If you’ve paid much attention to the rules around retirement plans (IRAs, 401(k)s, and others), you’ve probably noticed that there are a couple of rules that refer to ages that include “½”. So what does this mean??
Well, quite literally, this means 6 months after you reach a certain age. The two primary ages with “½” included are 59½ and 70½. So, to be age 59½, means that you reached your 59th birthday six months prior to that date. Likewise, to be age 70½ means that you reached age 70 six months prior to that date.
These two ages are for different purposes and are (naturally) treated differently.
The rule using age 59½ is for one of the exceptions to the penalty for early withdrawals from your IRA or 401(k) plan: once you’ve reached that age (and not before that age) you can take withdrawals from your IRA or 401(k) plan without limits (401(k) plans may also require a separation from service).
Here is an important point: this rule is specifically applied ONCE YOU REACH AGE 59½, and not before. In the year that you will reach this age, any withdrawals taken from the account before you reach age 59½ will be subject to the 10% penalty if no other exceptions apply.
The rule using age 70½ is regarding Required Minimum Distributions (RMD), as well as limiting contributions to an IRA. For RMDs, the requirement is simply that you must begin taking the required distributions for the year in which you’ll reach age 70½. (You can actually delay the first distribution until April 1 of the following year, but the distribution is based on the year when you reach age 70½.)
Note that this is different from the way the 59½ rule works: it’s simply the year in which you’ll reach age 70½, not the specific date that you reach age 70½. So if your birthday is between January 1 and June 30, your age 70½ year is the year that you reach 70 years of age. If your birthday is between July 1 and December 31, your age 70½ year is the year that you’ll be reach 71 years of age.
The same holds true for contributions to an IRA: in the year that you’ll reach 70½, you are not allowed to make contributions, and you are not allowed to make contributions thereafter.
You Don’t Have to Count Days
The good news is that you don’t have to count days. For the purposes of these rules, the half year is the same date, six months later. For a birthdate of May 11, the half year is reached on November 11 of that same year. For odd circumstances, such as August 31, of course you’ve reached the half year on February 31 of the following year. Actually, I believe the rule is that you reach that milestone on March 3 – I’d use this date if you are in this situation, just to be certain.