The Important Birthdays, Starting at Age 50, That Have Implications on Your Retirement Income

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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 are 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 401(k), 403(b), and 457 plans can contribute an additional $6,500 per year in 2022. Those who participate in Simple Individual Retirement Account (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 or Roth IRAs can set aside an additional $1,000 a year. *%

Age 59½

At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10 percent federal income-tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) and 403(b) plans (457 plans are never subject to the 10 percent 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. #

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. &

Age 65 to 67

Between ages 65 and 67, individuals become eligible to receive 100 percent of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100 percent of their benefits when they reach age 66 years and two months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits. ^

Age 72

In most circumstances, once you reach age 72, you must begin taking required minimum distributions from a traditional Individual Retirement Account and other defined contribution plans. You may continue to contribute to a traditional IRA past age 70½, as long as you meet the earned-income requirement.

Understanding key birthdays may help you better prepare for certain retirement income and benefits. But perhaps more importantly, knowing key birthdays can help you avoid penalties that may be imposed if you miss the date.

* If you reach the age of 50 before the end of the calendar year
% IRS.gov, 2022
# SSA.gov, 2022
& SSA.gov, 2022. Individuals can decline Part B coverage because it requires an additional premium payment
^ SSA.gov, 2022

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Kim Brumbaugh is the founder and CEO of Brumbaugh Wealth Management, an Exton-based firm that helps secure people’s financial futures by understanding their unique position and providing personalized solutions for their needs. She started her firm in 2004 with a clear vision to coach clients through complex financial situations and act as a catalyst to get things done.

Brumbaugh Wealth Management, 415 Eagleview Blvd, Suite 110, Exton, PA 19341, 610-458-2495

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Kim Brumbaugh is a Registered Representative and member of ensemble practice offering securities and advisory services through Cetera Advisor Networks LLC, Member FINRA/SIPC, a Broker-Dealer and a Registered Investment Advisor. Advisory services also offered through AdvisorNet Wealth Management. Cetera is under separate ownership from any other entity.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor.  Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10 percent IRS tax penalty.

Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

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