5 Key Retirement Planning Milestones
As you approach the milestone of turning fifty, retirement planning begins to assume greater significance. Here are five key markers to steer your journey towards retirement:
- Turning 50: TSP Catch-Up Contributions
Upon reaching fifty, you qualify for TSP Catch-Up Contributions, irrespective of your birthday’s timing in the year. In 2024, the IRS sets the annual limit for these contributions at $7,500, in addition to the standard cap of $23,000. It’s important to note that Catch-Up Contributions are limited to your basic pay.
- Reaching 59-½: Penalty-Free In-Service TSP Withdrawals
Upon reaching 59-½, you’re allowed to make up to four age-based, in-service TSP withdrawals annually without incurring penalties, provided you’re still employed. However, these withdrawals are restricted to vested funds, and income taxes are applicable to the taxable portion. This option can be utilized to address high-interest consumer debt before retirement.
- Turning 62: Qualification for the FERS 10% Bonus
Retiring at 62 or later, with a minimum of twenty years of creditable service, entitles you to a FERS annuity calculated using the 1.1% formula rather than 1%. Though seemingly modest, this adjustment translates to a lifelong 10% increase. Additionally, at 62, you become eligible for Cost Of Living Adjustments (COLAs), which enhance your retirement income.
- Reaching 65: Medicare Eligibility
Upon turning 65, Medicare Part A becomes accessible to federal workers who have contributed to the system, usually at no cost. The Office of Personnel Management (OPM) recommends combining Part A with FEHB coverage. The decision regarding enrollment in Medicare Part B is nuanced, with FEHB participants in HMO plans often finding comprehensive coverage without the need for Part B.
- Turning 73: Required Minimum Distributions (RMDs)
Starting from January 1, 2023, the RMD age was increased to 73 for individuals born after December 31, 1950. It’s worth noting that Roth TSP balances are exempt from RMDs as of January 1, 2024, with only traditional TSP balances being considered in RMD calculations.
