When most people start saving for retirement, it is done under the impression that they are putting the money away for the long term and a lot of it will be lost to taxes and penalties if they try to access it early. Many don’t know when that “long term” period ends, and the funds can be accessed. As retirement approaches, the last half birthday of your 50’s has some significance because it is the end of the said period. Who celebrates half birthdays though? We’ll save that for another post. This one will provide some clarity and insight on what you need to be thinking about regarding your retirement assets 6 months before you turn 60.

The first thing you need to know is that you don’t have to do anything at 59 ½. In fact, we encourage most people to continue letting the assets grow on a tax deferred basis as long as possible when we are planning for our retirement withdrawal strategy. You aren’t required to take money from a retirement account until the year that you turn 73 or age 75 if you were born in 1960 or later. Therefore, if you don’t need the money yet, your half birthday between 59 and 60 will be just as insignificant as every other half birthday you’ve lived through.

What if you do need the money or just want to know what would happen if you withdraw it? Well, the first thing you need to understand is that the taxes never go away. This milestone simply eliminates the 10% early withdrawal penalty. You still owe income taxes on any withdrawals from your retirement accounts unless you have a Roth account. Roth withdrawals are tax free as long as you had a Roth account for at least 5 years and you are over 59 ½.

The last thing you can consider is an in-service distribution from your company retirement plan. This is an option in most corporate retirement plans, but not all of them. If it is an option in yours, you can consider an in-service distribution to roll over to your own IRA or simply withdraw money if you need it. If you take a withdrawal that you don’t roll over, you should note that there is a 20% federal tax withholding requirement on the withdrawal. If you do a rollover on the advice of a financial professional, you should consider the fees associated with the new IRA and make sure you ask the right questions when you are interviewing the advisor.

If you have a retirement account, this will more than likely be the only half birthday of your life that could have a real meaning. Whether it matters to you or not, it is another reminder that retirement is getting closer. As you enter your 60’s, make sure you take the time to consider your options and get a plan in place for retirement.

Disclosures