Saturday, May 16, 2015

Financial Milestones for Baby Boomers

Age is something to celebrate when you remember these key dates.

While you may think you’ve passed most of life’s major milestones by the time you reach your 50s, think again. From 55 on, there are a number of key dates you can’t afford to ignore. Miss them and you’ll not only miss some of the perks that come with getting older, but you may also be penalized.

So before you declare that you’ll never acknowledge another birthday, at least put these ages on your mental calendar.

Age 55 - Possible penalty-free early 401(k) distribution
If you’re 55 or older and lose or leave your job, you can take a distribution from your 401(k) without paying a 10% early withdrawal penalty under what’s called “separation from service.” If you do this, remember that you will still have to pay income taxes on the distribution.

AGE 59½ - Penalty-free withdrawals from any of your retirement accounts
Whatever type of retirement account you have—IRA, 401(k), 403(b), SEP, SIMPLE, you name it—you can begin making withdrawals penalty-free at age 59½. However, you’ll pay income taxes on the earnings and any contributions that were tax-deductible. In the case of a Roth IRA, contributions and earnings can be withdrawn tax- and penaltyfree if you’ve held the account for at least five years.

AGE 62 - Early Social Security benefits
This is the earliest you can begin collecting Social Security (unless you’re disabled). However, this may not be the wisest choice because it triggers a permanent reduction in your benefit of approximately 25%. Plus, your benefits will be further diminished if you’re still working and earn beyond a certain limit. Visit the Social Security Administration’s website or stop by your local Social Security office if you need help determining the best time to start collecting benefits.

AGE 65 - Eligible for Medicare
If you’re already receiving Social Security, you’ll be automatically enrolled in Medicare parts A and B at 65. If you’re not collecting Social Security benefits yet, you’ll need to apply for Medicare. Ideally, you should apply for Medicare three months before the month you turn 65. You can visit your local Social Security office, call them at 800-772-1213, or apply online.

AGE 66–67 - Full retirement age
You can begin collecting full retirement benefits when you reach what the IRS designates as “full retirement age” (FRA). For Boomers and younger, FRA ranges between 66 and 67, depending on when you were born. At your FRA, you get full benefits even if you continue to work. However, if you delay filing, your benefits will increase by 8% each year until age 70.

AGE 70 - No further increase in Social Security benefits
If you delay collecting Social Security, the 8% annual increase stops when you reach age 70. There’s no reason to further delay taking benefits— you’ve earned them!

AGE 70½ - Required minimum distributions (RMDs)
At this age, you’re required to begin taking withdrawals from your tax-advantaged retirement accounts, with two exceptions:
• You can delay RMDs on your 401(k) if you’re still working.
• You’re never required to take distributions from a Roth IRA if you’re the original account owner or if you inherited the account from your spouse and treat it as your own. RMDs are determined by a formula based on life expectancy and the amount you have in tax-advantaged accounts. Schwab can calculate and distribute your RMDs for you, or you can use our online calculator to do it yourself. Your RMDs must be taken by December 31 each year, with the exception of your first RMD, which can be delayed until April 1 of the year after you turn 70½. Be aware that if you delay your first RMD until the following year, you must still take your second RMD by December 31 of that year. Taking your first and second RMD in the same year could increase your annual income enough to bump you into a higher tax bracket.

- By Carrie Schwab-Pomerantz, Charles Schwab, OnInvesting, Spring 2013

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