The 5 Most Important Ages for Retirement Planning
May 02, 2018
By Dennis Kagel, ChFC, Chartered Financial Consultant
There’s a significance to certain age milestones as they pertain to planning for a sound retirement financially. The following five ages are especially important because of retirement plan contribution limits, withdrawal rights and requirements, and federal government benefits.
— Once you reach age 50 you can contribute extra amounts to your 401(k) and IRA. The government recently announced that they’ve raised the maximum amount that can be contributed annually to a 401(k) from $18,000 to $18,500. This is the first increase since 2015. For those age 50 and above, the extra amount allowed remains at $6,000. The extra amount is referred to as a “catch-up” amount.
This applies to 401(k), 403(b), 457 and Federal Government Thrift Savings Plans as well. The maximum amount for Traditional IRA’s and Roth IRA’s remains at $5,500 and the “catch-up” for those 50 and older is $1,000*.
— This is the age we typically think of where withdrawals can be made from your 401(k) and IRA without paying a penalty. Any withdrawals from Qualified Plans (before tax contributions) are always taxed. There are no exceptions to the tax rule. However, there are some exceptions to the 10 percent penalty that applies to most pre-59½ withdrawals. These include withdrawals used for the following:
- Medical expenses (that exceed 10 percent of your adjusted gross income)
- Health insurance premiums
- Inherited IRA’s (If you inherit an IRA from a deceased spouse and choose to treat it as your own, any pre-59 ½ withdrawals would be subject to the 10 percent penalty)
- Qualified higher education expenses
- A first-time home purchase (up to $10,000 allowed without penalty)
It’s important to note that if you retire in the calendar year that you turn age 55 or later you are allowed to make withdrawals from your company retirement plan (401(k) for example) without penalty*.
— This is the age that you are eligible to sign up for Medicare. The enrollment period begins three months before your 65th birthday and continues for seven months.
— For those born between 1943 to 1954 this is referred to as FRA or Full Retirement Age for receiving Social Security benefits. At age 62 the monthly benefit is 25 percent less than it is at FRA and at age 70 it’s 32 percent more*. Social Security can be extremely complicated! Married couples have 567 different possible options. When you consider options for death, divorce, disability, etc. there are literally thousands of total options.
— RMD’s (Required Minimum Distributions) begin once we turn 70½. The first distribution can be delayed until April 1st of the year following one’s turning 70½, however there would be another RMD required by Dec. 31st of that year if the first distribution is delayed until April 1st. A point that’s easy to miss is the fact that RMD’s are required for Roth beneficiaries and Traditional IRA beneficiaries. RMD’s are not required for account owners of Roth IRA’s. Failure to meet the RMD amounts and deadlines will likely result in a 50 percent penalty*. Obviously, this is extremely important to be aware of!
For further specific information on how any of these rules and issues may impact you and your retirement, you may contact Dennis Kagel at 309-454-9171 to set a time to address any questions or concerns you may have. You are also invited to attend an upcoming “Maximizing Social Security Benefits” workshop. Dennis Kagel holds the NSSA (National Social Security Advisor) designation.
His office is located at 321 Susan Drive, Suite A in Normal. There is never a charge for an initial meeting to get acquainted and to learn about your financial situation. You have everything to gain and nothing to lose.
*Sources – 2018 Fingertip Tax Guide (John Hancock), Securian Financial Group – 2018 Tax Reference Guide, Tax Cuts and Jobs Act (TCJA) At-A-Glance (Simplicity Financial Marketing)
Insurance products and services offered through Dennis Kagel Financial Services.
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