Turning 59.5 in the New Year? Here’s What You Need to Know

Turning 59.5 in the New Year? Here’s What You Need to Know Cornerstone Wealth Management

Approaching 60 is an exciting time. Not only does it come with more wisdom and thrill for a new chapter of life, but it also presents important financial decisions that can affect your life in retirement. If you are turning 59.5 this year, you will become eligible to withdraw from your retirement accounts without penalty. This creates an opportunity to rethink your finances and live a new life. Here are factors to consider in this important year of your life.

Rethink Your 401(K) and IRA

Your 401(k) and IRA may be key funds in your retired life. Reaching the age of no-penalty withdrawal does not necessarily mean you have to withdraw from these accounts, especially if you are still working and earning. However, you can decide to roll over your 401(k) fund into an IRA. 401(k)s often have limited investment options that range, on average, between 8 and 12 portfolio options.[1] They also come with administrative fees of 0.2%- 5% of your assets, which assist in the maintenance and growth of your account but may be unappealing to some.[2] Rolling over some or all your 401(k) into an IRA not only simplifies your finances but also reduces fees and gives you more investment options.[3] This puts you in control of your investment risk mitigation and helps you tailor your accounts and strategy to your unique retirement needs. Alternatively, you could turn your 401(k) funds into a safety net that caters to life emergencies. Withdrawing from a 401(k) or a traditional IRA would have tax implications and is a decision to discuss with a financial professional.

Further Catch-Up Contributions

From age 50 and beyond, you are eligible to make extra contributions to your 401(k) and IRA to improve your account balances as you approach retirement. The contribution limits for IRAs have increased by $1,000 from 2022, making them $7,500 in 2023.[4] With the annual 401(k) limit being $22,500 in 2023, the catch-up amount for 401(k)s is $7,500, allowing you to contribute a total of $30,000 to your 401(k) annually. When it comes to Roth IRAs, there are specific income levels that limit contributions. Single filers who earn between $138,000-$153,000 are subject to these limits.[5] This also applies to married couples who file jointly and earn $218,000 – $228,000.[6] Catch-up contributions assist in giving you more money to retire with and can be a good opportunity to capitalize on.

Turning 59.5 brings up important questions and decisions to make. It’s best to speak to a financial professional to know how best to tailor your 401(k) and IRA withdrawals and claims to your retirement goals. Speak to us today to gain better clarity.

 

[1] https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/investing-your-401k#:~:text=401(k)%20Fact&text=The%20average%20plan%20offers%20between,company%20stock%20and%20variable%20annuities.[2] https://www.kiplinger.com/article/retirement/t047-c032-s014-what-should-you-do-when-you-turn-59.html
[3] https://smartasset.com/retirement/what-are-401k-fees
[4] https://www.whitecoatinvestor.com/2022-retirement-plan-contribution-limits/#:~:text=The%20total%20employee%20contribution%20limit,in%202023%2C%20a%20large%20increase
[5] https://www.whitecoatinvestor.com/2022-retirement-plan-contribution-limits/#:~:text=The%20total%20employee%20contribution%20limit,in%202023%2C%20a%20large%20increase
[6] https://www.irs.gov/retirement-plans/2023-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work


The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation. This content was created by Lone Beacon.

Registered Representatives offer securities through Independent Financial Group, LLC (IFG), Member FINRA/SIPC. Investment Advisor Representatives offer Advisory services through Independent Financial Group, LLC (IFG), a Registered Investment Adviser. Cornerstone Wealth Management, Cornerstone Tax Advisory and IFG are unaffiliated entities.

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. No investment strategy can guarantee a profit or protect against loss.

Diversification does not guarantee profit nor is it guaranteed to protect assets. Investors should consider the investment objectives, risks, charges and expenses of an exchange traded fund carefully before investing. The prospectus contains this and other information and should be read carefully before investing. The prospectus is available from your investment professional.

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