Age Group Tax Planning
 

We're not talking about your racing age group for you athletes out there, but rather the various age-related tax and financial planning milestones that we each go through during our lives.  Below are some of the general age-related issues to be aware of:

• Ages 0 - 23: the so-called "Kiddie Tax" rules can potentially apply to your child's (or grandchild's) investment income. 
• Age 18 or 21: depending on your state of residence, this is the age at which a child can gain control of any custodial accounts that were setup for them, usually by their parents and/or grandparents....and this means they can do whatever they want with it!
• Age 50: if you're age 50 or older as of the end of the year, you can take advantage of the addt'l catch-up contributions to your retirement plan.  This means an extra $5500 for some plans such as 401(k) plans and an addt'l $1k into an IRA.
• Age 59-1/2: you can receive distributions from all types of tax-favored retirement plans and accounts and tax-deferred annuities without being hit with the 10% early withdrawal penalty.
• Age 62: generally the age at which many of you can begin to start receiving Social Security benefits.  However, they will be lower than if you wait until reaching full retirement age (varies by birth year, but generally at age 66 for those that are close).  There reduced even further if you also continue to work. 
• Age 70: you can choose to postpone receiving Social Security benefits until you reach age 70.  If you make this choice, your benefits will be higher (sometime much higher) than if you started earlier.
• Age 70-1/2: you generally must begin taking annual Required Minimum Distributions (RMDs) from tax-favored/tax-deferred retirement accounts and pay the resulting income taxes.  You can postpone taking the first one until April 1st of the year following the year you turned 70-1/2, but then you'll have two taxable RMDs in that one year.

If you or a someone you know are affected, or are about to be affected, by any of these age-related milestones, please contact us if you have questions or want more information.  Also, almost ALL adults should do at least some estate planning, even if it means nothing more than a simple will being drafted or updated.  If you are in need of some estate planning or preparation of wills, contact us and we can make sure you are in good hands.

529 Plan Withdrawals 

With 529 plans having grown in popularity over the years, withdrawals are now more and more commonplace.  As you know, qualified withdrawals are always federal-income-tax-free, but it can get a bit more complicated.  Here are some important points to consider and if any may apply to you, please contact us to discuss: 

•  Two Payment Options - you generally have two options for payment - have a check cut directly to you, the account owner, or to the account beneficiary, usually the student (your child or grandchild).  Generally we advise having the check cut to the beneficiary if the funds will be used to pay for their college costs.  But if the account owner will keep the funds for him/herself then we recommend the checks get made out in their name instead.
• If any of the 529 plan was funded with custodial account money - i.e from UGMAs or UTMAs - then the withdrawn funds MUST be used for the benefit of the account beneficiary.
• The IRS knows about withdrawals!!  So if you receive a 1099-Q showing the plan withdrawals be sure you report it properly!  This is where we need to be careful, especially when there are scholarships, grants, or other funds that help pay some of the qualified expenses and the result is your withdrawals are higher than the remaining expenses b/c they then may become taxable.  In the event the account owner keeps the funds for themselves, be aware of the tax consequences!
• As a final FYI on these - withdrawals not used for education can be hit with a 10% addt'l tax!

Charitable Deductions for Out of Pocket Expenses

While many of you know that we are not allowed to take a charitable donation for our time that we donate/volunteer to charitable organization, please realize that if you incur any out of pocket expenses to perfrom this work and you are not reimbursed for these expenses, then you can claim them as charitable deductions.

Change of Address 

If you have changed your home address or business address, you should notify us asap so we ensure we keep our records updated...and it may be a good idea to notify the IRS and state to ensure you receive any refunds or correspondence in a timely manner.  The IRS does use the USPS's change of address files to update their records, it's still a good idea to notify them directly in many circumstances.