No doubt you already have a long list of dates—birth dates, wedding anniversaries, and the like—to remember. And no doubt you already have a long list of terms, abbreviations, and acronyms that you must store in your brain, as well.
Well, if you’re in or approaching retirement, we’d like to add to those lists. Below, according to our experts, are some of most important dates as well as terms, abbreviations, and acronyms you must never ever forget. If you do, it could cost you.
Terms of endearment?
RBD: The required beginning date (RBD) is the deadline by which your first required minimum distribution must be withdrawn from your retirement account, according to Denise Appleby, the CEO of Appleby Retirement Consulting.
Generally, your RBD is April 1 of the year that follows the year in which you reach age 70½. “However, this can be extended later for non-IRA retirement accounts, if you are still working for the employer that offers the plan under which you hold your account,” she said. “However, don’t assume that your employer offers this extension, as they are not required to do so. Check with them to be sure.”
Jim Blankenship of Blankenship Financial Planning amplified this point by noting that the RBD could be the year after you leave employment for 401(k) and 403(b) plans for non-owner employees over age 70½.
RMD: Your required minimum distribution, or RMD, is the minimum amount that you must withdraw from your retirement account for the year that you reach age 70 ½ and every year after during your lifetime, said Appleby. “You can always withdraw more than your RMD,” she said. “But, if you withdraw less, you may owe the IRS a 50% excess accumulation penalty on the shortfall.”
Note: If you have an inherited IRA, you must also take an RMD.
Blankenship, for his part, also noted that RMD begins with the year you reach age 70½ for IRAs and 401(k)/403(b) plans. If, however, the employee is still working after age 70½ and does not own greater than 5% of the company, RMD doesn’t start until the year after retirement for any plans at that employer, he added.
FRA: Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits, according to the Social Security Administration. “If your full retirement age is older than 65 (that is, you were born after 1937), you still will be able to take your benefits at age 62, but the reduction in your benefit amount will be greater than it is for people retiring now. Learn more at Retirement Planner: Full Retirement Age.
Blankenship noted that FRA could be age 66 to 67 depending on your year of birth.
According to Mike Piper, a CPA based in St. Louis and ObliviousInvestor.com blogger, FRA is also the point at which you can either “file and suspend,” (thereby allowing your spouse to claim spousal benefits based on your work record, or file a “restricted application” for just spousal benefits while allowing your own retirement benefit to grow until 70. Read Social Security claiming tricks to maximize payout.
One for the ages
Age 55: If you separate from service in the year you reach age 55 or later, distributions from that employer’s 401(k) or 403(b) after you separate from service won’t be subject to the 10% penalty, said Piper.
Others agree. “A 401(k) or 403(b) participant who leaves service at or after this age can begin taking withdrawals without penalty, as long as the withdrawals are from the 401(k) or 403(b) plan, not from an IRA,” said Blankenship.
If you’re age 55 and you’re dealing with a 401(k), Barry Picker of Picker & Auerbach, CPAs, noted this: “If you separate from service in the year of your 55th birthday or later, you can tap into your 401(k) plan prior to age 59½ without the 10% penalty. However, if you roll the 401(k) into an IRA you lose this benefit and you have to wait until age 59½.”
Also, Picker noted that if you separate from service in a year prior to your 55th birthday, you must wait until age 59½ before you can access the 401(k) penalty free. “Many people have erred in this by rolling the money into an IRA prior to age 59½. Similarly, people who were separated from service prior to the year of their 55th birthday made the mistake of believing they could access their 401(k) without the penalty once they were age 55.”
The age 55 rule is reduced to age 50 for distributions made from governmental defined benefit pension plans by qualified public safety employees.
Age 59½: Amounts withdrawn from your retirement account are subject to a 10% additional tax, unless you qualify for an exception, said Appleby. “This can take a big bite out of the amount that you need,” she said.
For example, Appleby said, if the withdrawn amount is $10,000, you will owe $1,000, in addition to any income tax owed on the amount. “This should be taken into consideration when making withdrawals from your retirement account, as it may adversely impact the net amount you have left to spend,” Appleby said. “Check to determine whether you qualify for any of the exceptions.”
For his part, Piper agreed that the obvious fact about age 59½ is that you can start taking money from traditional IRAs at this point without having to worry about the 10% penalty. “Less obviously, Roth conversions often become more relevant, because you no longer need to have the cash on hand—outside of retirement accounts—to pay for the tax on the conversion,” he said.
Blankenship noted that 59½ is also the age when you can begin taking distributions from not just IRAs, but 401(k) and 403(b) plans without penalty.
Age 60: This age, said Piper, is the earliest date at which you can begin taking Social Security benefits as a widow/widower.
Note: Filing early as a widow/widower does not cause you to automatically file for your own retirement benefit, Piper said. “In other words, you can take widow’s benefits at age 60 while allowing your own retirement benefit to grow until 70,” he said. “Alternatively, you can take your own benefit at 62, while allowing your benefit as a widow/widower to grow until your FRA.”
Blankenship pointed out that 60 is the earliest age that a widow(er) can take Social Security survivor benefits from a deceased spouse’s record.
Age 62: This age, said Piper, is the earliest date at which you can start taking Social Security retirement or spousal benefits.
Age 65: This is regular Medicare eligibility age, said Blankenship.
Age 70: No point in waiting any longer to claim your Social Security benefits, said Piper.
According to Blankenship, 70 is the age when the maximum Social Security delayed retirement credits have been accrued; that is, when the Social Security benefit has been increased to the greatest amount.
Age 70½: You can no longer make contributions for your traditional IRA for the year that you reach age 70½ and later, said Appleby.
“In addition, you must start taking required minimum distributions (RMD) for that year and after,” she said. “Your RMD for the year that you reach age 70½ can be deferred until April 1 of the following year. However, if you do defer your RMD until the following year, you will need to withdraw two RMD amounts for that year, as the RMD for the following year must be withdrawn by Dec. 31.”
Save the dates
April 15: April 15—or your tax-filing due date, is the deadline by which you can make a contribution to your traditional or Roth IRA for the previous calendar year, said Appleby. “Extensions do not apply,” she noted. “If you hand deliver or fax your instructions to your IRA custodian, they must be in actual receipt of your instructions or deposit instrument by this date. If you send in your contributions by mail, if must be mailed by midnight of this date and you must use an IRS-approved mail delivery service.”
Oct. 15: The deadline by which you can recharacterize (reverse) a Roth conversion for the previous year, said Appleby. “The deadline for completing a recharacterization is your tax-filing due date,” she noted. “However, if you file your tax return or file for an extension by the due date, you receive an automatic six-month extension to complete your recharacterization. A recharacterization will treat a conversion as if it never occurred for income-tax purposes.”
Dec. 31: This date, said Appleby, is the deadline by which you can complete a Roth conversion for the year.
Picker also noted that Dec. 31 is important for another reason. “Another key date involves a spouse who remains as a beneficiary, and the deceased spouse died prior to the year that they would have attained age 70½,” Picker said. “The key date is Dec. 31 of the year in which the deceased spouse would have attained age 70½.”
It is important for the beneficiary spouse to name a beneficiary on this account because if she were to die prior to that Dec. 31 day the law says the account is treated as if it were hers, Picker said. If she didn’t name a beneficiary the account will be distributed under the five-year rule.
Robert Powell is a featured writer on the MarketWatch Retirement blog, a Research Fellow at the California Institute of Finance, and a Featured Contributor here on the CIF blog.
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