Milestone moments: How age affects certain tax provisions
They say age is just a number, but for tax purposes it often controls when certain benefits and penalties apply. Knowing the main age milestones can help you and your family avoid unnecessary taxes and make better planning decisions.
Ages 0–23: Kiddie tax
The “kiddie tax” can apply to a child or young adult’s unearned income (for example, investment income) up to and including the year they turn 23, depending on their student and support status. For 2025, unearned income above an annual threshold of $2,700 may be taxed at the parents’ marginal federal rates instead of the child’s typically lower rates.
Age 30: Coverdell Education Savings Accounts
If you set up a Coverdell Education Savings Account (ESA) for a child or grandchild, the account generally must be distributed by 30 for that designated beneficiary. Any earnings taken out and not used for qualified education expenses are included in income and may be subject to an additional 10% penalty tax. You may avoid tax and the penalty by rolling the remaining balance to a Coverdell ESA for another eligible family member, such as a younger sibling or cousin.
Age 50: Regular catch‑up contributions begin
Beginning in the year you turn 50, you can make extra “catch‑up” contributions to certain retirement plans if the plan allows them. For 2025, employees age 50 or older can contribute up to $23,500 in salary deferrals to 401(k), 403(b), and most governmental 457 plans, plus up to $7,500 in catch‑up contributions, for a total of up to $31,000. For SIMPLE IRAs, those 50 or older can contribute up to $16,500 plus a standard catch‑up of up to $3,500, with a higher catch‑up limit (up to $3,850) potentially available in certain small‑employer SIMPLE arrangements. Individuals 50 and over may also contribute up to an additional $1,000 to a traditional or Roth IRA beyond the regular IRA limit, for a total of up to $8,000 in 2025 if they have enough earned income and otherwise qualify.
Age 55: Special rule for employer plans
If you permanently separate from service with an employer in or after the calendar year you turn 55, certain distributions from that employer’s 401(k), 403(b), or similar plan can be exempt from the 10% early‑distribution penalty. This “age‑55 rule” generally does not apply to IRAs or to money rolled over to another retirement account, so timing a rollover and withdrawal strategy can matter.
Age 59½: Early‑withdrawal penalty generally ends
Once you reach age 59½, you can generally take distributions from tax‑favored retirement accounts—such as traditional IRAs, Roth IRAs (subject to separate rules for earnings), 401(k)s, 403(b)s, and many pensions—without the 10% early‑withdrawal penalty. Ordinary income tax may still apply to the taxable portion of withdrawals, so it is still important to consider the impact on your overall tax bracket before tapping these accounts.
Ages 60–63: Higher “super” catch‑up for some plans
A temporary higher “super” catch‑up applies for people who are age 60 through 63 at the end of the year and participate in certain employer plans. For 2025, eligible individuals in that age band can make a catch‑up contribution of up to $11,250 to 401(k), 403(b), and governmental 457 plans, instead of the standard $7,500 catch‑up for those 50 and older. SIMPLE IRA participants ages 60–63 can make a larger catch‑up contribution of up to $5,250 in 2025, subject to plan rules and other annual limits.
Age 73: Required minimum distributions
Starting at age 73, most people must begin taking required minimum distributions (RMDs) from tax‑deferred retirement accounts such as traditional IRAs, SEP IRAs, 401(k)s, and similar plans. If you do not take at least the required amount for a year, the IRS can assess a penalty of up to 25% of the shortfall, which in some cases can be reduced if corrected promptly. If you are still working at 73 and do not own more than 5% of the employer sponsoring your plan, you may be able to delay RMDs from that employer’s retirement plan until after you retire, but RMDs from IRAs and most old employer plans cannot be postponed under this rule.
Watch the calendar
Age‑based rules affect how your family is taxed on investment income, how much you can save in retirement plans, and when and how you must draw money out. Reviewing these milestones regularly—and checking the exact dollar limits and conditions that apply in the year in question—can help you avoid penalties and build a more tax‑efficient long‑term plan. If you have questions or want more detailed information, contact us at Satty.
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