Why is 59 1/2 So Important?

If you were born in the early 1960s, you’re old enough to remember the Apollo lunar landings. You may remember the first departure of astronauts Neil Armstrong and Buzz Aldrin, who walked on the moon and into history.

These events scrawled across the pages of late 20th- and early 21st-century history mark your life in ways that few others alive today can comprehend. Thinking about all you’ve seen may amaze you at times. But now you are six months shy of your 60th birthday. You are 59½, to be exact.

Why is that age so significant?

This age marks a turning point of sorts in your life—on a number of fronts. In particular, the Internal Revenue Service (IRS) allows you to make withdrawals from your retirement accounts without incurring a penalty. It has also been nearly a decade since you were granted the right to make “catch-up contributions.”¹

In roughly 30 months, you’ll be eligible to claim Social Security benefits. You’re about 66 months away from Medicare eligibility.^2,3 Let’s explore your retirement choices, your healthcare concerns, and how to move vibrantly into those golden years.

Building Your Retirement Savings

According to a recent survey, 27% of workers are not confident that they will have enough money to live comfortably in retirement, and 45% are only “somewhat confident.”⁴  If your retirement savings are not quite up to par, the IRS provides a catch-up clause that applies to people over the age of 50.¹ Older employees may exceed the IRS’s standard elective deferral ($22,500 in 2023) to their employees’ workplace-based retirement savings plans. Elective deferrals are contributions to retirement plans by the employer at the employee’s request. Deferrals apply to 401(k)s, 401(b)s, and other retirement plans.¹

The catch-up amount for 2023 is $7,500 and applies to the following plans: 401(k), (2) 403(b) and (3) 457 plans

Deferrals to retirement plans must exceed the standard $22,500 limit (2023) to be counted as catch-up contributions.¹   You can make annual catch-up contributions if the amount is less than the catch-up contribution dollar limit, or the excess of the participants compensation is over the elective deferral contributions that are no catch-up contributions.¹

Catch-up contributions are $3,500 for Savings Incentive Match Plan for Employee Individual Retirement Account (SIMPLE IRA) plans. These plans are often used by small business owners.¹

You can make $1,000 in catch-up contributions to your traditional or Roth IRA in 2023. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½.  Tax-free and penalty-free withdrawals can also be made under certain other circumstances, such as the owner’s death. Employer match is pre-tax and not distributed tax-free during retirement.¹

Once you reach age 73, you must begin taking required minimum distributions from your 401(k), 403(b), 457(b), or other defined contribution plans in most circumstances. Withdrawals from your 401(k) or other defined   contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty Once you reach age 73, you must begin taking required minimum distributions from a SIMPLE IRA in most circumstances. Withdrawals from SIMPLE IRAs and traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

As you approach this major turning point in your life, you will surely have questions. Our advisors can help you discover wise solutions and develop smart retirement strategies for a fulfilling and exciting future. We can help you analyze your financial situation to shape the life you envision. Contact us at APAdvisors.com or at 866.515.2742.

 

1.   IRS.gov, 2023

2.   SSA.gov, 2023

3.   Medicare.gov, 2023