The information provided in this blog is for general informational purposes only and should not be considered professional financial, legal, or tax advice.
Living on a fixed income in retirement can be challenging, especially when it comes to taxes. But there’s good news! The IRS offers various tax breaks specifically designed to help seniors save money.
Disclaimer: The information on this blog, including any tax information, is for informational purposes only and should not be construed as professional financial or tax advice. Tax laws are complex and constantly changing, and information that may be accurate today could be outdated tomorrow. Always consult with a qualified tax professional before making any decisions about your finances or taxes.
Here are Some Key Tax Strategies for Seniors to Consider:
- Boost Your Standard Deduction:
Reaching age 65 comes with a built-in tax benefit – an increased standard deduction. This means you’ll likely pay less in taxes if you choose the standard deduction instead of itemizing your deductions. The exact increase depends on your filing status and age, but it can be significant, ranging from $1,650 for married taxpayers (per qualifying person), or $2,050 for single or head of household.
- Keep Contributing to IRAs (Indirectly):
Even after retirement, you can still benefit from IRAs. If your spouse is still working, they can contribute up to $7,000 to a Spousal IRA in your name. This allows you to grow your retirement savings and potentially reduce your taxable income in the future.
- Deduct Your Medicare Premiums (if self-employed):
Self-employed retirees can deduct the premiums they pay for Medicare Part B, D, and supplemental plans. This can significantly lower your taxable income, especially if you have high medical costs.
- Qualify for the Tax Credit for Low-Income Older Adults:
This credit is available to low-income seniors who meet specific income and filing status requirements. It can reduce your tax bill or even eliminate it entirely. The IRS website has on eligibility and how to claim this credit.
- Plan Your Tax Payments:
Unlike when you receive regular paychecks with automatic tax withholding, you’re responsible for ensuring the IRS receives its due in retirement. You can either withhold taxes from your retirement income sources (like pensions or IRAs) or make quarterly estimated tax payments. Speak to a tax professional to determine the best approach for your situation. You can also check out Personal Finance Experts Kiplinger’s website for a schedule on when tax payments are due in 2026.
- Avoid the Pension Payout Trap:
When receiving a lump-sum distribution from your retirement plan, be aware of the 20% mandatory withholding for the IRS. To avoid unnecessary upfront taxes, you can request a direct rollover to a new IRA. This allows you to transfer the entire amount without any withholding.
- Strategize Required Minimum Distributions (RMDs):
If you have a traditional IRA, you’ll have to take RMDs starting at age 72. While you need to withdraw these funds, you can delay taking them until December and request your IRA custodian to withhold a sizable portion for estimated taxes. This way, you can keep your money growing in the IRA for most of the year while avoiding underpayment penalties.
- Consider Tax-Free Gifting:
The annual gift tax exclusion allows you to give a specific amount of money to any number of people each year without incurring any gift tax. This can be a terrific way to help your family financially while minimizing your tax burden.
- Explore Tax-Free Profits from Home Sales:
If you’ve owned and lived in your primary residence for at least two of the five years leading up to the sale, you can qualify for tax-free profit up to a certain amount. This benefit can also potentially extend to former vacation homes if you convert them to your primary residence for the required period.
While we hope these tips are helpful, we do also recommend consulting with a tax professional to ensure you’re taking advantage of all the tax benefits available to you and maximizing your retirement savings.
Have more questions about your financial future?
As a benefit to those who are exploring our communities, we partner with a trusted financial partner that will help seniors and their families explore financial questions such as: Long Term Care Insurance, VA Benefits, Reverse Mortgages, Selling a Home, Bridge Loans, Life Insurance and more. Connect with a community near you today, or with ElderLife Financial Services to discuss your questions.
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