“Happy Birthday To You! Happy Birthday To You! Happy Birthday dear investor! Happy Birthday To You!”

As the calendar pages continue to turn, it may be useful to have a list of birthdays that affect your financial life.

50

Fifty is an exciting birthday year. At 50 you are able to make “catch-up” contributions which allow you to make larger contributions to an IRA, Roth, SIMPLE or 401(k). In 2022 these amounts are:

  • IRA     $1,000
  • Roth   $1,000
  • Simple $3,000
  • 401(k) $6,500

59 1/2

At 59 ½ you are able to take penalty free distributions from your IRA. Generally, if you are under age 59 ½ you must pay a 10% additional tax on the distribution of any assets (money or other property) from your traditional IRA.

Distributions before you are age 59 ½ are called early distributions.

The 10% additional tax applies to the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on that amount. [1]

62

Turning 62 means that you may start collecting your Social Security retirement benefits. Your benefit is reduced by about 25% if collected at 62 rather than the full retirement age. To be able to collect all of your benefit, you must meet certain earned income limits.

Your amount of income determines how much of your Social Security is taxable. Coordinating your Social Security benefit with your other assets can provide up to an additional 7 ½ years of portfolio longevity.[2]

65

Turning 65 means you are eligible to enroll in Medicare. If you are already collecting Social Security retirement benefits then you should be automatically enrolled and your Medicare card should have arrived about three months before your birthday.

If you are not collecting Social Security retirement benefits, you will need to enroll within the seven-month window that begins three months prior to your birthday month and ends three months after.

It can be daunting to try and coordinate Medicare Part A (hospital insurance) and Part B (medical insurance) along with the timing of other insurance you may have. Medicare.gov is a great resource to start with and doing a quick Google search can point you to local experts that may be able to help.

70 1/2

When you have reached 70 ½ you are able to use Qualified Charitable Distributions (QCD) as a gifting and taxation strategy.

You can transfer up to $100,000 directly to the charity or charities you elect from your IRA. Your gift is counted as a pre-tax donation from your IRA and won’t be pulled into your adjusted gross income.

72

Once you are 72 you will need to start taking Required Minimum Distributions (RMDs).

“Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 72, regardless of whether he or she is retired.” 

“Retirement plan participants and IRA owners, including owners of SEP IRA’s and SIMPLE IRA’s, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.”

“You must take your first required minimum distribution for the year in which you turn age 72 (70½ if you reach 70½ before January 1, 2020) However, the first payment can be delayed until April 1 of 2020, if you turn 70½ in 2019. If you reach 70½ in 2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.”1

Birthdays can be natural milestones for evaluating your retirement. They can be a source of joy and celebration but also an opportunity to evaluate your financial position given your current age. The goal is to demystify and quantify specific events on your financial horizon so you are better able to utilize the tools at your disposal to support your goals. It is our sincere hope that you enjoy your birthday celebration. May all your birthday wishes come true.

[1] www.irs.gov

[2] Cook, Kristen, Ph.D., William Meyer, and William Reichstein, Ph.D., 2015. Tax-Efficient Withdrawal Strategies. Financial Analysts Journal, Vol 71, No. 2 (March/April 2015), pages 16-29.