When it comes to your overall financial picture, there are several important dates that everyone needs to be aware of. When building a sound financial plan it is important to always stay cognizant of these dates. Some of these dates have the potential to make an extremely profound impact on your plans for the future.
Age 18 – The age that you can open your OWN IRA, Roth IRA or participate in a company-sponsored retirement plan.
Age 50 – You can now enhance your retirement plan contributions through “catch-up provisions”. For 401(k)/403(b) plans, you can contribute $6,000 (in 2015) more dollars for a new total of $24,000 a year. For IRAs and Roth IRA’s, your maximum contribution limit is upped by $1,000 to a new total of $6,500 a year.
Age 55 – If you leave your job in the calendar year you turn 55 or later, you can take 401(k) withdrawals from your employer-sponsored retirement plan without having to pay the 10 percent early withdrawal penalty. However, if you roll the money into an IRA, you’ll have to wait until age 59½ to avoid the penalty. If you are retiring pre-59 ½, this is extremely important to know. The penalty is a 10% penalty on top of paying income taxes on the distributions.
Age 59 ½ – The early withdrawal penalty for 401(k)/403(b) plans and IRAs no longer applies. Withdrawals are now taxed at your federal and state income tax rate.
Age 62 – The first age that you can sign up for Social Security. If you sign up at 62, your payments are permanently reduced by as much as 30%. Also, if you work and collect these benefits simultaneously, part or all of your payments could be temporarily withheld.
Age 65 – You can sign up for Medicare starting three weeks before your 65th birthday. Make sure you sign up on time (within eight months of leaving a job with group health coverage) so that you are not penalized.
Age 66 – Baby boomers born between 1943-1954 are now eligible to collect unreduced Social Security payments (you reached full retirement age). After that, full retirement age gradually increases from 66 and two months for those born in 1955, to 66 and 10 months for workers born in 1959. Once full retirement age is reached, benefits are no longer withheld for working and collecting Social Security simultaneously.
Age 70 – Social Security payments will be maxed out if you wait to take benefits until 70. The payment will have increased by about 8% per year if delayed until 70. There is no additional benefit to prolonging benefits after this age.
Age 70 ½ – You have to start taking distributions from your tax-deferred retirement accounts whether you need the funds or not. There is a required minimum distribution (RMD) that you must take every year. Also, traditional IRA contributions are no longer tax deductible.
It is very important to keep these dates in mind, especially as you approach retirement. A sound financial plan with an advisor should help you to remove the guesswork from your financial puzzle and give you confidence knowing that you are working toward achieving YOUR goals.
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