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Mark These Key Birthdays in the Coming Years


If you're in the middle years of life, you remember reaching Sweet 16, turning 21, and enduring over-the-hill jokes on your 40th birthday. When we approach 50, we look ahead to key birthdays--or half-birthdays--related to our retirement planning. At specific ages, we can or must take certain actions.

 

Age 50: At 50, it truly hits us that retirement is around the bend. This is a good time to consider long-term care insurance, as it will be more costly when you're older. Also, pay down debts and begin to think about how you'll take your pension plan payouts.

 

Age 55: You can withdraw funds from your 401(k) or other qualified plan at 55 without paying a 10% penalty tax for early withdrawals--if you're leaving your current employer. You'll pay taxes on withdrawals.

 

Age 59½: At this age, you can withdraw funds from your regular IRA, 401(k), or other qualified plan without paying penalties. Again, you pay taxes on withdrawals.

 

As with 401(k) or other qualified plans, you can take early penalty-free withdrawals from your regular IRA, too. But the rules are

more complicated.

 

You must take those IRA withdrawals--which can begin at any age--as "substantially equal periodic payments" that continue over a five-year period or until you reach age 59½, whichever happens later. Beginning withdrawals at 57, for example, means you'd have to keep taking them until 62, or face penalties.

 

Early withdrawals from IRAs or qualified plans are best reserved for emergencies. In fact, don't rush to withdraw funds just because you reach age 59½. The longer you leave that money tax-deferred, the better.

 

Age 62: Now is the time to decide whether to take early Social Security benefits. Doing so will mean smaller monthly checks—for the rest of your life-than if you waited until full retirement age. But you likely will get checks for more years by starting early. What's the best move? It depends on your health, expected life span, and finances.

 

Ages 65 to 67: This is the full-retirement-age spectrum for Social Security benefits, depending on when you were born. Or you could wait until age 70 to start taking benefits and get bigger monthly checks.

Whenever you're retiring, sign up for Medicare three months before you turn 65. Signing up late means you'll pay higher premiums for Medicare Part B.

 

Age 70½: This is when you must begin taking required minimum distributions from your regular IRA, whether you're working or not. If you're in a 401(k) or other qualified plan and you're still working at 70½, you can wait to take your first minimum distribution in the year you retire, if your employer allows that.

 

Failure to take your distribution results in a hefty penalty: 50% of the difference between what you should have taken and what you actually took. You must take your first required minimum distribution by April 1 in the year after you turn 70½. From then on, the distribution deadline is Dec. 31 each year.

 

Copyright 2006 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.