Birthdays may seem less important as you grow older. But beginning at age 50, there are 8 key birthdays that can affect your retirement, healthcare eligibility, & tax situation.
At age 50, workers in certain retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions. Those who participate in 401(k), 403(b), & 457 plans can contribute an additional $6,000/year in 2017. Those who participate in SIMPLE IRAs or SIMPLE 401(k) plans can make a catch-up contribution of up to $3,000 in 2017. And those who participate in Traditional IRAs can set aside an additional $1,000/year.
Age 59 1⁄2:
At age 59½, workers are able to start making withdrawals from their qualified retirement plans without incurring a 10% federal income-tax PENALTY. Keep in mind that distributions from these plans are still taxed as ordinary income. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) & 403(b) plans (457 plans are never subject to the 10% penalty). Just because you can doesn’t mean you should. Given the increasing likelihood of a long life expectancy, you may want to consider delaying taking distributions from your tax-advantaged retirement plans as long as possible.
If your spouse or (even ex-spouse) has died, this is the first year to collect your Social Security survivor benefit. Here’s the fine print: you can only collect a survivor benefit on a deceased ex-spouse if you were married for 10 years & never got remarried.
This is the age when you first qualify to collect Social Security retirement benefits. Keep in mind that if you choose to collect your benefit beginning on your 62nd birthday, you just signed up for a 25% pay cut from what you are eligible to collect at your “full retirement age” of 66 or 67.
"Double Dippers Beware": If you think you are going to collect your Social Security retirement benefit & work...the Social Security Administration is already ahead of you.
This is the age you become eligible for Medicare. If you are already collecting Social Security retirement benefits, you are automatically enrolled in Medicare Part A, which provides basic hospital benefits. If you aren’t yet a Social Security recipient, you have a seven-month window around the month of your 65th birthday (three months prior and three months after) to enroll. It is also the time to make decisions about enrolling in Medicare Part B (doctor’s services), Part D (prescription drug plan) and a Medicare supplement plan (to cover out-of-pocket costs).
Age 66 to 67:
If you were born in 1943 through 1954, you become eligible for “full” Social Security retirement benefits in the month of your 66th birthday. For those born between 1955 and 1959, full retirement age increases incrementally from age 66 to 67 (click here for details). Full retirement age for those born in 1960 and later is 67. Once you reach full retirement age, you also have the ability to continue working and earn extra income without having Social Security benefits reduced. You still have the option of delaying Social Security and receiving a higher payout up to your 70th birthday.
If you haven’t started collecting your Social Security benefits by this age, you may want to consider doing so. There is no additional advantage to delaying past your 70th birthday.
Age 70 1⁄2:
You have to begin taking required minimum distributions (RMDs) from your retirement accounts (with the exception of Roth IRAs) by April 1st of the year after you turn age 70 ½. The required distribution amount is determined using tables provided by the IRS and must be recalculated every year. Don’t forget to take your RMD by the deadline because failure to do so will result in a 50% tax penalty (OUCH!).
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Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.