For better or worse, there are many retirement planning rules based on your age. Knowing these rules can help you avoid paying more taxes (and penalties), but it can also help you take advantage of certain benefits.
When you are already 50, you can make “catch-up” contributions to various types of accounts. In addition to the standard annual limits, you can contribute an additional $6,500 to employer-sponsored retirement plans such as 401ks and 403bs, and $1,000 to IRAs.
Similarly, you can contribute up to $1,000 more to a Health Savings Account (HSA). If a spouse meets the eligibility requirements, they can also make this contribution to their own plan.
You can now do an in-service distribution as well. This means that you can transfer funds from an employer plan to an IRA without leaving the company.
On the other hand, if you do leave the service, you can withdraw funds from an employer plan without penalty. If you are between the ages of 55 and 59.5, you should reconsider doing an IRA rollover because withdrawing funds from an IRA would result in a penalty.
You can now withdraw funds from IRAs and annuities without paying the 10% penalty. If you inherited an IRA from your spouse and treated it as an inherited IRA, you can roll it into your own because any distributions are now tax-free.
As a surviving spouse, you can begin receiving Social Security benefits at the age of 60. However, you are not permitted to remarry. For many, claiming this benefit and then switching to your own higher benefit at a later age is a clever planning strategy.
The earliest you can claim your Social Security benefit is at the age of 62, though it will be reduced from your Full Retirement Age benefit. In general, each year you delay taking your benefit, your benefit will increase by about 8%.
The best claim strategy for you is too complicated for this article, but the healthier you are and the longer you expect to live, the better decision it is to postpone.
Your initial enrollment period for Medicare begins three months before your 65th birthday and ends three months later. If you do not qualify for an exception, missing an enrollment period can result in penalties.
Working and having “creditable coverage” is a common exception. It is your responsibility to ensure that your current plan qualifies, especially if your employer has 20 or fewer employees.
You cannot postpone your Social Security benefit past the age of 70. A common strategy used by couples is for the spouse with the higher benefit to wait until 70, while the other spouse claims around Full Retirement Age. This is because the surviving spouse receives the greater benefit of the two.
If you are charitable, you can take advantage of one of the best benefits in the tax code once you reach the age of 70.5. You can now make a QCD, or Qualified Charitable Distribution.
This allows you to give money directly to a charity from your IRA and pay no tax, giving you a charitable tax deduction without having to itemize your deductions. Accounting for this on your tax return can be difficult, so check with your tax preparer to ensure you weren’t taxed on that amount.
With the passage of the SECURE Act in 2019, you must now begin taking Required Minimum Distributions from your retirement account. The actual date is April 1 of the year following your 72nd birthday.
If you are still working, you do not have to take RMDs from your current employer’s plan, so rolling IRAs and old 401ks to your current plan may make sense. RMDs are not required for Roth IRAs, but they are required for Roth 401ks. If you are no longer working, you can avoid these RMDs by rolling your IRA to a Roth IRA.
You now know when you’ll have to make these decisions, allowing you to plan ahead of time. As Mitch Anthony puts it, “it’s easier to prepare than it is to repair.”
Do you believe you are adequately prepared for retirement? Which of these steps have you already taken? Which one was the most difficult to decide on? If you’ve already retired, did you make a plan? Please share your thoughts on the retirement planning process.