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The Money Magic Years of Your Life

After 50, some key birthdays offer tax savings and eligibility for federal benefits

By Kate Ashford

The milestones associated with birthdays in the first decades of life are crystal clear: you get your driver’s license, you get to vote, and you can buy a drink. After that, the benefits get a little fuzzier.

But your 50th birthday and others succeeding it bring a slew of well-defined advantages — and these are far more important than the previous ones: they help you cut your taxes, have a more comfortable retirement, and receive Social Security and Medicare benefits. These are your Money Magic Years. Be sure to take advantage of them if you qualify.

 

This is when you are allowed to start putting more money into your retirement accounts than younger people, through what the Internal Revenue Service calls “catch-up” provisions. In 2012, the “catch-up” rules let you invest an extra $1,000 in an IRA (for a total maximum contribution of $6,000); an extra $2,500 in a SIMPLE IRA if you’re self-employed or run a small business (for a total maximum contribution of $14,000), and an extra $5,500 in an employer’s 401(k), 403(b), or 457 savings plan (for a total maximum contribution of $22,500).

 

Also at 50, you can start taking reduced Social Security benefits if you’re a disabled widow or widower.

 

You can start taking money out of your 401(k) plan without incurring the IRS’s 10 percent early withdrawal tax penalty if you’re 55 or older at the time you leave your employer. This rule doesn’t apply if you’ve rolled over your 401(k) into an IRA.

 

This oddball age is when you can begin making penalty-free withdrawals from your retirement plans, including 401(k)s, traditional IRAs, Roth IRAs and self-employed retirement accounts. Before you turn 59½, you’ll pay that 10 percent tax penalty on early withdrawals, unless you meet certain criteria.

 

Widows and widowers can start taking reduced Social Security benefits at this age.

 

If you were born between 1943 and 1954, your full retirement age is 66. If you were born between 1955 and 1959, it’s somewhere between the ages of 66 and 67. If you were born in 1960 or later, it’s 67.

 

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If you were born between 1943 and 1954, you can receive your full Social Security benefits, no matter how much you’re earning, starting at age 66.

 

If you were born in 1960 or later, you can receive your full Social Security benefits, no matter how much you’re earning, starting at age 67.

 

This is an important cutoff date for Social Security benefits. If you were born in 1943 or later, Social Security increases the size of your retirement benefit checks by 8 percent a year every year you delay collecting them after your Full Retirement Age, but that stops when you turn 70.

 

Kate Ashford Read More
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