When it comes to financial planning, some birthdays are more important than others. That’s because rules and regulations governing the ownership of assets, access to retirement money, and eligibility for benefits are often determined by age.
So it pays to know how birthdays — and often half-birthdays — can affect your financial planning.
Some birthdays come with reminders. Your health insurance provider will probably let you know when each of your children nears age 26, becoming ineligible for coverage under your health plan. And if you qualify for Social Security, you’ll get a reminder just before your 65th birthday to sign up for Medicare.
But most of these birthdays arrive unheralded, leaving it up to you to remember.
So here’s a quick run-down of the important birthdays that should be on everybody’s financial planning calendar.
• Day one Upon arrival, babies can be signed up for a Social Security number.
• Age 19 Children not attending college can say farewell to the so-called “kiddie tax” because they are no longer considered dependents. This provision taxes any unearned income, such as interest and dividend payments, above $2,100 in a child’s account at the same rate as the parents. For college students, the tax stays in effect until age 24.
• Age 21 This is the age at which most states say children control their own assets. That means custodial accounts such as those created under the Uniform Transfers to Minors Act need to be converted to noncustodial accounts.
• Age 26 Children age out of their parents’ health insurance policies and must obtain their own coverage.
• Age 50 Uncle Sam lets you tuck extra funds into your tax-advantaged retirement plans starting the year you turn 50. You can put an extra $1,000 — for a total of $6,500 — into either your Roth or traditional IRA. And you can put an additional $5,500 ($6,000 in 2015) into your company 401(k) plan. Because catch-up provisions are indexed to inflation, the amounts may increase in future years.
• Age 59½ There is no longer an early withdrawal penalty for taking money out of tax-advantaged retirement plans.
• Age 62 You can claim Social Security, but your benefits will only be 75 percent of what you could collect at full retirement, which is age 66 for people born between 1943 and 1954. Benefits increase until you reach 70, at which point there is no reason to delay payments further.
• Age 65 Time to sign up for Medicare, with initial open enrollment beginning three months before your 65th birthday and continuing for seven months. Everyone should sign up for Part A, which covers hospitalization and costs nothing. If you are covered under an employee health insurance plan, however, you might be able to delay signing up for other Medicare benefits until later. But don’t miss any of the sign-up deadlines or you might be hit with delayed coverage or higher premiums.
• Age 66 If you were born between 1943 and 1954, you’ve now reached “full retirement age,” and qualify for “full” Social Security benefits. “Full retirement age” gradually increases until it hits 67 for those born in 1960 or later.
• Age 70 If you waited to take your Social Security benefits, wait no longer. You qualify for the maximum benefit, which is 32 percent more than your “full” benefits at 66 and 76 percent more than your benefit at age 62.
• Age 70½ This half-birthday signals the start of annual required minimum distributions from your IRAs and 401(k)s. Calculated on life expectancy and retirement account balances, the first distribution must be taken by April 1 of the year following this half-birthday. Take note: The penalty for missing this deadline is 50 percent of the distribution amount.
Lynn Asinof can be reached at lasinof@journalist.com.