The Ten Most Important Ages in Financial Planning

By Glenn J. Downing, MBA, CFP®

I thought I’d put together a short list of the most important ages in financial planning.  The ages on the list changed a bit in 2020, so a review is in order.  Look up your age and see what’s happening for you!

Age 21 – UTMA account becomes the child’s 

An account registered as a Uniform Transfers to Minors Act is one in which a trust is created by the donor for the benefit of the minor child.  The donor retains his status as trustee until the child reaches the age of majority – 21 in Florida.  Be careful if you’re using an UTMA for college funding:  at age 21 the minor comes of age and can use the money in the account for anything he wants, including blowing it on a Ferrari.  There’s nothing the donor can do at that point – he’s lost all control. 

Age 30 – Coverdells must be distributed

A Coverdell is the original education savings account.  These have been around since 1998 and can be used for college as well as primary and secondary school expenses.  Their main limitation is that contributions are limited to $2000 per child per year from all sources.  They’ve largely been supplanted by 529 accounts. 

Age 50 – Catch-up contributions begin

As the saying goes, Forty is the old age of youth.  Fifty is the youth of old age. 

Contributions to IRAs are limited to $6000/per year (2020) and your salary deferrals to your employer’s retirement plan are limited to $19,500/year.  At age 50 the IRS allows for a catch-up contribution, as it is called.  This is simply an additional amount that can be contributed in the year you turn 50 and then every year thereafter when you are entitled to contribute.  This extra amount is $1000 to an IRA and $6500 to your employer’s plan at work. 

Age 55 – Distributions from Qualified Plans with no IRS 10% penalty

This is worded closely.  If you’ve separated from service, distributions made directly to you from your former employer’s qualified plan are not subject to a 10% tax penalty once you’re age 55.  Distributions from IRAs still have that penalty, however, as will distributions from any old retirement plans you still have with previous employers.  So if you’re retiring early, you may want roll over all assets at previous employers’ retirement plans and your IRAs into your current plan, and then retire.  In this way you’ll be able to access those funds without a 10% penalty.    

Age 59 ½ - Distributions from IRAs and all Qualified Plans with no 10% penalty

The 10% early withdrawal penalties from all retirement plans go away at 59 ½. 

Age 62 – Beginning date for early Social Security retirement benefits

This is a reduced benefit; your full benefit wouldn't be paid to you unless you waited to reach your full retirement age, which is now between ages 66 and 67.  There is a second limit here – an earnings limit – for those retiring early.  You can earn up to $18,240 (2020) without your benefit being affected.  If you earn more, the Social Security Administration will deduct $1 of benefit for each $2 you earn above $18,240.  Once you hit your full retirement age, earn all you want – there is no limit. 

Age 65 – Medicare and Extra standard deduction

Two things happen at age 65:

Apart from receiving Social Security disability payments, the only way to be eligible for Medicare is to hit age 65 and qualify for Social Security retirement benefits.  You can sign up for Part A with no charge; Part B has a premium.  If you’re still working and covered by an employer’s health plan, you can delay Part B sign-up until no longer than 8 months following your termination of coverage.  You can have immediate coverage and no increase in premium if this is the case. 

Also at age 65, you get an extra standard deduction. 

Everyone is entitled to a standard deduction of $12,200 (single) or twice that, $24,400 for married filing jointly.  Once you hit age 65, you get an additional $1300 per spouse when filing jointly just for being, well, old.  Single filers and those filing Head of Household get an additional $1650. 

Ages 66 - 67 – Full Social Security retirement age

The full retirement age (FRA) is being phased up from 66 to age 67.  From this point on you can earn all you want and still receive your full Social Security Retirement benefit. 

Age 70 – Maximum Social Security Retirement Benefit

If you delay taking your Social Security retirement benefit once you attain your full retirement age, that benefit will increase by 8% per year up until age 70.  There are no increases past age 70, other than the annual cost of living.  So once you hit 70, take your benefit. 

Age 72 – Required Minimum Distributions begin

The IRS has, air quotes, let you contribute money to a retirement plan without taxation, more air quotes, let it grow without taxation, but age 72 forces you to make distributions and begin exposing the account to taxation.  This is called your required minimum distribution, or RMD. 

Get in touch! 

Have any questions as these ages pertain to you?  Feel free to get in touch with us at [email protected] Also follow us LinkedInFacebookInstagram, and YouTube for more personal financial information relevant to you! 

 

Photo by David Holifield on Unsplash

 

 

 

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