Did you know that there are rules and regulations that can help you avoid higher taxes and penalty fees and help you structure your income to minimize taxes? Getting the most out of your retirement savings takes more than adjusting your portfolios. Know these 3 ages that can help you get the most out of your retirement accounts.
Celebrate Catch-Up Contributions at Age 50!
Individuals with certain qualified retirement plans can make catch-up contributions in addition to their usual contributions once they turn 50. An IRA contribution of up to $6,000 may be made in 2022 if you are under 50, and an additional $1,000 may be made if you are 50 or older. Those 50 and older who participate in a Simple IRA or Simple 401(k) may contribute up to $17,000 in 2022. A 401(k), 403(b), most 457 plans, and a government Thrift Savings Plan may contribute up to $27,000 in 2022 if they are 50 or older.1
Reaching 59.5 Qualifies You for Penalty-Free Retirement Account Withdrawals!
There are several advantages to aging. Once you reach age 59½, you can take money out of your IRA or old 401(k)s without paying a penalty. If you are retired or have quit your job and still have 401(k) money, you may access it without paying an early withdrawal penalty tax at age 59½. If you have rolled your 401(k) money into an IRA, you also won’t be penalized. 2
The earliest you can withdraw money from an IRA without paying an early withdrawal penalty tax is age 59½. You may withdraw money from a 401(k) plan once you turn 59½, but you may not have the same access to funds in your company 401(k) account if you are still working. Certain 401(k) plans allow what is known as an ‘in-service’ distribution upon turning 59½, while others do not.
Take a Birthday Check with Required Minimum Distributions at age 72
Beginning in 2020, the SECURE Act altered the age at which Required Minimum Distributions begin from 70½ to 72. Qualified retirement plans, such as 401(k)s, 403(b)s, Profit Sharing plans, Money Purchase Pensions, IRAs, Simple IRAs, and SEP IRAs, are subject to RMDs.3 Now, many retirees have more time to let their retirement savings grow tax-free. RMDs are the minimum you are required to withdraw each year, and you can always withdraw more than that amount.
Some retirees would prefer to withdraw less than the required amount from a traditional retirement account. Withdrawing more from a traditional retirement account might result in a higher tax burden and an end to tax-free growth of the withdrawn funds. You will be penalized if you forget to take your RMD. The penalty is 50% of the RMD you were required to take.4 RMDs are based on the total balance of all your IRAs, 401(k)s, and other traditional retirement plans as of December 31st of the previous year.
If you have questions about how to optimize your retirement accounts to minimize taxes and maximize your retirement savings, you can sign up for a complimentary review with us of your financial plan.