Happy birthday! It’s tax time
From 0 to 120 years, there are numerous tax milestones to know
First birthday, sweet 16th, voting age, retirement. ⬤ You experience many milestones as you age, but those passages also mark key moments in your tax life. ⬤ From birth to late in life, your birthday could trigger a change in tax status. ⬤ On some birthdays, you may age out of a tax credit or age into one. On others, you may be required to take money out of retirement accounts. ⬤ We’ve compiled a list of key birthdays that affect your tax status. Make a note of them. It’ll help you maximize your returns and avoid penalties.
Significant tax birthdays
Even if your baby is born on Dec. 31, they are considered a dependent for the full year and eligible for the Child Tax Credit.
Age 12: This is the last year your child will be eligible for the Dependent Care Credit (the age limit doesn’t apply if the dependent child is physically or mentally incapable of self-care).
Age 16: This is the last year a child is eligible for the Child Tax Credit.
Age 17: Dependent children are no longer eligible for the Child Tax Credit but may be eligible for the Other Dependent Credit.
The last year you can set up Coverdell Education Savings Accounts contributions for most children. Beneficiaries must be under 18 or be a special-needs beneficiary when it’s created.
Age 18: The last year a child can qualify as a dependent if the child is younger than the taxpayer claiming the exemption. The child must be under age 19 at year’s end, unless the dependent is a full-time student. If the dependent is a student, the dependent must be under 24 at the end of the year. People who are permanently and totally disabled at any time during the year, regardless of age, can be claimed as dependents.
Age 23: The maximum age that the “kiddie tax” applies to dependent full-time students. The “kiddie tax” imposes higher taxes on investment income of children to circumvent parents passing on investments to their kids who may be in lower tax brackets.
Age 24: A child who is a full-time student and younger than the claiming taxpayer ages out as a qualified dependent.
Age 30: Any remaining money in Coverdell Education Savings Accounts must be distributed within 30 days after the designated beneficiary’s 30th birthday unless the beneficiary is a special-needs beneficiary. If you miss this, your distribution will be subject to a 10% tax.
Age 50: “Catch-up” contributions to retirement plans are allowed. The 2024 catch-up contribution limit for employees ages 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $7,500
Delaying Social Security benefits to age 70 gives you the maximum benefit. “By delaying benefits past the full retirement age, a person’s benefits are increased by 8% per year,” said Richard Pon, a certified public accountant.
(up from $6,500 in 2023). For individual retirement accounts (IRAs), the catch-up is still $1,000.
Age 55: Once you reach this age, you can separate from your company and take distributions from your company’s retirement plan without paying the additional 10 % early distribution penalty. This applies only to employer plans so IRAs are not exempt.
You can start adding up to $1,000 a year as “catch-up” contributions to a health savings account.
Age 591⁄2: You can withdraw money from all retirement accounts, including IRAs, without incurring a 10% early distribution penalty.
Taxpayers can take tax-free distributions from Roth IRAs opened for at least five years.
Age 60: Early Social Security benefits can begin for a surviving spouse. Surviving spouses can begin receiving a reduced Social Security benefit based on the deceased spouse’s basic benefit amount. Some Social Security benefits may be taxed, depending on income.
Age 62: Early Social Security benefits can begin. For those claiming early spousal benefits, your benefits can be reduced by up to 67.5%. To see how early retirement affects your benefits, visit the Social Security Administration site and how it may be taxed at the IRS site.
Age 64: Medicare enrollment begins three months before your 65th birthday and ends three months after. Medicare premiums and many other qualified medical expenses are tax-deductible if you’re self-employed or if the amount is above 7.5% of your adjusted gross income.
Age 65: Taxpayer’s standard deduction (and dollar threshold for filing requirement) is increased. In 2023, the additional standard deduction for age 65 and older was $1,500 per taxpayer (so if both spouses are over 65, then it’s $3,000).
At this age, you may qualify for the Credit for the Elderly or the Disabled. However, income limits are very low to qualify for this credit. The credit ranges from $3,750 to $7,500.
Qualified veterans can begin receiving VA pension benefits, which are taxfree.
Age 67: Full retirement age for Social Security for those born since 1960. Here’s how you might get taxed.
Age 70: Delaying Social Security benefits to this age gives you the maximum benefit. “By delaying benefits past the full retirement age, a person’s benefits are increased by 8% per year,” said Richard Pon, a certified public accountant in California. “Keep in mind you have delayed benefits for at least three years, so you have to live a long time to recoup the 3 years of benefits you lost as it will take about 121⁄2 years for you to break even.”
Age 701⁄2: Under the December 2019 SECURE Act, if you have earned income (W2 or self-employment income), there’s no longer an age cap (previously age 701⁄2) for contributing to a traditional IRA. So those over 701⁄2 can continue to contribute to their IRA.
Age 701⁄2: The Charitable IRA Rollover allows people age 701⁄2 and older to make direct transfers of up to $100,000 in tax year 2023 and $105,000 a year in 2024 (and up to $200,000 in 2023 and $210,000 a year for married couples) from IRAs to qualified charities without having to count the transfers as taxable income.
Because no tax is incurred on the withdrawal, gifts do not qualify for an income tax charitable deduction. The charitable IRA rollover is eligible to be counted toward a person’s required minimum distribution (RMD). The new $105,000 limit was effective 2024 and was the first increase in over 20 years.
Age 73: You generally have to start taking RMD withdrawals from your IRA, SEP IRA, SIMPLE IRA or employer retirement plan account when you reach age 73 (the age 72 limit changed to 73 in 2023 because of Secure Act 2.0). The failure to take an RMD can trigger a 25% penalty. The penalty was 50% until the Secure Act 2.0 decreased it.
Age 100: If you live in Maryland and are at least 100 years old on the last day of the year, you may subtract up to $100,000 of income from your taxes. If you live in New Mexico, you no longer have to pay income tax.
Age 115: IRS Publication 590-B shows an RMD period of 1.8. That means once you hit age 115, your required minimum distribution must be 55.55% of your retirement account.
Age 120 and over: The RMD shows a distribution period of 1, so once you hit age 120, your required minimum distribution must be 100% of your retirement account.