Wealth Planning for The Ages

Your birthday is cause for celebration, but did you know that certain age ‘milestones’ are more special than others when it comes to your wealth plan? Here are a few examples to consider:

When you turn 50…you can make ‘catch-up’ contributions to your retirement savings accounts, such as a 401(k) or IRA. If you’re turning 50 or older this year (you don’t have to wait until your birthday), you can contribute an additional $6,500 or a total of $27,000 into your 401(k) or an extra $1,000 for a total of $7,000 into your IRA (providing you fall under the income limits).¹ You also qualify for a full membership with AARP, which offers a host of discounts to card carrying members.

When you turn 59 ½…you are no longer subject to a 10% penalty for withdrawing funds from your 401(k) or IRA (although keeping those funds invested for the long-term is typically best).²

When you turn age 62 to 70…you can begin claiming your Social Security benefits. Your Full Retirement Age (FRA), based on the year of your birth, the amount of money you’ve earned over your career, and the date you begin claiming benefits, determine the amount you are eligible to receive. The FRA for those born between 1943 and 1954 is 66, but those born in 1960 or after don’t reach FRA until 67 years old. You have the option to start taking benefits at age 62; however, your benefit amount will be reduced. And you can delay receiving benefits beyond your FRA, until age 70, to increase your monthly payment. There are a variety of factors to consider when deciding when to start taking benefits, including when you plan to stop working and your life expectancy. As part of your wealth plan, your Washington Trust Wealth Advisor will help evaluate your options.³

When you turn 65…your initial enrollment period for Medicare coverage begins. You can sign up three months before your 65^th birthday and the eligible enrollment period continues until three months after the month you turn 65. There is a late enrollment penalty if you don’t sign up within this time frame. However, if you remain covered under a group plan through either your employer or your spouse’s, you may be eligible to delay enrollment until after your coverage ends. Medicare coverage typically begins the month after you sign up.⁴

When you turn 72…the IRS requires you to begin taking required minimum distributions (RMDs) from your tax-advantaged retirement savings accounts (including IRAs, SEP IRAs, SIMPLE IRAs, and other retirement plan accounts) by April 1^st of the year after you turn 72. Individuals who turned 70 ½ before January 1, 2020 (i.e. those born on or before July 1, 1949) are grandfathered under the old RMD rules. (Note: if you wait until the year after your birthday to start RMDs, you must take 2 RMDs in that first year. This strategy may make sense if you think may be in a lower tax bracket in the second year or expect a favorable shift in tax rates.)⁵

Celebrate your birthday with a wealth plan for the future! A team approach is always a good idea, especially when it comes to navigating the complexities of retirement rules and governmental benefits. Please do not make any big (or irrevocable) decisions without first consulting a professional. So, your birthday is a good reminder to reach out to your tax professional, legal counsel and Washington Trust Wealth Advisor with questions you may have about how your age affects your finances, and how to prepare for life’s milestones.

1 Retirement Topics – Catch-Up Contributions, irs.gov
2 Retirement Topics – Exceptions to Tax on Early Distributions, irs.gov
3 Retirement Benefits, ssa.gov
4 When does Medicare coverage start? Medicare.gov
5 Retirement Plan and IRA Required Minimum Distribution FAQs, irs.gov