Reaching the age of 59.5 is a financial milestone that might open the door to greater flexibility in retirement planning. While the number may seem random, it marks a turning point when certain IRS rules change—particularly those involving retirement accounts.
If you’re approaching or recently turned 59.5, here are a few considerations to keep in mind:
Penalty-Free Withdrawals
One of the changes at this age is the ability to withdraw funds from a 401(k) or an IRA without incurring the typical 10% early withdrawal penalty. While ordinary income taxes still apply to most distributions, the added flexibility can offer options if you’re thinking about retiring early, transitioning to part-time work, or simply want access to funds you’ve been saving for years.
Rethinking Your Income Strategy
This age milestone may be a good time to reevaluate your income sources and begin shaping a withdrawal plan that aligns with your retirement goals. For some, that might mean bridging the gap between now and when Social Security begins. For others, it could be about reducing tax exposure by drawing from different types of accounts strategically.
Inservice Rollover Opportunities
If you’re still working, your employer-sponsored retirement plan may allow what’s called an in-service withdrawal. What opportunity does an inservice rollover or in-service distribution provide? An in-service rollover, or in-service distribution allows individuals who are still employed to start transferring funds from their 401(k) to another retirement account (like an IRA) while still employed. These decisions depend on your plan rules and long-term goals, so it’s important to review your specific circumstances.
Tax Planning Opportunities
Access to retirement funds at 59.5 can also open new doors for tax planning. Depending on your income and withdrawal strategy, this could be a time to consider Roth conversions, managing your tax bracket, or addressing future required minimum distributions (RMDs). Learn more about RMDs here.
Planning for the Next Phase
Retirement planning doesn’t stop at 59.5. In some ways, it is about entering a new chapter. This is a stage where you may start making more specific decisions about healthcare, housing, travel, and legacy goals. Regular check-ins with our team at StackStone Wealth with offices in Dubuque, IA; Lake Geneva, WI; Rockford, IL; Marquette, MI; Norwood, MA; Kingston, MA; Edgarton, MA; or Hyannis, MA can help ensure that your priorities are reflected in your strategy.
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