Birthdays and Half Birthdays Critical to Retirement Planning and Income
Most children stop being “and-a-half” somewhere around age 12. Kids add “and-a-half” to make sure everyone knows they’re closer to the next age than the last. When you’re older, “and-a-half” birthdays start making a comeback. In fact, starting at age 50, several birthdays and half birthdays are critical to understand because they have implications regarding your retirement income.
Age 50
At age 50, workers in certain qualified retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions. Those who participate in 457(b), 403(b), and 401(k) plans can contribute an additional $6,500 per year in 2022.¹ Those who participate in Simple IRA or Simple 401(k) plans can make a catch-up contribution of up to $3,000 in 2022. And those who participate in traditional IRAs can set aside an additional $1,000 a year.²,³
Age 59½
At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10% federal income tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 403(b) and 401(k) plans. (457(b) plans are never subject to the 10% penalty.) Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored retirement plans are taxed as ordinary income.
Age 62
At age 62, workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for each $2 an individual earns above an annual limit. In 2022, the income limit is $19,560.4
Age 65
At age 65, individuals can qualify for Medicare. The Social Security Administration recommends applying three months before reaching age 65. It’s important to note that if you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application.5
Ages 65-67
Between ages 65 and 67, individuals become eligible to receive 100% of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100% of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits.6
Age 70½
Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a traditional Individual Retirement Account (IRA) and other defined contribution plans. You may continue to contribute to a traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement. Understanding key birthdays and half birthdays may help you better prepare for certain retirement income and benefits, and help you avoid penalties that may be imposed if you miss a key date.
Citations
- IRS.gov, 2022
- If you reach age 50 before the end of the calendar year.
- IRS.gov, 2022
- SSA.gov, 2022
- Individuals can decline Part B coverage because it requires an additional premium payment
- SSA.gov, 2022 The content is developed from sources believed to be providing accurate information.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.
Related Post: Accessing Life Insurance Needs
Leave a Reply