Many are familiar with medical age milestones. For example, cholesterol screening should begin at 35, mammogram at age 40, and colonoscopy starting at age 50. Similar to these medical milestones, you will want to be aware of key financial ages, especially as you plan for retirement. 

Before we jump into the details, we asked our team of advisors and our investment manager for the best financial advice they wish they would have received at different times in their lives:

Financial Advice I Wish I Would Have Had When
I Was In My 20s, 30s, 40s, 50s, and 60s:

From our experience turning 50, 55, 59½, 65 and 73 are important milestone ages for many investors and savers. We've compiled a list of key financial variables to consider at each age.

Catch-Up Contributions

Starting the year you turn 50; you can make catch-up contributions to several different retirement plans. Contributions can be made anytime throughout the year, as long as you turn 50 by year-end.

Taking advantage of catch-up contributions is a great way to set aside additional dollars for retirement (both pre-and post-tax) and may also help individuals who potentially didn’t save early enough in their careers.

The catch-up contribution amounts shown below are based on applicable dollar amounts associated with the 2023 tax year. Furthermore, if you are married, these limits also apply to your spouse.

IRAs and Roth IRAs

The annual contribution limit between these two accounts (aggregated) is currently $6,500 per individual. For those over age 50, an additional $1,000 catch-up contribution is allowed.

401k, 403b & 457b Plans

The annual contribution limit is currently $22,500. For those over age 50, an additional $7,500 catch-up contribution is allowed. Special catch-up rules may apply to certain 403b plan contributors who have 15 or more years of service and government employees during the final three years before retirement (generally defined as age 65).

Simple IRAs

For participants in these small employer retirement plans, the annual contribution limit is currently $15,500. For those over age 50, an additional $3,500 catch-up contribution is allowed.

Health Savings Plans

If you are covered by a high deductible health insurance plan and choose to fund a Health Savings Account (HSA), the contribution limits have increased in 2023. The new contribution limits are $3,850 (Single) and $7,750 (Married). If you are at least 55 years old, you also have the ability to make catch-up contributions to your HSA.

In the calendar year 2023, the annual catch-up contribution is $1,000. If you and your spouse each have an HSA, you are both eligible to make this catch-up contribution, essentially doubling present and future tax benefits.

The Health Savings Account is a great savings mechanism since it offers what we refer to as “Triple Tax-Free Benefits," which can consist of the following:

Pre-Tax Contributions

Your contributions to an HSA are made on a pre-tax basis. That means you avoid paying ordinary income tax on whatever amount you contribute to the HSA during the applicable tax year.

Tax-Free Growth

You can invest the balance in your HSA, much like you would with your 401k, IRA, Roth IRA, and taxable accounts. The benefit of investing money in your HSA is that the growth is tax-free. Considering the projected future costs associated with health care, this is a great way to build your portfolio to cover medical expenses during your retirement years.

Tax-Free Withdrawals

As long as your distributions are used for qualified medical expenses, they can come out of your HSA on a tax-free basis—both now and in the future.

Exceptions to Early Withdrawal Penalties

As a general rule, distributions from a retirement plan before the age of 59½ are subject to ordinary income tax and a 10% early withdrawal penalty.

Now that you are 55 years old, you may be able to avoid the early withdrawal penalty on distributions from specific retirement plans. However, before initiating a withdrawal, we highly recommend you connect with your Financial Advisor and Tax Professional to ensure that the distribution qualifies for an exception.

Some of the more common early withdrawal exceptions include:

401k/403b Plan (Age 55 and Separation from Service)

The keyword here is “AND.” To be eligible for this unique exception, you must separate from service (i.e., retire, quit, termination, layoff) after age 55. Assuming separation from service happens after age 55 (and before age 59½), you may find that you are eligible to take penalty-free withdrawals from your former workplace retirement plan. The distributions would still be subject to ordinary income tax, however. Another key variable in this situation is that the assets need to be retained inside your former workplace retirement plan (i.e., they cannot be rolled over to an IRA).

72(t) IRA Distributions

If you aren’t yet age 59½, but you have already rolled your workplace retirement plan into an Individual Retirement Account (IRA), you may still be eligible to avoid the 10% early withdrawal penalty. One way to avoid the fee can be by setting up a 72(t) IRA. This strategy allows IRA holders to access funds in their account without incurring the 10% early withdrawal penalty, assuming the following conditions are met:

• Substantially Equal Periodic Payments – as long as distributions are set up as part of a series of substantially equal periodic payments, which need to last until age 59½ or 5-years (whichever is longer), you may be able to avoid the 10% early withdrawal penalty.
• Any changes in the substantially equal periodic payments that are made within 5-years of the date of the first payment (or age 59½ if longer than 5-years) will negate the benefit of avoiding the 10% early withdrawal penalty.

Workplace Retirement Plan Rollovers (In-Service)

Once you reach age 55 (while still actively employed), your employer-sponsored retirement plan may give you the option of doing an in-service rollover of your workplace retirement plan into a separately managed IRA. If you prefer the customization, consolidation, and professional advice available through your Investment Advisory Firm, this may be a consideration.

Turning age 59½ is an important milestone for many as it is the magic age associated with accessing funds in your retirement plan without being subject to the 10% early withdrawal penalty. However, there are some instances where investors still need to pay attention to applicable rules and regulations to make sure Uncle Sam doesn’t show up with a surprise tax bill!

Retirement Plan distrubutions

You’ve spent the better part of your career setting aside money into pre-and post-tax investment accounts to help fund your various retirement goals. Now that you’ve turned 59½ years old, you’ll need to determine the most tax-efficient way of tapping into your investment portfolio to reduce the impact of taxes and, more importantly, penalties!

The following accounts are common amongst retirement investors, but some of these carry a few distinct rules associated with taking penalty-free distributions:

401k, 403b and 457b plans

Generally speaking, once you turn 59½ years old, you are eligible to take penalty-free distributions from these employer-sponsored retirement plans.

Workplace Retirement Plan Rollovers (In-Service)

Once you reach age 59½ (while still actively employed), your employer-sponsored retirement plan may give you the option of doing an in-service rollover of your workplace retirement plan into a separately managed IRA. If you prefer the customization, consolidation, and professional advice available through your Investment Advisory Firm, this may be a consideration.

IRAs

Generally speaking, once you turn 59½ years old, you are eligible to take penalty-free distributions from your IRA. If your IRA consists of 100% pre-tax money, you can expect 100% of your distributions to be as fully taxable as ordinary income. However, to the extent you’ve made nondeductible contributions into your IRA, you should be able to refer to IRS Form 8606, which indicates your aggregate basis within IRAs. In this instance, distributions will be pro-rated between the taxable and tax-free (return of basis) portions during your retirement years.

Roth IRAs

You can always take out whatever you’ve contributed to a Roth IRA
(both tax and penalty-free), regardless of your age. With that said, if you’ve done a good job of saving for retirement, hopefully, you’ve retained the assets inside your Roth IRA so they’ve enjoyed the benefits of compound growth over several decades.

At retirement, you may now find yourself in the position of wanting to tap into your Roth IRA to cover ongoing expenses. Before doing this, take into account the two major components of proper Roth IRA distribution planning (to tap into the growth component tax and penalty-free):

1. The Roth IRA must have been established for at least 5-years AND…

2. The Roth IRA owner must be age 59½.

As long as these two critical components have been met, tax and penalty-free distributions (including those tied to the growth portion of the Roth IRA) can be taken.

Health Savings Accounts

Unfortunately, age 59½ has no bearing on distributions from an HSA. Instead, tax-free distributions can be taken anytime during the account owner’s lifetime, as long as the funds are used to pay for qualified medical expenses. If distributions are taken for non-qualified expenses, they are subject to ordinary income tax and a 10% penalty. One important exception to the 10% penalty, would be distributions that are taken post-age 65 for non-qualified expenses. In these instances, ordinary income tax is due, but there is no 10% early withdrawal penalty, essentially making the distribution equivalent to that of a 401k, 403b or 457b plan withdrawal.

Turning age 65 is an important milestone as you are likely now eligible for Medicare and are eligible to take HSA distributions penalty-free. 

Medicare

Enrollment into Medicare is done through the Social Security Administration, and you should begin this process roughly three months prior to turning age 65.

Medicare Part B and D carry a monthly premium that is based on your MAGI (Modified Adjusted Gross Income).  Medicare Supplemental Plans help fill the holes associated with needs not typically covered by Medicare and also require a separate monthly premium.

If you fail to sign up for Medicare in the appropriate timeframe, you may become subject to a late-enrollment penalty. This penalty can be as high as 10% for each year you could have signed up for Part B, but didn’t.  Similar penalties are in place for those who don’t sign up for Part D within the appropriate timeframes.

If you are 65 years old, still working, and your employer has 20 or more employees, your company would remain your primary insurer, and you can delay enrolling in Part B without worrying about a late enrollment penalty. If your company has fewer than 20 employees, however, Medicare is considered your primary insurer, and you will want to be sure to sign up as soon as possible in order to avoid penalties.

HSA Distributions

Once you turn 65 years old, you are eligible to take money out of your HSA without fear of penalty–regardless of why the distribution is being taken. You will still be subject to ordinary income tax on the distribution. Another way of thinking about the age 65 rule is that the HSA can effectively act as a “bonus 401k plan.”

Suppose you take a distribution from your Health Savings Account before age 65 for a non-covered medical expense. In that case, the distribution will be subject to ordinary income tax and a 10% early withdrawal penalty. Again, this is why it’s very important to keep all of your medical receipts over multiple years so you can justify the distribution as being qualified.

Required Minimum Distributions (RMDs)

The age at which individuals need to begin taking Required Minimum Distributions (RMDs) from their retirement plans has increased from 72 to 73, starting in the year 2023. This change became effective with the passage of the SECURE 2.0 Act (passed by Congress in late-2022), which expands upon the original SECURE Act that was passed at the end of 2019.

Starting in the year 2023, only individuals who are 73 years of age (or older) are required to take RMDs from their retirement plans (i.e. IRAs, 401Ks, 403Bs, etc.). The technical guideline is that an individual must take his or her first RMD by April 1st, following the year he/she turns 73. If the individual elects to defer the first RMD until April 1st of the following year, that individual must also take his/her second year RMD before the following year-end. This essentially means taking two RMDs in the same calendar year, which may not be wise from a tax planning standpoint.

Additional legislation included in the SECURE 2.0 Act is that the RMD age will be pushed out to age 75 starting in the year 2033.

The table below outlines the phased-in SECURE 2.0 Act RMD changes:

For those who are not yet subject to RMDs, but are over age 70½, you still have the ability to make Qualified Charitable Distributions (QCDs) from your IRA to charity. This can be an excellent way to accomplish your charitable and philanthropic goals since the amount donated out of your IRA is excluded from your taxable income.