59 1/2 ?

[SSMRI74]

Hello all, I was just wonder if anyone knows how or why the age of 59 1/2 was chosen as the age we can start withdrawals from our retirement?
Without penalty of course. Thanks everyone

[MRG]

Not sure what logic was used.

You are aware of the "rule of 55"?

[razztazz]

Quote:

Originally Posted by MRG Not sure what logic was used. You are aware of the "rule of 55"?

Human lifespans and time to recoup any previously unpaid taxes

[SSMRI74]

Quote:

Originally Posted by MRG Not sure what logic was used. You are aware of the "rule of 55"?

I was not, thank you very much for that info. It’s definitely something that may apply. Much appreciated

[Bigdawg]

Quote:

Originally Posted by SSMRI74 Hello all, I was just wonder if anyone knows how or why the age of 59 1/2 was chosen as the age we can start withdrawals from our retirement? Without penalty of course. Thanks everyone

My quick 10 minute google search yielded NADA.

[Sunset]

It's a test for mathematically challenge people.

[Sunset]

Quote:

Originally Posted by SSMRI74 I was not, thank you very much for that info. It’s definitely something that may apply. Much appreciated

OP, there are other things that may apply, but you have to ask the question with more details for your situation.

[JustCurious]

Quote:

Originally Posted by SSMRI74 Hello all, I was just wonder if anyone knows how or why the age of 59 1/2 was chosen as the age we can start withdrawals from our retirement?

This is just a guess on my part, but it seems like a compromise...some people probably wanted 60 and some wanted 59, so they compromised and picked 59 1/2 to get the bill passed.

[pb4uski]

Quote:

Originally Posted by SSMRI74 Hello all, I was just wonder if anyone knows how or why the age of 59 1/2 was chosen as the age we can start withdrawals from our retirement? Without penalty of course. Thanks everyone

Why would it matter? It is what it is.

[Sunset]

Maybe it was the same person that thought RMD should start at 70.5 :/
Thankfully that person has retired and others changed the RMD to 72

[donheff]

For those inclined to a deep dig, figure out what law initially set up the IRA program that has that age limit (probably 70.5 RMDs too) and peruse the Congressional record. There could be some discuss of the thinking around those ages or references to studies and recommendations for the program that include references.

Edit: I don't have the patience to dig but a quick look gives hints that IRS uses a 1/2 year rule for depreciation schedules - something pertaining to cost recovery tables for various depreciated asset classes. They may have used the approach to develop RMD tables and the 59.5/70.5 ages. You would probably have to research the depreciation history to find out why IRS came up with 1/2 year rule. Maybe some accountants know where it came from.

[pb4uski]

At least for depreciation, the 1/2 year convention was to simplify depreciation calculations before computers were around... rather than calculate the initial year of depreciation based on days or months in service it assumes that assets are placed in service evenly throughout the year so you take a half year of depreciation in the year placed in service and a half year in the year of disposal.

I don't see how it relates to penalty free withdrawals or RMDs, but it doesn't matter. We use 65 for more standard deductions for seniors, and 65 for Medicare and for many years for SS... and now 67 for SS... ignoring the transition.

[sengsational]

And why is gasoline priced with 9/10 of a cent? It's an artifact of how laws are written.

[Sunset]

Quote:

Originally Posted by sengsational And why is gasoline priced with 9/10 of a cent? It's an artifact of how laws are written.

For fun, go buy 1 gallon of gas with cash, and demand the 1/10 th of a cent they owe you in change.

[COcheesehead]

Quote:

Originally Posted by Sunset For fun, go buy 1 gallon of gas with cash, and demand the 1/10 th of a cent they owe you in change.

In high school I used to pump gas, remember those days? Any who, I was working at the station when gas first went over a dollar a gallon. The old pumps had mechanical wheels, not digital like today and they could not handle the dollar digit in the cost window. So the owner of the station put the cost per gallon at half of what it was and we would pump half of what the customer asked for. Try explaining that to some customers when you're 16 years old.

[Markola]

Maybe 59.5 is a more psychologically-appealing carrot than 60 to keep us mules yoked to the plow contentedly, in the way that .99 sounds cheaper than $1.

[ERD50]

A semi-guess, but doesn't this 59 1/2 and the old 70 1/2 rule break down to "in the year you turn" 59 1/2 or 70 1/2?

I think what that does, is kind of level things for people born early Jan versus late Dec. If it was just age, someone born on Dec 31 would need to do a full RMD that year. Now, if I'm thinking of this correctly, people born in the first half of the year need to take the RMD that year, people in the last half start next year.

Like pb4uski mentioned in post #12, it avoids dealing with fractions of the year.

Does that make some sense? And isn't there some weird IRS rule about people born on Jan 1?

-ERD50

[scrabbler1]

Quote:

Originally Posted by ERD50 A semi-guess, but doesn't this 59 1/2 and the old 70 1/2 rule break down to "in the year you turn" 59 1/2 or 70 1/2? I think what that does, is kind of level things for people born early Jan versus late Dec. If it was just age, someone born on Dec 31 would need to do a full RMD that year. Now, if I'm thinking of this correctly, people born in the first half of the year need to take the RMD that year, people in the last half start next year. Like pb4uski mentioned in post #12, it avoids dealing with fractions of the year. Does that make some sense? And isn't there some weird IRS rule about people born on Jan 1? -ERD50

I agree with your guess.

[Sunset]

Quote:

Originally Posted by ERD50 A semi-guess, but doesn't this 59 1/2 and the old 70 1/2 rule break down to "in the year you turn" 59 1/2 or 70 1/2? I think what that does, is kind of level things for people born early Jan versus late Dec. If it was just age, someone born on Dec 31 would need to do a full RMD that year. Now, if I'm thinking of this correctly, people born in the first half of the year need to take the RMD that year, people in the last half start next year. Like pb4uski mentioned in post #12, it avoids dealing with fractions of the year. Does that make some sense? And isn't there some weird IRS rule about people born on Jan 1? -ERD50

Except that they are for different things.
59.5 is to take money out without penalty, and I think you actually have to be 59.5 , a day earlier and it's bad. So any age would work the same, like 60, once you reach it you can touch the IRA without penalty.


Age 70.5 was forcing a person to take RMD , and now the rule is 72 even, so they gave up on the confusing 70.5 idea.

[SecondCor521]

Quote:

Originally Posted by ERD50 A semi-guess, but doesn't this 59 1/2 and the old 70 1/2 rule break down to "in the year you turn" 59 1/2 or 70 1/2? I think what that does, is kind of level things for people born early Jan versus late Dec. If it was just age, someone born on Dec 31 would need to do a full RMD that year. Now, if I'm thinking of this correctly, people born in the first half of the year need to take the RMD that year, people in the last half start next year. Like pb4uski mentioned in post #12, it avoids dealing with fractions of the year. Does that make some sense? And isn't there some weird IRS rule about people born on Jan 1? -ERD50

Well, it turns out that the 59.5 rule is the day you turn 59.5, not in the year in which you turn 59.5. So that explanation doesn't really work.

Not so with the old 70.5 rule. It was the year in which you turn 70.5. And then you could wait until the following April 15 if you wanted to.

As for the January 1 thing, the IRS considers you to achieved an age (such as 65, for the higher standard exemption) as of the day before your birthday. So if you're born on January 1st of some year, the IRS considers you to be 65 on December 31st of whatever year that turns out to be, so you get the higher standard deduction for that year. That's why the 1040 has "Born before 2 January 1954" or whatever on the boxes near the top.

The same thing happens for all other age-related things.