Contributions to retirement funds and withdrawal from the same involve lots of rules and conditions that varies along with the age of the worker or retiree. Here we have listed ten important ages that you (worker or retiree) should be aware of.
You are 49 or younger
As an eligible employee, you can contribute up to $17,500 to a 401(k), 403(b), 457(b) or the federal government’s Thrift Savings Plan in 2014. You can also set up your own IRA and make tax deferred contributions of up to $5,500. Early withdrawals may incur 10% penalty. Note that the maximum contribution amount may increase in future to account for cost of living adjustments.
If you want to increase your retirement savings, then you can do so by making catch-up contributions. Those who are 50 (or older) are allowed to make an additional contribution of $5,500 to their 401(k) savings. You are allowed to make an additional catch-up contribution of $1,000 to Traditional or Roth IRA and $2,500 to SIMPLE IRA and SIMPLE 401(k). You need not necessarily be ‘behind’ in your savings to make catch-up contributions.
You are 55 or older
If you separate from (i.e., retire or quit or lose) your job, you can withdraw from retirement plans such as 401(k), profit sharing, money purchase plans or 403b plans without attracting 10% penalty. This withdrawal will be taxed as ordinary income. This rule does not apply to IRA.
You are 59 ½
Once you turn 59 ½, you can withdraw from your retirement savings such as 401(k) and IRA without paying any penalty. Any withdrawal before this age may attract penalty with certain exceptions.
You are 62
Workers and retirees can claim their social security benefits once they turn 62. However, you will receive less amount if you start taking your benefits now. If your full retirement age is 67 then this reduction in benefits may be about 30%. Spousal benefits will get reduced by 35% if the benefits are claimed before the full retirement age. You can claim social security benefits even if you are still working. It could mean a higher benefit if the claims are delayed each year until 70.
|If you start to collect at||Your monthly benefit is|
|66||At least 1/3 more|
|70||At least 3/4 more|
You are 65
Medicare eligibility begins at 65. It is generally advised to apply for medicare 3 months before you turn 65. If you are already receiving your social security benefits, then you will be automatically enrolled in Medicare Part A (Hospital Insurance) and Part B (Medicare Medical Insurance). You have the option to turn down Part B coverage as you will be required to pay a premium for this.
You are 66 or 67
Age 66 is considered as full retirement age (also known as ‘normal retirement age’) for those who were born between 1943 and 1954 and therefore they are eligible to receive their full social security benefits from this age. For those born after 1954, age to receive full social security benefits is as follows:
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
You are 70
As stated above, social security benefits increase by a certain percentage if the benefits claim is delayed each year until you are 70. However, the benefits will not increase any further if you delay your claims.
You are 70 ½ or older
You cannot keep your money in your retirement savings accounts forever. It is mandatory to take withdrawals from your IRA once you turn 70 ½. The minimum amount that you should withdraw every year is called Minimum Required Distribution (RMD). The account holder can withdraw more than RMD. If you fail to withdraw the amount by the applicable deadline, then the amount not withdrawn will be taxed at 50%. This RMD rule applies to all employer sponsored retirement plans and IRAs. Roth IRAs do not require withdrawals until after the death of the owner.