Generation X Reaches Retirement; Experts Advises Against Using Money

Penalty-free withdrawals are also available to 401(k) plan participants. Those aged 55 years or older And those who lose or leave a job (or Age 50 years The so-called Rule 55 only applies to the account with the employer you are leaving; plans from previous employers do not apply.

In addition to those age guidelines, there are: Other exceptions This may enable savers to avoid penalties for withdrawing savings early in retirement.

However, even without a penalty, withdrawing from retirement funds as soon as you are able to do so This could be a “bad move,” according to Ed Sloat, CPA and founder of Ed Sloat & Associates.

“This should be a last resort. This is the most expensive place to get money when you need it, because you pay taxes on that money,” Slat said.

While traditional IRA owners are typically subject to fees on their withdrawals, Roth IRA owners may be able to avoid the tax bill, as long as their accounts are open for at least five years.

But retirement savers should be especially hesitant to tap their Roth IRAs, because they grow, compound and build tax-free income, Slat said.

“Don’t touch a Roth account,” Sloat said. “Tax-free money grows and accumulates quickly because it’s not eroded by current or future taxes.”

Gen Xers planning for retirement face more pressures than their parents’ generation, especially rising costs of living and the responsibility of caring for their children and parents, according to Rita Assaf, vice president of retirement products at Fidelity.

Recently Search for sincerity It was found that 1 in 10 Generation Xers have not yet set a retirement date.

Assaf noted that in order to have more certainty, having a plan might be helpful.

Savers who have access to non-retirement funds may want to consider tapping those funds instead, Assaf says.

“You can get longer tax benefits if you keep it in your IRAs for longer,” Assaf said.

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Savers who tend to withdraw from IRAs may find themselves in a bind when it comes to their tax bills, Slat said, citing the case of a couple who withdrew $20,000 from their IRA to pay for their wedding even after he warned them against it.

The couple spent the entire $20,000 on the wedding. When that led to a $2,000 to $3,000 tax bill, they withdrew more money. That was the start of a withdrawal habit that lasted for years, Sloat said.

“They got into a tax cycle that wiped out their retirement savings,” Slat said.

For younger Gen Xers, turning 50 represents another milestone, when they can begin making catch-up contributions to retirement accounts.

In 2024, retirement savers age 50 or older can save an additional $7,500 into their 401(k) plans, Total $30,500and an additional $1,000 to their individual retirement accounts, up to $8,000.

Slat said catch-up contributions are a valuable opportunity for workers in their 50s and 60s, who are typically in their highest earning years.

Generation Xers who invest in traditional and workplace retirement plans have another life stage to look forward to— Age 73 years – When they are required to start taking required minimum distributions.

Roth Individual Retirement Accounts No withdrawals required Even after the death of the account holder.

To make room for tax-free withdrawals during retirement, retirement savers may choose to gradually convert pre-tax IRA funds into after-tax Roth accounts.

While this will require taxes on Roth conversions now, it makes retirees less vulnerable to income taxes later, Assaf said.

“We call it an RMD balloon, and you let a little bit of air out by doing some of these shunts,” Assaf said.

Qualified retirees can choose to make qualified charitable distributions by donating funds from their traditional tax-exempt retirement accounts to charity instead of taking the required minimum distribution.