Age 50 – Catch-up Contributions Allowed for Both 401(k) and IRA

At age 50, you may contribute up to the regular 401(k) limit—$19,500 for 2020—and if you reach that limit, you may also make a catch-up contribution of an additional $6,500. Setting aside an extra $6,500 annually into a tax-deferred retirement account can have a big impact on the eventual balance of the account.

In addition, individuals at least 50 years old may also make catch-up contributions of $1,000 to their IRAs. This amount is in addition to the regular contribution limits for both traditional and Roth IRAs, currently $6,000.

Age 55 – Some 401(k) Distributions Allowed

Under normal circumstances, distributions from a 401(k) must wait until you reach the age of 59 ½. However, there is a special provision in 401(k) plans for those that leave their employer after age 55 but before age 59 ½. This rule allows withdrawals from the plan that are exempt from the early withdrawal penalty of 10%.

Be aware should someone suggest you roll funds from your 401(k) to an IRA without first explaining the age 55 provision to you. Once funds are moved from your 401(k) to an IRA, the age 55 penalty-free withdrawal provision no longer applies, and you’ll have to wait until age 59 ½ to makes withdrawals or pay the 10% penalty.

Age 59 ½ – IRA and 401(k) Distributions Allowed

Under IRA tax rules, the earliest you can begin withdrawing funds from your IRA without penalty is at age 59 ½. However, that doesn’t mean you must, or even should, withdraw money. Many people wrongly assume that they must start drawing down their IRA once eligible. However, if you are still earning an income at age 59 ½, best practice is likely to not touch that money and allow further growth.

Between 60 and 70 – Potential IRA to Roth IRA Conversions

It’s important to remember that regardless of when you choose to distribute funds from your traditional IRA, those funds are reported as ordinary income in the year in which they were distributed.

For many, there is an opportunity to convert those funds to a Roth IRA to both potentially reduce the amount of RMDs and allow those funds to grow tax-free. Advantages of doing so include, but are not limited to, the following:

  • Tax Exempt Earnings – After the conversion, the funds deposited into the Roth IRA will grow tax-exempt rather than tax-deferred.
  • Decrease Amount of Future RMDs – By decreasing your traditional IRA balance prior to the age of 72* when distributions are required, you reduce the RMD amount.

Age 62 – Social Security Eligibility Begins

Social Security benefits are an integral part of retirement planning. Understanding the procedures and details of the filing will prove critical to successfully planning your retirement income stream. How and when to begin taking Social Security benefits can be a difficult decision. Here are some factors to consider:

  • Existing Savings
  • Current Income
  • Health

It’s also important to understand that Social Security benefits are not free money. You may owe taxes on some portion of each check.

Age 65 – Medicare Enrollment Begins

Medicare is the health payer program of the United States Government that helps provide payment coverage for health and medical care. It was first enacted in 1965 to help those who could not afford health or medical care in their retirement. Today, millions of American citizens aged 65 and older receive Medicare assistance. The initial enrollment period (IEP) is the seven-month period that begins three months before you turn 65, includes the month of your 65th birthday, and ends three months later.

If you do not enroll during the IEP when you are initially eligible, you can enroll during the general enrollment period held January 1 through March 31 each year. Be mindful that you may have to pay a late enrollment penalty for Medicare Part A and/or B if you did not sign up when you were initially eligible.

Age 72* – Required Minimum Distributions (RMDs) Begin

While the primary benefit of most IRS sanctioned retirement accounts is their tax-deferred status, this benefit does not last forever. You must begin taking your taxable withdrawals no later than April 1 the year after you turn 72*.

Subsequent annual withdrawals are then due by December 31 each year thereafter. If you postpone your initial distribution to the first quarter of the year after you turn 72*, then you will have two distributions in that second year.

Failure to comply with this requirement carries a full 50% penalty of the requirement amount not withdrawn.



* For those born after June 30, 1949.

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