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Uncle Sam can make some birthdays more or less taxing

Money Management

Monthly financial advice
from the MACPA

For release: January 2005

As you go through life, your birthday may seem less important. But for financial planning, tax or retirement reasons, your birthday may be significant.

Here's a list from the Maryland Association of CPAs to alert you to those birthdays that change your tax treatment and give you cause to celebrate.

  • Day one: Shortly after your child is born, he or she will need a Social Security number in order to be claimed as a dependent on your income tax return. A Social Security number is also required to open a bank account or buy savings bonds for a child.
  • Age 14: When your child reaches age 14, the kiddie tax disappears. Under the kiddie tax, net unearned income exceeding a specific threshold ($1,600 for 2005) that is received by a child under age 14 is taxed at the parents' highest marginal tax rate. At age 14 and older, income tax is paid at the child's tax rate, regardless of its source or the amount.
  • Age 17: If your child turns age 17 during 2005, you can no longer claim the child tax credit ($1,000 for tax year 2005 in accordance with the Working Families Tax Relief Act of 2004). This is also the last year for contributions to a child's Coverdell education savings account, unless the beneficiary qualifies as a "special needs beneficiary."
  • Age 18 or 21: Depending on the state in which you live, age 18 or 21 is the age of majority, which means your child can do whatever he or she wants with any money you have put into a custodial account in his or her name.
  • Age 30: All funds in a Coverdell education savings account must be distributed to the account's beneficiary 30 days after his or her 30th birthday. The balance of any unused funds in the account can be rolled over to a Coverdell for another qualified family member under the age of 30. This age limit does not apply to beneficiaries with special needs.
  • Age 50: Age 50 is the first year you're eligible to take advantage of the "catch-up" retirement provisions. Catch-up amounts vary according to the type of retirement plan. For 2005, anyone age 50 or older can contribute an extra $500 to an IRA. The catch-up amount for qualified retirement plans, such as a 401(k) plans, is $4,000.
  • Age 55: If you leave your job at any time during or after the calendar year in which you turn 55, withdrawals from your 401(k) or other qualified retirement plan are not subject to the 10 percent early distribution penalty. Distributions are subject to regular income tax.
  • Age 59½: After reaching age 59½, you may be able to make withdrawals from an IRA or qualified retirement plan without incurring the 10 percent early distribution penalty. Ordinary income taxes may apply.
  • Age 60: Sixty is the age at which a surviving spouse becomes eligible for Social Security benefits based on the deceased spouse's work record. If you elect to receive benefits at age 60, you will receive less than the full benefit your spouse would have received upon reaching full retirement age.
  • Age 62: You can start collecting Social Security at age 62, though your benefits will be reduced by 20 percent or more. At age 62, you also become eligible for a reverse mortgage, a special type of loan that lets older homeowners convert the equity in their home into cash to help meet financial needs.
  • Age 65 to 67: The age when you begin to collect full Social Security benefits gradually is being shifted from 65 to 67. You're eligible for Medicare beginning in the month you turn 65.
  • Age 70: If you postponed collecting Social Security benefits beyond your normal retirement age in order to maximize your payments, don't delay any longer. Your benefit amount stops increasing after you reach age 70.
  • Age 70½: If you are a participant in a company retirement plan or a Keogh plan and you are not more than a 5 percent owner, the required beginning date for distributions is generally the later of April 1 following the year you reach age 70½ or April 1 following the year you retire. If you own a business interest of more than 5 percent, your beginning distribution date is April 1 of the year following the year you reach age 70½, even if you are still working.

    Regardless of whether or not you are still working, if you reached age 70½ last year, you must begin to take minimum required distributions from your traditional IRA. Only money in a Roth IRA can continue to avoid taxation by April 1 of the year following the year you reach age 70½. Owners of a Roth IRA are not subject to minimum distribution requirements, but beneficiaries of a Roth IRA are.

If this seems like a lot to remember, keep in mind that a CPA can help you address your tax and financial needs, whatever your age.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.