In an era filled with uncertainty, you can count on one thing: time marches on. Here are some important age-related financial and tax milestones to keep in mind for you and your loved ones:
Age 0 to 23. Under the Kiddie Tax rules, part of young person’s investment income can be taxed at the parent’s federal rate (which can be as high as 37% for 2019 (and 2018) rather than at the young person’s lower rate (usually only 10% or 12% depending on the type of income).
The Kiddie Tax can bite until the year when the young person turns 24. However, after the year the individual turns 18, it can only bite if he or she is a student with at least five months of full-time school attendance. For 2019 (and 2018), the Kiddie Tax can only hit investment income in excess of the threshold amount of $2,200. Investment income below the threshold is taxed at the young person’s lower rate.
Age 18 or 21. Did you set up a custodial account for your minor child to help pay for college or save on taxes? It will come under the child’s control when he or she reaches the local age of majority (generally, age 18 or 21 depending on your state of residence).
Age 30. If you set up a Coverdell Education Savings Account (CESA) for a child or grandchild, it must be liquidated within 30 days after he or she turns 30 years old. Earnings included in a distribution that are not used for qualified education expenses are subject to federal income tax, plus a 10% penalty. Alternatively, the Coverdell account balance can be rolled over tax-free into another CESA set up for a younger family member.
Age 50. At this age, you can begin saving more for retirement on a tax-favored basis. If you’re age 50 or older as of the end of the year, you can make an additional catch-up contribution to your 401(k) plan, 403(b) plan, Section 457 plan, or SIMPLE plan, assuming the plan permits catch-up contributions. You can also make an additional catch-up contribution to a traditional or Roth IRA.
Age 55. If you permanently leave your job for any reason, you can receive distributions from the former employer’s qualified retirement plans without being hit with the 10% premature withdrawal penalty tax. This is an exception to the general rule that a 10% penalty is due on distributions received before age 59 1/2.
Age 59 1/2. For any reason, you can receive distributions at age 59 1/2 from all types of tax-favored retirement plans and accounts without being hit with the 10% premature withdrawal penalty tax. This includes IRAs, 401(k) plans, pensions and tax-deferred annuities.
Age 62. At this age, you can elect to start receiving Social Security benefits. However, your benefits will be lower than if you wait until reaching full retirement age (see “Age 66” below). When considering this election, look at your health and your family’s history of longevity.
