Age 50 rule for IRAs
So a 50 year old gets to contribute an extra $1,000 to his/her IRA in 2011.
In order to qualify for the extra $1,000 contribution to an IRA in 2011, exactly when do I have to be 50?
Do I have to turn 50 in 2011 or do I already have to be 50 on Jan 1, 2011?
Permalink Submitted by Peter Lingane on Sat, 2011-03-12 17:33
The participant must be age fifty by the end of the plan year. IRC Sec. 414(v)(5). For 2011 and for a calendar year plan such as an IRA, that means a birthday before January 2, 2012.
Permalink Submitted by Alan Spross on Sat, 2011-03-12 18:50
Peter,
I cannot find any cite to indicate the extra day to attain 50. The following is copied from Sec 219b, and the Regs for 1.414v also indicate that that 50 must be attained in the taxable year, ie midnight 12/31:
>>>>>>>>>>>>>>>>
(B) Catch-up contributions for individuals 50 or older
(i) In general
In the case of an individual who has attained the age of 50
before the close of the taxable year, the deductible amount
for such taxable year shall be increased by the applicable
amount.
>>>>>>>>>>>>>>>
Permalink Submitted by Peter Lingane on Sat, 2011-03-12 20:35
I cannot provide a citation offhand but one is considered to attain a particular age on the day before one’s birthday. This rule is designed to handle situations like someone born on Feb 29. If you must be fifty on December 31, your birthday can be no later than January 1 or “before January 2.” There is no extra day.
The increased standard deduction for older taxpayers illustrates this rule. Form 1040 used to asked if the taxpayer was aged 65 or older. A couple of years ago, the question was changed. Form 1040 for 2010 asks “were you born before January 2, 1946?” If a taxpayer was born before January 2, 1946, he/she was at least age 65 at the end of the 2010 calendar year.
Permalink Submitted by Alan Spross on Sat, 2011-03-12 20:49
Yes, there are a couple cases of the rules extending to 1/1 and the additional standard deduction you cited in one of them. If you were born on the first day of the month, SS deems you born in the prior month for purposes of earned benefits. There are probably a few more. But this concept does not affect any of the key IRA dates, and since the code refers to “before the close of the taxable year”, there would have to be some definition somewhere that extended the close of the taxable year for catch up contribution purposes.
Not directly on topic, but Sec 7503 provides relief to deadlines where a taxpayer has to take some action, such as filing a return or making an IRA contribution when the deadline is on a Holiday or weekend. That’s why we have the 4/18 deadline this year when Emancipation Day is only celebrated in DC. But this particular extension is to complete an action, it does not extend someone’s actual birthday.
http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._7503._Tim…
Permalink Submitted by Bruce Steiner on Sun, 2011-03-13 00:11
If you were born on January 1, 1961, you will reach age 50 on December 31, 2011 (the day before your 50th birthday).
Why is that? The law does not consider parts of a day. If you were born on January 1st, you will have been living for 365 days, or a full year, on December 31st.
That’s why, for example, if you were born on January 1, 1946, you were 65 years old on December 31, 2010, and why you can vote if the election is the day before your 18th birthday. The IRS changed the wording in the instructions (regarding age 65) since some taxpayers may not have been aware of this.
See, for example, Turnbull v. Bonkowski, 419 F.2d 104 (9th Cir. 1969): http://scholar.google.com/scholar_case?case=16279686716848809423&q=turnb… , and the cases cited therein.
Permalink Submitted by Peter Lingane on Sun, 2011-03-13 00:59
The IRS seldom bothers to define age but, when it has, it has used the common law rule cited by bsteiner, the last birthday rule supported by Alan, a nearest birthday rule and perhaps others.
The IRS does define “age 70 ½” in Reg. 1.401(a)(9)-2 (six calendar months after the 70th anniversary of the employee’s birth) but I couldn’t find a definition of age 50 or 55 or 59.5. Form 5305 (the IRS model IRA agreement) does not define age.
Lacking IRS guidance to the contrary,it seems that the common law rule applies to the definition of age 50 in the IRA context.
Permalink Submitted by Alan Spross on Sun, 2011-03-13 03:44
What are we supposed to assume when the IRS specifies the Jan 2nd date in the worksheet on p 34 of the 1040 Inst (re additional standard deduction at 65) and does not indicate anything on p 30 of the Inst where the catchup contribution qualification is stated? If it is necessary to state in one situation, it should be stated wherever it applies. Not doing so leaves a strong impression that it only applies where stated.
I have heard uncorroborated statements that this type of interpretation is limited to cases that work strictly to the taxpayer’s advantage. But the IRS does not comment on a taxpayer who reaches 59.5 on 1/1 being able take a 12/31 distribution with the custodian issuing a Code 7 (normal) thereby avoiding early withdrawal.
Permalink Submitted by Peter Lingane on Sun, 2011-03-13 03:37
Age 50 is probably defined by the day before common law rule.
Age 70.5 is defined in Reg. 1.401(a)(9)-2.
Age 59.5 is probably defined in the same manner as age 70.5. If a taxpayer attains age 59.5 on January 1 because his/her birthday is July 1, a distribution on December 31 would be penalized unless an exception applies. A custodian who uses code 7 would be in error.