Happy Birthday! and there may be financial planning implications

Jeanne Sullivan |

by Philip Lee, CFP®

For my birthday, I think about the financial implications but will also enjoy time with my family and friends. The table below provides a framework of financial planning considerations or requirements as we all age:

18th Birthday
18 year-olds are now adults who can enter into contracts, make their own health care decisions and are afforded levels of privacy to which we may not be accustomed. As adults, basic documents take on more meaning. Consider contacting an estate planning attorney to get health care proxy, durable power of attorney, HIPAA release form (release of health information), and FERPA waiver or utilize your college’s online template, if in college.

Congratulations, you can now exercise your right to vote.


26th Birthday
Children can stay on their parents’ health insurance plan until their 26th birthday whether they are attending school, married or living separately from their parents, even if they are eligible to enroll in their employer’s plan. Before you turn 26, start evaluating your options for joining your employer plan, buying insurance individually through an insurance company or the Healthcare.gov website.


50th Birthday (year in which you turn 50)

You are now eligible for the 50+ catch-up contribution limits for qualified retirement plans. In 2020, you can save an additional $6,500/year above the $19,500 elective deferrals for a 401(k), 403(b), 457 and SARSEPs. If you contribute to an IRA or Roth IRA, the 50+ catch-up is $1,000 in addition to the $6,000 normal limit.


55th Birthday
You are now eligible for penalty-free distributions from 401(k) plans if retired.


59 ½ Birthday
You are now eligible to take penalty-free withdrawals or distributions from your IRAs and qualified retirement plans, if certain conditions are met; distributions are generally taxable. While distributions from your traditional IRA prior to age 59 ½ are subject to a 10% penalty, some exceptions include: first-time home purchase; qualified education expenses; death or disability; unreimbursed medical expenses and health insurance premiums paid while unemployed.

Your employer’s retirement plan may allow in-service withdrawals of your vested amount, subject to the plan rules. In-service withdrawals may include the ability to rollover funds to your own IRA where you may have broader and less expensive investment options.


60th Birthday
You can apply for reduced Social security benefits under a deceased spouse’s earning record


62nd Birthday
You are eligible to collect Social Security benefits although your monthly benefit may be reduced up to 30% permanently. Consider waiting until your Full Retirement Age (FRA) which varies between 65 and 67, based upon your year of birth, or waiting beyond your FRA to benefit from an 8% increase per year to age 70, or using a spousal benefit strategy, if married. There is a strategy for single filer’s too.
Social Security benefit strategies are specific to each individual’s unique circumstances. For example, widows or widowers can claim as early as age 60. Be aware that between ages 60 and 70 there are often several tax and income planning strategies to consider as you manage your overall tax liability and cash flows in retirement.


65th Birthday
You are eligible to enroll in Medicare. Be sure to evaluate your options, including integration of Medicare with your employer’s health insurance plan, Optional Part D Prescription Drugs coverage, optional supplemental insurance or using a Medicare Advantage plan. You should generally enroll three (3) months prior to turning 65 or up to three (3) months after. Be aware that the government will impose a late enrollment penalty if you do not enroll in Medicare Part B when you are first eligible (this requirement may not apply if still employed).


70th Birthday
You can apply for Social Security to get the maximum monthly benefit.

70 ½ Birthday
Have charitable intent and do not need your Required Minimum Distribution (RMD) or want to potentially reduce future RMDs? Consider a Qualified Charitable Distribution directly from your IRA to your favorite charity and your distribution will avoid income taxes. This is available to those 70 ½ or older.

72nd Birthday (the new 70 ½) 
You are now subject to the Required Minimum Distribution (RMD) rules governing IRA and employer retirement plans. This will apply to those who will turn 70 ½ in 2020 or later. If you are already taking RMDs you must continue to do so.

You can wait to take your first required distribution until April 1 of the next year, however you will effectively “double up” your distributions for that ear, which may not be tax advantageous.

You must take these minimum distributions, or you will be subject to an IRS 50% penalty on that amount you should have withdrawn. Withdrawals are considered taxable income except for any portion that was previously taxed, also known as your basis.

Roth IRAs are not subject to the RMD rules during the original owner’s lifetime. Another exception to the RMD rule is where you continue to work you can delay taking distributions from your current employer-provided plan until April 1 of the year after you retire.