Financial Planning by Numbers

Financial Planning By Numbers

One, two, three. It’s as easy to learn as your ABCs…

As the years roll by and you celebrate your birthday on each trip around the sun, be mindful that age milestones can trigger different financial planning opportunities. Many of those age mile markers are tied to the United States tax code. While every birthday should be celebrated, certain birthdays on your Roads to Retirement may be more important than others for financial planning. Let’s take a look at them.

18 – Earliest age of majority for custodial accounts in some states.

26 – Oldest age children may be added to or stay on a parent’s health insurance plan if it covers dependents.

50 – Eligible for catch-up contributions for retirement accounts. 2024 Catch-up contribution amounts are $1,000 for IRA (Traditional and Roth), $3,500 for SIMPLE IRA, and $7,500 for 401(k) and 403(b) accounts. With retirement on the horizon, this is a great opportunity to sock away some extra savings.

55 – You may be able to access your 401(k) or 403(b) plans without incurring the 10% early withdrawal penalty if you have separated service from your employer at age 55 or later. For those individuals who wish to retire early, this is a critical milestone. This rule does not apply to Individual Retirement Accounts (IRAs).

59.5 – The 10% early withdrawal penalty sunsets at age 59.5 for traditional IRA distributions. You still have to pay the ordinary income taxes on those withdrawals, except for a Roth IRA, Roth 401(k), or the basis from a non-deductible IRA. Note a Roth IRA must be open for at least 5 years to take tax and penalty-free distribution on gains. The same rules apply to Roth 401(k), if the plan permits.

Many employer plans allow for an in-service rollover from a 401(k) plan to an IRA even while you continue to work. Check with your plan provider to see if you qualify. This can give investors more investment flexibility as 401(k)s are often limited in choices and options.

60 – A widow or widower may be eligible for Social Security Survivorship benefits. If you do claim benefits this early, it will result in a reduced amount. Divorced spouses may also be eligible for a benefit.

63 – Medicare Part B and D premiums calculated based on your modified adjusted gross income (MAGI), your total adjusted gross income plus tax-exempt interest, on your tax return when eligible for Medicare two years later at age 65. There is a constant two-year look-back period to determine your Medicare premiums (higher premiums are applicable at higher income levels).

65 – Medicare Eligibility! You can enroll in Medicare three months before your 65th birthday, the month of your birthday and for three months afterward. Don’t miss that enrollment window – Medicare Part B premiums will increase by 10% for each 12-month period that you were eligible but did not enroll. You have eight months to sign up for Medicare if you delay enrollment due to coverage under your group health plan at work or your spouse’s. This is a big age when doing financial planning as funding private health care before Medicare age is a big hurdle. Health care is expensive.

67 – Full retirement age for Social Security is age 67 for those born in 1960 or later. If you are part of this group and you take Social Security before age 67 you will receive a permanent reduction in your payments. For those born between 1943-1954 full retirement age is 66. For those born in the second half of the 1950s, they reach full retirement age between the 66 and 67 birthday. You can delay taking your Social Security until age…

70 – You can increase your Social Security by 8% for each year you delay the start of your payments between your full retirement age and age 70. There is no additional benefit accumulation past age 70. We do an analysis on the timing of when to take Social Security as part of our Bedell Frazier Financial Planning process. This is an important financial planning consideration for couples who can have one of the partners delay starting to draw on their Social Security, increasing the survivor benefit for the second partner.

70.5 – Qualified Charitable distributions (QCDs) are in play once you reach the age of 70.5, not the year you turn 70.5. A Qualified Charitable Distribution (QCD) allows you to donate directly from your Individual Retirement Account (IRA) or inherited IRA to a charity with no taxes due on that distribution. It is a great planning tool for those that are charitably inclined being able to give away IRA dollars tax-free while lowering their future Required Minimum Distributions (RMDs). Since you don’t pay taxes on QCD distributions, you cannot double dip and take a charitable contribution deduction on your taxes. You can donate up to $105k per year.

73 – While turning age 59.5 allows you to access your IRA savings without penalty, at age 73, you must start taking Required Minimum Distributions (RMD) from your IRA, 401(k), and other retirement accounts. You have some flexibility on the first Required Minimum Distribution being able to delay it until April 1st the year after you turn 73. After that, every Required Minimum Distribution (RMD) must be taken by December 31st or you could face a penalty of up to 25% for the amount not distributed. Roth IRAs are not subject to Required Minimum Distributions. With the passage of the SECURE Act 2.0 in December of 2022, Roth 401(k)s will no longer be subject to RMDs starting in 2024.

If you are still working at age 73, your company-sponsored retirement plan may allow you to delay your RMD until you separate service. This does not apply to any IRA accounts.

Make a plan! There are many financial planning opportunities as you reach different age milestones along the Roads to Retirement. The timing of when to take Social Security, gifting to charities from IRAs through the use of Qualified Charitable Distributions (QCDs), the beginning of Required Minimum Distributions (RMDs) from qualified retirement accounts, and Roth Conversion opportunities are all intertwined. It is best to start planning many years in advance to maximize your ability to take advantage of different financial planning strategies. Our planning software has intricate modeling for all of these topics. Contact the Bedell Frazier Financial Planning Department now to help you make the most of your retirement assets and to assist you in designing your dream retirement.

More Roads to Retirement

Where will you travel next?

Start your engine
Fuel your retirement
Plan your route
Avoid potholes
There's always a tollbooth
For those riding in the backseat
Seeing the road ahead
Finding the right exit
You've arrived at your destination
Mapping the historic route
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