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Retirement savings how-to

Top tips to plan when you’re over 55, from Keith Fevurly, senior lecturer in finance.

By Keith Fevurly

August 8, 2017

A woman saving money in a cookie jar. Have you calculated your retirement-income needs? If so, you are among a minority of people who have done so. If not, there are any number of online retirement calculators that may be used to do this computation.

Here are some additional questions to consider:

  1. If you have a 401(k) plan and retire early but are 55 or older, did you know you can begin to make distributions? These distributions are taxable but are not subject to the 10-percent early-withdrawal penalty before age 59.5 that would otherwise apply. Note: This option is not available for a 401(k) participant at age 55 who is still employed by the employer sponsor of the plan.
  2. If a distribution is made from an employer-sponsored plan or IRA, are you aware of the “substantially equal periodic payment” exception to the 10-percent early-withdrawal penalty? Also known as the “Section 72(t) exception” (after the Internal Revenue Code section authorizing it), the distribution is not subject to the 10-percent penalty if made in one of three prescribed methods. However, the distribution is still subject to income tax.
  3. Are you making “catch-up” contributions to your employer-sponsored retirement plan or IRA? At age 50 or older, you can make an additional $6,000 annual contribution to your employer-sponsored 401(k), 403(b), 457 or PERA DCCP, and $1,000 to either a traditional IRA or a Roth IRA.
  4. Does your employer-sponsored plan permit a plan loan from your individual account? In most cases, an employer-sponsored plan permits a loan to be made from your account balance or accrued benefit (if a pension plan). This loan is not subject to taxation or penalty so long as you comply with specified rules of repayment. However, as a rule of good financial planning, a loan from an employer-sponsored retirement plan (a loan is not permitted from any type of IRA) should be considered only as a last resort if you need funds for an emergency or normal living expenses.
  5. In the event of your death, is your account balance or accrued benefit payable to a designated beneficiary? A designated beneficiary is any person or entity other than a charity, the decedent’s estate or certain kinds of trusts. If such beneficiary is not named, unfavorable income-tax consequences could result for the heir or recipient of your account or accrued benefit.

If you’re under age 55, please refer to a prior Early Bird story

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