Planning for the Year Ahead: Major Life Events Checklist

Each new year brings with it new life events. The following checklist provides a brief description of various life events that present strategic planning opportunities.

Each new year brings with it new life events. Staying cognizant of the evolving legislative landscape can make planning for such events challenging. The following checklist provides a brief description of various life events that present strategic planning opportunities. We encourage you to review the Life Events Checklist and reach out to your Regions Wealth Advisor to discuss your options in more detail.

Birthday Milestones

• Age 18 – Generally, a parent’s legal right to act on behalf of their child for medical purposes ends when a child reaches age 18. This is true regardless of whether the child is covered by their parent’s medical insurance. Should an event arise where the child becomes unable to make their own decisions, parents may petition the court for guardianship or a temporary power of attorney. Having your child complete a medical power of attorney authorizing you to act on their behalf should they become incapacitated, will allow you to avoid the stress, time, and expense of involving the courts in the event of an emergency.
• Age 21 – In most states, the age of majority for Uniform Transfers to Minors Act (UTMA) accounts is age 21. At the age of majority, the UTMA custodian must transfer the account to the child’s control. Depending on the amount of assets involved, planning for the transition of assets to the child beneficiary may be prudent.
• Age 26 – Pursuant to the Affordable Care Act, employer and individual health insurance plans offer dependent child coverage until a child reaches the age of 26. At such time, the child may have multiple options for obtaining new health insurance coverage. If the child is employed, they can look to see if they are eligible for their employer’s plan. Alternatively, a child may be eligible to purchase temporary extended health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) or similar state laws. Additional information for these state specific laws can be obtained from the parents’ employer or the State Insurance Department. A third option is for the child to purchase individual coverage through the Health Insurance Marketplace.
• Age 50 – Beginning at age 50, individuals are eligible to make additional “catch-up” contributions to their qualified retirement accounts. For 2023, the catch-up contribution amount for 401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs is $7,500 for a total contribution of $30,000. IRA catch-up contributions are$1,000 for a total contribution of $7,500 for 2023.
• Age 55 – An exception to the 10% penalty for withdrawals from 401(k) plans prior to age 59 ½, the “Rule of 55” allows an individual who leaves their job in or after the year they reached age 55 to take penalty-free withdrawals from the 401(k)-account associated with their most recent employment. While the “Rule of 55” allows an individual to avoid the 10% early withdrawal penalty, income tax will still apply to each traditional 401(k) distribution. A key planning consideration to remember is that if the 401(k)-account balance is rolled over to an IRA, the individual will need to wait until age 59 ½ to take IRA withdrawals without penalty.
• Age 59 ½ - At age 59 ½, individuals may begin taking withdrawals from their traditional retirement accounts without incurring a 10% early withdrawal penalty.
• Age 62 – Generally, age 62 is the earliest a person can elect to begin receiving Social Security retirement benefits. If an early election is chosen, the monthly benefit amount will be subject to a reduction from what the person would have received had they waited until full retirement age to begin receiving benefits. A key planning consideration to remember is that an additional reduction or even elimination of benefits may apply to individuals who elect to receive retirement benefits before full retirement age but continue working. It is highly recommended that a social security analysis is completed based upon the individual’s most current social security statement before electing to begin benefits.
• Age 65 – Medicare is available for people aged 65 or over. The “initial enrollment period” starts three months before the month of the person’s 65th birthday and ends three months after their birthday month. Failure to enroll within the initial enrollment period may increase their Part B premium by 10% for each 12-month period a person was eligible but did not enroll. A person who is still working and is covered by their employer’s health insurance plan can defer enrollment until they stop working without incurring a late enrollment penalty.
• Age 66/67 – Currently, full retirement age for Social Security retirement benefits falls between 66 and 67 years old. A person’s exact full retirement age is dependent upon the year of their birth. At full retirement age, a person can elect to receive their full Social Security retirement benefit without it being reduced for early election or continued employment.
• Age 70 – For each year that a person waits past their full retirement age to elect to receive their Social Security monthly retirement benefit, the benefit increases by 8%. After age 70, there is no additional benefit for waiting as the retirement benefit will no longer be eligible for an increase.
• Age 70 ½ – At age 70 ½, charitably inclined individuals may begin making Qualified Charitable Distributions (QCDs) of up to $100,000 per year from their IRAs. A QCD is an otherwise taxable distribution from an IRA that is paid directly to a qualified charity and thereby excluded from the individual’s gross income. However, the amount of QCDs that can be excluded from income is reduced by any deductible IRA contributions that were made after the person turned 70 ½. In addition to being excluded from income, the QCD may also satisfy all or part of the individual’s required minimum distribution.
• Age 73 – For 2023, required minimum distributions (RMDs) for traditional qualified retirement accounts begin at age 73. RMDs from employer-sponsored retirement accounts (such as 401(k)s and 403(b)s) can be deferred until actual retirement for those who continue working. The first distribution must be taken by April 1 of the year after the person turns 73. The penalty for not taking an RMD is 25% of the amount required to be withdrawn (10% if corrected within two years).

Life Events

• Birth of a Child – The birth of a child can be one of life’s most altering events. When planning for the addition of a child, it is prudent to update the family budget, create and implement an estate plan (including appointing a guardian), consider life insurance options, review, and update beneficiary designations, establish a college fund, and consider other planning strategies based upon personal/ family situations.
• Marriage – Preparing for a marriage takes careful planning and communication. There are many state laws that function as a “default” for marriage. A basic understanding of those rules can help ensure the couple’s intentions are consistent with their goals and aspirations. Examples of state rules, which will act as a “default" if proper planning is not completed, include who can make medical decisions on behalf of an incapacitated spouse and who may receive assets upon a spouse’s passing. Proper planning may include the adoption of a will, power(s) of attorney for health and financial purposes, a prenuptial agreement, and other strategies intended to align with intentions. Additionally, it is also important to review and update a family budget, consider life insurance needs, update beneficiary designations, and engage in a wealth planning review at least annually.
• Divorce – Divorce is one of the most stressful life events an individual may experience. In the event of a divorce, it is imperative to plan for the next phase of life post-marital relationship. Communication between legal counsel and wealth management is important to ensure settlement ramifications are clearly understood and reflected correctly. Family budget considerations, life insurance needs, and any beneficiary designations changes are immediate planning issues to be addressed. As well, an estate planning review and implementation of an updated estate plan will be prudent to reflect not only the settlement agreed to, but to capture new intentions and planning objectives.
• Large Purchases and Sales (such as a home, plane, and/or business) – Large purchases and sales may provide excitement but also some stress regarding the potential fiscal impact. It is important to incorporate any large purchase or sale into a wealth plan and review the impact to quality of life. The sale of an income producing asset may prove to be uneconomical if the proceeds are not sufficient to maintain the accustom standard of living. Conversely, while there may be sufficient funds to make the initial asset purchase, ongoing expenses may be too cumbersome to maintain course. Title, tax ramifications, asset protection, and insurance considerations should also be taken into account with any large purchase or sale.
• Retirement – Planning for retirement begins with understanding an individual's current financial picture and options (e.g., pension benefits, equity compensation, etc.), assessing retirement needs (e.g., expenses, health insurance, etc.), and ensuring sufficient cash flow for the years to come. In addition to evaluating financial security, it is important to create a personal plan that provides clarity of purpose during retirement years. An often-cited study found that, “retirement increases the probability of suffering from clinical depression by about 40 per cent.” And approximately 1/3rd of retirees eventually give up on retirement and return to the workforce, according to a 2016 Federal Reserve study. A focus on retirement “wants” based upon an accurate, realistic balance sheet will allow for a more precise cash flow picture and probability analysis.