Milestone Birthdays Over 50
Milestone Birthdays Over the age of 50
As we age, most of us tend to stop counting every “and-a-half” birthday. I know many children that will add “and-a-half” to their age to ensure everyone is aware they’re closer to the next age than the last.
As you get over 50, those “and-a-half” birthdays start to become important again. There are several birthday or half birthdays that can give us additional options and/or responsibilities.
Age 50
Once we reach age 50, employees in some qualified retirement plans are allowed to begin making additional annual catch-up contributions. This is in addition to normal contributions. These plans include 401(k), 403(b), and 457 plans. In the year we turn 50, we can contribute an additional $6,500 per year in 2022.
If you use a Simple Individual Retirement Account (IRA) or Simple 401(k) plans, you can make a catch-up contribution of up to $3,000 in 2022.
And those who participate in traditional or Roth IRAs can set aside an additional $1,000 a year.
And these bonuses stack! For example, if you participate in both a 401(k) and ROTH IRA, you can contribute an additional $7,500 per year! ($6,500 + $1,000)
Age 55
At age 55, retirees can start making withdrawals from select qualified retirement plans, assuming they are no longer employed, without incurring a 10% federal income-tax penalty.
This applies only to workers who have contributed to employer-sponsored plans such as 401(k) and 403(b). This does not apply to retirees with traditional IRA’s, however check with your employer to see if they will accept your IRA as a rollover.
Keep in mind that distributions from 401(k) plans, and other employer-sponsored retirement plans are still taxed as ordinary income, it is just the penalty that is avoided.
Age 59½
At age 59½, anyone can start making withdrawals from either qualified retirement plans or IRAs without incurring a 10% federal income-tax penalty.
Remember, any distributions from a traditional employer-sponsored retirement plan or a traditional IRA, is still taxed as ordinary income. It is just the penalty that will be avoided.
Age 60
At age 60, if your spouse has passed away, you are able to start drawing survivors' Social Security benefits off their benefits. If you divorced our ex-spouse, and they have passed, you may be able to remarry and still be eligible to receive survivors’ benefits.
Age 62
62 is the earliest you can draw ordinary retirement Social Security benefits. However, under most circumstances, we would want to wait until later to collect Social Security. For each year we wait, the monthly check will get bigger. And if we are still working, the SSA will deduct half of each dollar you earn over $19,560, in 2022.
Age 65
At 65, we can apply for Medicare. It’s typically recommended we apply about 3 months before turning 65. If you are already receiving Social Security benefits, you will already be entered into Medicare part A(hospitalization) and B (medical insurance) without needing to apply. However, keep in mind if you fail to apply before your 65th birthday, your Medicare premiums could increase for the rest of your life.
Ages 66-67
Reaching full retirement age (FRA) comes with some benefits. Your Social Security benefit won’t be reduced, you can work full time and still receive unreduced benefits. It can be somewhat complicated to calculate your full retirement age. Retirees who were born between 1943 and 1954, your FRA is 66. For retirees who were born from 1955 to 1960, their FRA increases gradually, from 66 to 67. Each birth year changes the FRA by 2 months. For example, for someone born in 1956, their full retirement age would be 66 and 4 months. If you were born in 1960 or later, your FRA is 67.
Age 70
At age 70, your Social Security will have grown as large as it ever will. If you have not started taking social security yet, now is the time to start benefits. There is no benefit to waiting longer.
Age 70 ½
In the past, required minimum distributions (RMD) were mandatory at 70 ½, but with the SECURE act, this was changed to age 72. However, at age 70 ½ we are allowed to make Qualified Charitable Distribution (QCD). This means we can make donations directly to charities and avoid all taxes on the distribution. We can do up to $100,000 per individual, so $200,000 per married couple.
Age 72
Usually, once we turn 72, we must begin taking RMD’s from a traditional Individual Retirement Account and other qualified plans. These start at around 4%, then gradually get larger as we age. If we fail to take this RMD, the penalty tax is 50%! And you will still have to pay income tax when you do eventually take your RMD.
We can still contribute to a traditional IRA or 401(k) past age 72, so long as we meet the requirement of having earned income. And if you are still working for a company with a qualified plan, you can delay taking RMD’s from that plan while you are still working there.
Conclusion
Understanding important birthdays can help prepare us for retirement. Possibly more importantly, knowing key milestones can help us avoid penalties and unnecessary additional tax. If you would rather have someone else help remind you of important retirement milestones, give us a call and we can talk about how we help our clients have a successful retirement.