Money & Policy

The Money Magic Years of Your Life

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

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.

Age 50
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.
Age 55
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.
Age 59½
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.
Age 60
Widows and widowers can start taking reduced Social Security benefits at this age.
Age 62
Anyone can begin collecting Social Security benefits at 62, although the size of your checks will be smaller than if you wait until what Social Security calls your Full Retirement 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.
You may want to work with a retirement planner to run the numbers and see whether it makes financial sense for you to start collecting Social Security benefits now.

Keep in mind that if you’re still working and want to start collecting benefits before your full retirement age, your Social Security benefits will be reduced by $1 for every $2 you earn above a certain threshold. In 2012, that threshold is $14,640. “If you still want to work, that’s a mark against taking early Social Security,” says Mark Joseph, a financial planner and CPA in Reston, Va.

Age 65
This is the year you’re eligible to enroll in Medicare. Technically, the standard enrollment period for Medicare starts three months before you hit 65 and runs until three months after your 65th birthday.

If you don’t sign up for Medicare Part A or Part B when you turn 65, you’ll need to do so during a Medicare General Enrollment Period, which runs each year from Jan. 1 through March 31. But your premium may go up by 10 percent because you didn’t enroll at 65. (The late-enrollment penalty rules are complicated, but you may be able to get the penalty waived if you didn't sign up for Medicare because you were covered by an employer's health plan at 65.)

Age 66
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.
Age 67
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.
Age 70
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.
Age 70½
If you have a tax-deferred retirement account, like an IRA or a 401(k), you generally must start withdrawing money from it when you turn 70½. Exactly how much you’ll have to take out is complicated; you’ll need to follow the IRS’s tricky “minimum required distribution” rules.

By and large, you must make your minimum required distribution by April 1 of the year after the year you turn 70½ (don't you love the tax laws?), and by Dec. 31 in subsequent years.

Be sure to follow the minimum distribution rules. Otherwise, you could get socked with an IRS tax penalty equal to 50 percent of the amount you should have withdrawn.

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