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Life’s Milestones: The Crucial Role Birthdays Play on Your Finances

Life’s Milestones: The Crucial Role Birthdays Play on Your Finances

| May 01, 2024

Birthdays should always be about cake, candles, and celebration, but as you age, they’re also important checkpoints on your financial journey.

With each passing year, birthdays signal new rules, opportunities, and challenges. The decisions you make today will shape your financial future. This means understanding the nuances that each birthday brings. From Catch-Up Contributions to Medicare enrollment, every milestone requires careful consideration and strategic planning.

Whether retirement is on the horizon or already underway, the team at Phronesis Wealth Management in Severna Park, MD is here to help you with these important milestones.

Age 50: Catch-Up Contributions

Catch-Up Contributions are a way for people who are 50 or older to save more money for retirement. This is meant to help boost retirement savings faster, especially if you couldn’t save as much in earlier years. Review the numbers below to see how you can increase your retirement contributions.

  • 401(k), 403(b), 457 Plans - $23,500, under age 50
  • 401(k), 403(b), 457 Plans - $30,500, over age 50
  • IRA - $7,000, under age 50
  • IRA - $8,000, over age 50
  • HSA Self Coverage - $4,150 under age 50
  • HSA Self Coverage - $5,150 over age 50
  • HSA Family Coverage - $8,300 under age 50
  • HSA Family Coverage - $9,300 over age 50

Age 59 1/2: The Age of Penalty-Free Withdrawals

Starting the year you turn 59 ½, you may withdraw money from your Traditional IRA, Roth, SEP, SIMPLE IRA, and SARSEP plans without the 10% early withdrawal penalty. Distributions from a traditional IRA are taxed as ordinary income.

Distributions taken from a Roth IRA are considered tax-free as long as they are taken during retirement and the account has been open for five years. This is because nondeductible contributions were initially made, which makes this shelter for after-tax dollars a great tool for distributions in the later years of retirement. It can even be designated as an estate/inheritance legacy account.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. LPL Financial does not provide tax advice or services.

Age 60: Medicare and Social Security

Almost everyone aged 65 and older is eligible to enroll in Medicare Parts A and B. Leading up to the age of 65, you should start considering your Initial Enrollment Period (IEP), which lasts for a total of seven months. This period begins three months before you turn 65, includes the month you turn 65, and ends three months after you turn 65. Coverage begins the month after signing up during your IEP.

Claiming Social Security varies depending on your birth year. While you can claim reduced Social Security benefits as early as age 62, you can also wait until after full retirement age, up to age 70, to claim higher benefits. Each full year you postpone taking benefits increases the benefit amount by 8%. Deciding when to claim Social Security benefits requires planning to ensure you best impact yourself, your dependents, and your survivors.

Your 70s: Distributions Must Begin

Required minimum distributions (RMDs) must be taken by April 1 of the year following the calendar year in which you reach age 73 for IRAs, 401(k)s, and other employer-sponsored retirement plans. However, if you’re still working past this age, RMDs may be delayed.

If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 25% excise tax on the amount not distributed as required. The penalty can be reduced to 10% if withdrawals are taken within two years/corrected returns are filed. Keep in mind that the amount of the RMD changes every year. RMDs will move to age 75 for retirees who attain age 74 after 1/31/2032. To accurately calculate the annual RMD amount, it is essential to work closely with us.

We’re Here to Help Every Step of the Way

With careful planning and informed decisions, the journey towards financial well-being can be as fulfilling as the celebrations themselves. Let each birthday be a reminder of the progress made and the road that lies ahead.

Individual circumstances vary, and there is no one-size-fits-all approach. At Phronesis, we put you at the center of everything we do. Let’s have a conversation so we can put a customized plan in place that works for you and your specific situation. If you have any questions, feel free to reach out at 410-647-6762, or schedule a complimentary consultation online.

The opinions voiced in this material are for general information only and are not intended to provide| specific advice or recommendations for any individual.