You can choose to receive a Social Security benefit when you are as young as 62 years of age. However, you would be accepting a significantly reduced payout every month, so this is something to take into consideration. The age of eligibility for your full benefit depends on the year of your birth. For people born between 1943 and 1954, the age is 66, and it goes up by two months per year after that. So, if you were born in 1955, you would become eligible for your full benefit two months after your 66th birthday. It goes up in this manner by two months each year until 1960. People who were born during that year and after become eligible for a full benefit at the age of 67 under currently existing laws. To maximize your benefit, you could delay the submission of your application until you are as old as 70. If you do this, your benefit amount will increase by eight percent for each year that you delay.
The meaningful difference can be boiled down to a single word: taxation. Contributions into a traditional IRA are made before you pay taxes on the income. That’s the good news, but the bad news is that you have to pay regular income taxes when you start to take distributions. It works in the reverse fashion with a Roth individual retirement account. Your contributions are made after you pay taxes on the income, so there is no taxation on withdrawals.
You can do this for either type of account when you are 59.5 years of age, but there are a handful of different exceptions to this rule. Money can be taken out in a penalty free manner to help you finance a first home purchase, and you can use the funds to pay higher education expenses. If you are unemployed, you can withdraw money from your IRA to pay health insurance premiums during this interim. It is also possible to utilize funds in the account to cover unpaid medical bills.
In December of 2019, the SECURE Act was passed by Congress and signed into law by the president. It included changes to the individual retirement account guidelines, and one of them applies to this question. Prior to the enactment of this measure, you had to stop contributing assets into a traditional IRA when you were 70.5 years of age. Now, you can continue to make contributions without any age limitations. The same thing is true with Roth IRAs, but this was the case before this new law was established.
First, we should point out the fact that the same tax situation exists for the beneficiaries. Someone who inherits a Roth IRA can take distributions without paying any taxes. A traditional account beneficiary would have to pay taxes on the income. With either type of account, if the beneficiary is someone other than your spouse, they would be required to take possession of all the assets in the account within 10 years of your passing. This is another new twist that is part of the SECURE Act. Previously, a beneficiary was required to take mandatory minimum distributions annually, but this could be done on an indefinite basis. There was no ten-year rule, and the ability to stretch the IRA for as long as possible had positive tax consequences.
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