Federal Employee and Retiree Milestones for Federal Income Taxes

Age Milestones for Federal Employees and Retirees with Respect to Federal Income Taxes

When it comes to minimizing an individual’s annual federal income tax liability, there are age milestones that can affect an individual’s eligibility for tax benefits, tax deductions and tax credits. This column presents these age milestones and the tax rule associated with each age milestone for federal income taxes.

Ed hosts a Tax Planning Webinar for Federal Employees -

Age Milestones for Federal Employees and Retirees with Respect to Federal Income Taxes

Age	Tax Benefit, Deduction or Credit	Tax Rule
13	Childcare Tax Credit	Cannot claim a childcare tax credit for children aged 13 or older.
17	Child Tax Credit	Cannot claim a $2,000 child tax credit for children aged 17 and older.
18	(1) Education Savings Account (ESA) (2) Individual qualifies for the Saver’s Tax Credit	(1) Generally, cannot contribute to an ESA for children aged 18 and older. (2) Individual must not be a tax dependent or a full-time student.
19	(1) Claiming children as dependents (2) “Kiddie” tax no longer applies	(1) Claiming children who are not full-time students as tax dependents ceases. (2) “Kiddie” tax no longer applies except for full-time students.
24	(1) Claiming children who are full-time students as dependents (2) No “Kiddie” tax	(1) Once a child who is a full-time student becomes age 24, the child cannot be claimed as a tax dependent. (2) “Kiddie” tax no longer applies.
25	Earned Income Credit	Individuals with no children may qualify for Earned Income Credit.
27	Income exclusion for health insurance coverage	Income exclusion for health insurance coverage of children aged 26 and younger expires.
30	Coverdell Education Savings Account (ESA)	Generally, must distribute funds in a Coverdell ESA when Coverdell ESA beneficiary reaches age 30.
50	(1) “Catch-up” contributions to IRAs, 401(k), 403(b),457 retirement plans and the Thrift Savings Plan (2) Qualified public safety employees’ penalty-free withdrawals from a governmental defined benefit pension plan, if retired	(1) Employees aged 50 and older can make “catch-up” contributions to their qualified retirement plans (2) Qualified public safety employees (includes federal law enforcement officers, firefighters, and custom border and protection officers) can make penalty-free withdrawals from their CSRS or FERS annuity if they retire at age 50 with 20 or more years of service.

Age

Tax Benefit, Deduction or Credit

Tax Rule

(1) Penalty-free withdrawals from qualified retirement plans (traditional)

(2) “Catch-up” contributions for Health Saving Accounts

(1) Employees who retire at age 55 can make penalty-free withdrawals from a traditional 401(k), 403(b), 457 retirement plan and the traditional TSP.

(2) Health Savings Account owners starting at age 55 can contribute an additional $1,000 each year to their Health Savings Account (HSA).

59.5

(1) Penalty for early withdrawals from a qualified retirement plan and the TSP

(2) Roth IRA distributions are completely tax-free

(1) The pre-age 59.5 penalty for early withdrawals from a qualified retirement plan, and the traditional TSP for employees who leave service or retire before age 55, no longer applies.

(2) Distributions from a Roth IRA

(includes contributions and earnings) are tax-free. Roth IRA owner must have made first Roth IRA contribution at least 5 years ago

(1) Non-itemizers become eligible for a higher standard deduction

(2) HSA withdrawals not used for medical expense are taxed but not subject to a 20 percent penalty

(3) Credit for the Elderly tax credit

(1) Individuals who take the standard deduction rather than itemizing on their federal income taxes become eligible for an extra standard deduction starting at age 65.

(2) HSA owners who reach age 65 and make HSA withdrawals to pay non-medical expenses are subject to federal income tax but no 20 percent penalty.

(3) Individuals who reach age 65 are eligible for the Elderly tax credit.

70.5

(1) Required Minimum Distributions (RMDs) from traditional qualified retirement plans, TSP and traditional IRAs (but not Roth IRAs)

(2) Qualified Charitable Distributions (QCDs)

(1) RMDs from traditional qualified retirement plans, TSP and traditional IRAs must begin if plan owner attained age 70.5 before 1/1/2020.

(2) Qualified Charitable Distributions (QCDs) from a traditional IRA can be made starting when the traditional IRA owner becomes age 70.5.

Required Minimum Distributions (RMDs) from traditional qualified retirement plans, TSP and traditional IRAs (not Roth IRAs)

RMDs from qualified retirement plans, TSP and traditional IRAs must begin if attained age 72 after 12/31/2019 and before 1/1/2023.

Required Minimum Distributions (RMDs) from traditional qualified retirement plans, TSP and traditional IRAs (not Roth IRAs)

RMDs from qualified retirement plans, TSP and traditional IRAs must begin if attained age 72 after 12/31/2022.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.