What to know about how age impacts financial plans

By Stephanie Sterling, EA, AIF®, ChFC®

I really don’t like change! My parents used to tell me, “Nothing is as constant as change.” I didn’t understand exactly what that meant as a child, but now I experience a change in one form or another almost daily. My clients often discuss changes in such things as their current job, a promotion or new work benefit, a new business opportunity, adjusting their savings plan, their income needs, retirement goals, estate planning, buying a new home, upgrading a vehicle, etc. As we go through life and adapt to the many different situations we encounter, we must adjust our plans accordingly.

When creating a financial plan, providing tax strategies, retirement income needs, or estate planning, age is an important detail to consider. Your current age, the age at which you want to retire, and the age you can withdraw funds from many investment accounts without penalty and any tax advantages there may be, all factors in your decisions. Following is a list of actions that have age-related restrictions on them.

  • Age 18 and 21 – Uniform Gifts to Minors Act (UGMAs) or Uniform Transfers to Minors Act (UTMAs) regulations require that custodianship of minor accounts ends when the age of majority is reached. Control of the account must be transferred to the person for whom the account was set up. The age of majority is generally between age 18 or 21, depending on which state the minor resides in.
  • Age 18 – Coverdell Education Savings Account (ESA). Contributions to ESAs must stop once the beneficiary of the account reaches age 18. If the individual is considered special needs, there is no age limit on contributions to the account.
  • Age 30 – There is no age limit on distributions for qualified education expenses from an ESA. However, any amounts in the account must be distributed and the account closed (or transferred to a younger beneficiary) once the individual reaches age 30. Special needs individuals have no age limit to distribute funds.
  • Age 55 – In the year you turn 55, you can make a withdrawal from your current workplace retirement plan (401(k), 403(b), or TSP) and avoid the 10 percent early distribution penalty. This is often referred to as the rule of 55. You do not have to be 55 to qualify for this exception but must turn 55 within the same calendar year. The rule of 55 does not apply to Individual Retirement Accounts (IRAs).
  • Age 59 ½ – Generally, unless another exception applies, withdrawals from a workplace retirement plan or IRA are subject to a 10 percent early distribution penalty for anyone under age 59 ½. You must be 59 ½ (not turning 59 ½ during the year) to avoid the penalty. To calculate the date the exception applies to simply adding 6 months to your birthday.
  • Age 70 ½ – If you are older than age 70 ½ and are charitably minded, you can make a qualified charitable distribution (QCD) from your IRA and not include the distribution in taxable income. This can be a very effective tax strategy to lower taxable income on your personal tax return. You cannot make QCDs from 401(k)s or 403(b)s.
  • Age 72 – Required Minimum Distributions (RMDs) must begin from IRA accounts.

The Congress and President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law in December 2019. It made significant changes to the nation’s retirement system. The legislation created financial implications for Americans at every age.

Two more bills are making their way through Congress. The Ways and Means Committee has already approved the “Securing a Strong Retirement Act,” dubbed SECURE 2.0. If passed, this bill would build on the changes already put in place by the SECURE Act. The “Retirement Security and Savings Act” is still in its early stages of development. Both no doubt will create, among other things, new age-related regulations to be aware of.

The indications are that age will continue to be a factor and something to be considered no matter how old we are.

If you would like more information, please feel free to contact Stephanie Sterling for a complimentary call or appointment, at 928.460.5526; my office is at 100 E. Sheldon Street, Suite 105 in Prescott.

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor and a separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.