Birthdays sneak up on all of us, but if you’re a plan sponsor, you have to pay attention to all of your participants’ birthdays to follow the age-related rules for contributions and distributions.
Here are some important birthdays to note:
- Age 21 is the minimum age for most employer-sponsored retirement plans (except for SIMPLE IRAs).
- Age 50 is the first year it’s possible to make catch-up contributions to IRAs or employer-sponsored plans that accept elective deferrals. For 2012 and 2013 tax years, the catch-up amount limit is $5,500.
- Age 55 employees who leave their company and receive a distribution are not subject to the 10% additional tax on early distribution. (Regular income tax rates apply.)
- Age 59 ½ employees who are still employed may take distributions and not be subject to the 10% additional tax on early distributions.
- Age 62 is the year that pension plans may begin paying benefits even if the person has not left the company.
- Age 65 employees must let employers know if they do not want distributions. Otherwise, benefits need to be paid starting within 60 days of the close of the plan year in which the employee turns 65, completes 10 years of plan participation, or ends employment with the company.
- Age 70 ½ is the time when employees must accept required minimum distributions. Distributions begin April 1 in the year after turning 70 ½. Qualified plans may delay distributions until after retirement unless the participant has 5% or more ownership in the company.
As a year-end task, take a look at your birthdays in the coming year to see which of your employees will cross the milestones above. Then, you’re prepared to communicate with them about their options.