteed inflation-adjusted income