Retirement planning is something that starts the moment you enter the workforce. It’s important to have a retirement plan to ensure that you can live comfortably once you reach your 50s and beyond. Additionally, there are certain milestones over 50 that you should be aware of when planning for retirement. This article will outline these important birthdays to remember when planning for retirement.
Catch-up Contributions at Age 50
If you are over age 50, you may make catch-up contributions to certain employer-sponsored retirement plans, such as 401(k), 403(b), and 457 Plans; Simple IRA or Simple 401(k) Plans; or Traditional & Roth IRAs. These additional contributions allow you to sock away more pre-tax dollars than those under age 50 are allowed. For example, if you are over age 50, you can contribute up to $30,000 in 2023 to a 401(k) plan ($22,500 plus an additional $7,500 catch-up contribution).
Withdrawing Funds at Age 59½
Once you reach 59½, any money withdrawn from your qualified retirement plans is subject only to federal income tax. This means that when withdrawing funds from a traditional IRA or 401(k) before age 59½, there will be a 10% federal income tax penalty on top of ordinary income taxes owed on any earnings withdrawn before age 59 ½. There are some exceptions to this rule (such as withdrawals used for medical expenses or educational costs), so consult with your financial advisor before making any withdrawals before age 59 ½.
Social Security Benefits at Age 62
At age 62, individuals can begin collecting Social Security benefits if they have 40 credits (or 10 years of work experience). The benefit amount depends on how much was paid into Social Security over one’s working lifetime. Furthermore, suppose someone is still working after claiming their Social Security benefits, and their earnings exceed the annual limit for their year of eligibility ($21,240 in 2023). In that case, their benefits could be reduced by $1 for every $2 earned above the limit until they reach full retirement age (66 or 67, depending on birth year).
Medicare Eligibility at Age 65
At age 65, most Americans become eligible for Medicare health insurance coverage. Generally speaking, those who have worked and paid taxes long enough become eligible without cost, while others may need supplemental plans or may need to pay premiums depending on income level. As such, it is important to review all available options carefully as Medicare eligibility approaches to ensure proper coverage moving forward and avoid unnecessary costs.
Required Minimum Distributions from Traditional IRA at Age 73
Once individuals reach age 73, they must take the required minimum distributions (RMDs) from their traditional IRAs each year, regardless of their needs. These RMDs are calculated based on life expectancy tables provided by the Internal Revenue Service (IRS). Failing to take required minimum distributions can result in steep penalties being assessed against the account holder by the IRS.
Conclusion: As we have outlined here today, important milestones over 50 should be kept in mind when planning for retirement. It is highly recommended that individuals review these milestones with their financial advisor regularly and whenever major life events occur, such as marriage/divorce or job changes, to ensure they remain financially secure throughout their retirement.
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