Are You Acting Your Financial Age?
You're not getting older, you're getting better tax breaks. Take this quiz to see what else happens as you and your family go through the years.
(MONEY Magazine) – 1) To you, your kids will always be your kids. To the IRS, maybe not. At what age is your child no longer considered a child for tax purposes? [A] 13 [B] 17 [C] 18 [D] 19 [E] 24 [F] All of the above
ANSWER: F. Like Britney Spears, who once sang she was "not a girl, not yet a woman," the IRS has some trouble with the awkward transitional time between childhood and adulthood. Consider: You can't claim the child-care credit once your kid turns 13, but you can take the child credit until he's 17. You'll pay the "kiddie tax" (which taxes a child's income at the parents' higher rate) until he's 18. At 19 your child can no longer be claimed as a dependent if he earns more than $3,300 a year (if he's a full-time student, you can claim him until he's 24). If he makes less than $3,300 and you support him, you can claim him as a dependent indefinitely. Good luck.
2) You've been funding a custodial account for years so your daughter can go to nearby Mississippi State U. Now she's 17 and refuses to apply to college. At what age can she take the money and run? [A] 18 [B] 19 [C] 21 [D] 25
ANSWER: C. You have a few more years to persuade your daughter not to blow her college fund on good times, but consider it a lucky break. In most states, the age at which a young person gets control of a custodial account is 18, unless you specify otherwise when signing up. But in Mississippi and Pennsylvania, kids have to cool their heels until they're 21 (19 in Alabama and Nebraska).
3) You're turning the big five-oh. Time to get really serious about saving for retirement. What's the max you can contribute to your 401(k) next year? [A] $15,000 [B] $15,500 [C] $20,000 [D] $20,500
ANSWER: D. Starting in 2007, all eligible workers can stash up to $15,500 (or 20% of their income) in their employer's 401(k) plan, up from $15,000 this year. But workers 50 and older can kick in an extra $5,000, or $20,500 total. Only 13% of the 50-plus crowd currently take advantage of these catch-up rules, though. If you are serious about retirement saving, join this elite group.
4) You decided to retire last year at 56; now you're struggling to make ends meet. What's the penalty for taking some bucks from your 401(k)? [A] 10% [B] 20% [C] 50% [D] None
ANSWER: D. Generally, you have to wait until 59½ to tap your 401(k) without paying a 10% penalty. But there are exceptions: If you become disabled, have medical bills that exceed 7.5% of your gross income or are laid off or quit after age 55, you'll pay income taxes on your withdrawals but no penalty.
5) You were born in 1947, and it feels as if you have been working forever. At what age can you give it up and collect full Social Security benefits? [A] 62 [B] 65 [C] 66 [D] 70
ANSWER: C. Hang in there. You can start taking reduced payouts at 62, but if you were born between 1943 and 1954, you'll have to wait until you're 66 to collect in full. The last group of retirees to collect full bennies at 65 was born in 1937; for everyone after that, full retirement age has been gradually increasing, up to 67 for those born in 1960 or later. If you can wait a bit longer to grab the gold watch, you'll get even more: Your benefits rise for every year you delay retirement until age 70.
Extra Credit: How old do you have to be to qualify for the senior menu at Denny's? [A] 45 [B] 55 [C] 65 [D] 75
ANSWER: B. Then again, you may not make it to 65 if you start each day with a Senior Belgian Waffle Slam and end it with a Senior Bacon Cheddar Burger.