Financial birthdays to remember

When you or a family member celebrates a birthday this year, it might be financially significant because of tax or retirement reasons, said Dennis Filangeri, a certified financial planner in San Diego.

Age 14

The "kiddie" tax goes away. That's the tax where any net investment income (not earned wages) that exceeds $1,500 is taxed at the parent's marginal rate instead of the child's. Now it all will be taxed at the child's rate, which is usually lower.

Age 17

Sorry, but if your child turns 17 during 2002, you no longer will be able to claim the child's tax credit ($600 in tax year 2002), starting with your 2002 tax return. This is also the last year you or others can contribute to your child's education IRA (now called the Coverdell Education Savings Account). The exception is if the child is a "special needs" child. The maximum annual contribution in that case is $2,000.

Age 18

In some states, age 18 is the age of majority, which means the child can do whatever he or she wants to with any money you've put into a custodial account (such as one covered by the Uniform Gifts to Minors Act).

Age 21

The age of majority in some states.

{bold} Age 29

The last chance to withdraw tax-free -- for qualified education expenses -- any earnings left in a Coverdell account or name a new beneficiary for the account. Any earnings left in the account when the current beneficiary turns 30 will face regular income taxes and a 10 percent penalty.

Age 50

You're eligible to take advantage of the new "catch-up" retirement provisions Congress included in the Tax Relief Act in 2001. For example, this year anyone age 50 or more can kick an extra $500 into their individual retirement account above the new $3,000 IRA maximum contribution. The catch-up amount is for qualified retirement plans is $1,000, and both catch-up amounts rise in the coming years.

Age 55

Distributions from a qualified retirement or annuity plan are not subject to the 10 percent early withdrawal penalty as long as you are at least 55 years old during the year you leave your employer (if the plan allows this). The distributions are subject to regular income tax.

Age 59 1/2

You can start taking distributions from qualified retirement plans, annuities and IRAs without risk of the 10 percent early withdrawal.

Age 60

The age at which a surviving spouse (or in some cases, a former spouse) becomes eligible for Social Security benefits based on the deceased spouse's work record.

Age 62

The earliest age you can start collecting retirement benefits from Social Security. The benefits would be reduced as much as 20 percent, however, because you are starting before you reach the full retirement age, so the decision of whether to do this depends on such factors as life expectancy, income needs and so on.

You also become eligible for a reverse mortgage, which is a way to borrow against the equity in your home and not repay it until you move or die.

Age 65

You can retire and start taking full Social Security benefits. For people born in 1938 or later, however, the normal retirement age will begin to increase. Social Security also will quit docking its benefits if you started collecting before age 65 but continued working and earned too much ($10,680 in 2001).

Age 70

If you postponed collecting Social Security benefits beyond your normal retirement age in order to increase the size of the payments (3 percent a year), don't delay any longer. Social Security won't increase the benefits after you reach age 70.

70 1/2

You must start taking the first annual minimum distributions from your retirement plans and IRAs. The exception is an employer's plan if you are still working for that employer and don't own 5 percent or more of the business. Actually, you can postpone making the distribution until April 1 of the next year, but that will mean two minimum distributions in the same year, which could push you into a higher income tax bracket and increase the amount of Social Security benefit income exposed to tax.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at [email protected]


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