Retirement Accounts
Retirement Plans consist of retirement savings accounts that feature benefits like: tax-deductible contributions, tax-deferred growth, and/or tax-free withdrawals. These accounts come in many forms and can be an employer-sponsored plans and pensions, or individual plans. Common accounts include: 401(k), IRA, Roth IRA, SEP IRA, 403(b), 457, Pension Plans, etc.
Prior to age 59 ½ if a withdrawal is made from a Retirement Account there is a 10% penalty. There are select exceptions to this penalty.
Age 50, Catch-Up Contributions:
At age 50, the contribution limits to many retirement plans are increased, allowing you to “catch up” on retirement savings.
Age 55, Possible Penalty-Free Withdrawal:
You may be able to take a penalty-free withdrawal if you retired after age 55 and your funds are with your prior employer. Speak to a professional to understand your options.
Age 59 ½ , 401k Rollovers:
At 59 ½ you can begin taking penalty free withdrawals from your retirement account. Prior to this age there is a 10% penalty for all withdrawals taken unless an exception is met. Many companies allow in-service rollovers beginning at 59 ½ . This allows you to transfer your 401k to an Individual Retirement Account (IRA). For many people this may allow greater investment options and control of their account.
Age 70 ½ Qualified Charitable Distributions (QCDs):
If over the age of 70 ½, you have the ability to give to a 501(c)(3) charity directly from your Individual Retirement Account as a tax-free withdrawal. (Must meet specific requirements).
Age 73-75 , Required Minimum Distributions (RMDs):
Required Minimum Distributions is the amount that must be removed from a tax-deferred account every year once Age 73 is reached, or earlier from an Inherited IRA for certain beneficiaries. This age was previously 70 ½ and was changed with the SECURE Act in December of 2019 to begin in the year which you turn 73. SECURE Act 2.0 passed December 2022 changed this age to 73-75 based on birth years.
Understanding the impact that Required Minimum Distributions will have on your marginal tax rate in retirement can be an important factor. Integrating RMDs with QCDs can present tax planning opportunities. (See Tax Planning Section)