Some Birthdays Can be Made More or Less Taxing

As you go through life, your birthday may seem less important. But for financial planning, tax or retirement reasons, your birthday may be significant. Here’s a list from the Pennsylvania Institute of Certified Public Accountants of those birthdays that change your tax treatment and give you cause to celebrate.

Day One Shortly after your child is born, he or she needs a Social Security number to be claimed as a dependent on your income tax return. A Social Security number is also required to open a bank account or start a 529 college savings plan for a child.

Age 1 Start a 529 college savings plan if you have not done so yet. 529 college savings accounts and ABLE accounts allow families to set aside money (subject to gift tax limits), and pay no taxes on that money’s growth as long as it’s used for qualified expenses. 

For a 529 college account, qualified educational expenses include college tuition, fees and textbooks. New law expanded the use of 529 plans to cover tuition for K-12 education.

The beneficiaries of an ABLE account may have more diverse needs, so those accounts allow for a broader list of qualified expenses, including special education services and tutoring, health care costs, assistive technology and housing. An eligible individual for a 529 Able Account is someone who is blind or disabled and whose disability occurred before the date on which the individual attained age 26.

Age 17 This is the last year for contributions to a child’s Coverdell education savings account unless the beneficiary qualifies as a “special needs beneficiary.”

Age 18 This is the age of majority in many states. This milestone means a child can do whatever he or she wants with any money you have put into a custodial account in his or her name. When your child turns 18, you can no longer claim the child tax credit. 

Age 23 If your child is a student for at least 5 months, this is the last year he or she can be claimed as a dependent on your tax return unless special circumstances apply.

Age 26 Many medical insurance family coverage plans cover dependent adult children until they reach their 26th birthday.

Age 30 All funds in a Coverdell education savings account must be distributed to the account’s beneficiary 30 days after his or her 30th birthday. The balance of any unused funds in the account can be rolled over to a Coverdell for another qualified family member under the age of 30. This age limit does not apply to beneficiaries with special needs.

Age 50 This is the first year you’re eligible to take advantage of “catch-up” retirement provisions. Catch-up amounts vary according to the type of retirement plan. Anyone age 50 or older can contribute a catch-up amount for qualified retirement plans, such as 401(k) plans and IRAs.

Age 55 If you leave your job at any time during or after the calendar year in which you turn 55, withdrawals from your 401(k) or other qualified retirement plan are not subject to the 10% percent early distribution penalty. Distributions are subject to regular income tax.

Age 59 ½ After reaching age 59 1/2, you may be able to make withdrawals from an IRA or qualified retirement plan without incurring the 10 percent early distribution penalty. Ordinary income taxes may apply.

Age 60 Sixty is the age at which a surviving spouse becomes eligible for Social Security benefits based on the deceased spouse’s work record. If you elect to receive benefits at age 60, you will receive less than the full benefit your spouse would have received upon reaching full retirement age.

Age 62 – 64 Participants of 457(b) – In the three years prior to the year an eligible participant reaches normal retirement age (in many cases 65), they may contribute up to the lesser of: (1) twice the annual salary deferral limit or (2) the sum of the current year salary deferral limit plus the unused portion of prior years’ limits. Participants should start evaluating at age 62.

Ages 65 to 67 The age at which you begin to collect full Social Security benefits is gradually being shifted from 66 to 67. You’re eligible for Medicare beginning in the month you turn 65.

Age 70 If you postponed collecting Social Security benefits beyond your normal retirement age to maximize your payments, don’t delay any longer. Your benefit amount stops increasing after you reach age 70.

Age 73 If you are a participant in a company retirement plan or a Keogh plan and you are not more than a 5 percent owner, the required beginning date for distributions is generally the later of April 1 following the year you reach age 73 or April 1 following the year you retire. If you own a business interest of more than 5 percent, your beginning distribution date is April 1 of the year following the year you reach age 73 even if you are still working. Regardless of whether or not you are still working, if you reach age 73 last year, you must begin to take Minimum Required Distributions from your Traditional IRA. Owners of a Roth IRA are not subject to minimum distribution requirements, but beneficiaries of a Roth IRA are.

If this seems like a lot to remember, keep in mind that we can help you address your tax and financial needs whatever your age.