One of the perks of growing older is more tax breaks, especially after the ages of 50 and 65. By making the most of available tax deductions for seniors and retirees, you can drastically reduce your income taxes and boost your retirement savings.
Let’s look at the top 15 tax breaks you can enjoy as a senior:
- Catch-Up Contributions – As an employee over the age of 50, you can contribute up to $24,000 to your 401k. This lets you defer taxes on an extra $6,000 than you could earlier, paying income tax only on withdrawals.
- Larger IRA Deductions – In 2017, you can contribute $1000 more to your IRA if you’re aged 50 or up, for a total of $6,500. This allows you to save up to $250 more on your tax bill than you could before the age of 50.
- Higher Standard Deductions – You can claim larger standard deductions if you turn 65 by December 31st of the tax year and your deductions aren’t itemized. This also applies if you’re blind, or if you’re filing jointly and your spouse is 65 or older.
- No Early Withdrawal Penalty – After the age of 59½, you can withdraw IRA funds without the 10% penalty. You can also begin penalty-free 401k distributions from your most recent employer’s plan if you retire after 55.
- Higher Tax-Filing Threshold – After 65, your tax-filing threshold is significantly higher than for younger workers. You can file tax returns when your gross income crosses $11,900, or $23,200 if you’re filing with a spouse also aged 65 or older.
- Bigger HSA Contributions – With a health savings account, you can enjoy tax-free distributions for qualifying medical expenses. If you’re 55 or older at the end of the tax year, you can contribute $1,000 more to an HSA for a total of $4,400.
- Property Tax Breaks – As a senior, you may qualify for certain property tax exemptions or deferrals if your income is under a specific limit. These tax breaks depend on local and state jurisdiction, but it’s worth checking if you qualify!
- Elderly/Disabled Tax Credit – You could be eligible for additional credit if you file using form 1040 or 1040A, have a low income, and you or your spouse are over 65. Younger retirees who are disabled may also qualify.
- Contributions to Charity – After retirement, certain charitable contributions qualify as itemized deductions, including up to half of your AGI in cash contributions every year. For property, the fair market value may be deductible.
- Taxes on Minimum Distributions – Traditional retirement accounts require you to make withdrawals after the age of 70½, and pay income tax on them. If you don’t need the money, you can transfer up to $100,000 tax-free to a qualified charity.
- Profits from Selling Property – If you’re retired and selling a home you’ve lived in for at least 2 out of 5 years before the sale, up to $250,000 of the profit is tax-free for single taxpayers and $500,000 if you’re married and filing jointly.
- Health Care Deductions – After 65, certain medical and dental expenses as well as LTC, health insurance and Medicare premiums that exceed 7.5% of your AGI (adjusted gross income) are tax-deductible, compared to 10% before retirement.
- Business Expenses – If you work part-time as a consultant, start a business or already own one as a retiree, you may qualify for additional tax deductions. Business travel costs, equipment and home/outside offices may be deductible.
- Investment Expenses – Investment or accounting fees and services that cost more than 2% of your AGI may be tax-deductible. Income taxes are also lower on capital gains, dividends and interest from investments.
- Free Tax Advice – If you’re aged 60 or older, you can get free assistance with tax return preparation and filing from IRS-certified volunteers, through the Tax Counseling for the Elderly program.
Whether you’re already retired, nearing retirement or still years from it, proper financial planning is crucial. Consult a personal finance advisor to create a strategy that covers your present and future needs, and put away as much as you can for tomorrow, today!
Author Bio:
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments.
Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as MoneyForLunch, Biggerpocket, SocialMediaToday, WealthManagement, SeekingAplha, and NuWireInvestor.
Photo courtesy of  Ambro @ freedigitalphotos.net