Retirement Planning Birthdays: Almost 60

BOSTON (WBZ-AM) -- Almost 60 is technically 59½. The age you finally can get at those dollars you have been stashing away for years in your retirement plans without paying a 10% penalty.

Congress imposed a penalty on early withdrawals from retirement plans to discourage workers from taking money out of their retirement plans. But in reality the penalty has not discouraged workers from taking their money.

Surveys have shown that about 50% of workers who leave their jobs before age 59½ and have access to their 401(k) plan money, take the money. Even though their employer withholds 20% for taxes and they face that 10% penalty and possibly more taxes when they file their tax return.  

So if they had had $10,000 in that account they would get at the most $7,000. If they had left it in the IRA for 30 years, it could be worth over $100,000.

What’s so magical about age 59½? Well for starters, Congress now considers you old enough to retire and allows you access to your retirement money. That could be your 401(k), 403(b), your IRA, your Roth IRA and your self-employment plans such as a SEP-IRA, SIMPLE IRA or Keogh.

Now the Roth IRA has one more wrinkle. To make tax-free withdrawals, the money must have been in the Roth account for at least five years before you reached age 59½. But with Roth IRAs you have access to your contributions at any time for you have already paid income taxes on those dollars.

If you haven’t formally retired or don’t need the money to support your current life style in retirement, my advice would be; leave the money in the retirement plans.

If you have retired and have your retirement money scattered about, you may want to begin to think about consolidating your various accounts. Rolling your money into a single IRA would make the paperwork so much simpler and getting one statement instead of 4 or 5 cuts down on your management time. So your retirement planning should not stop once you reach this magic age of almost 60.