It’s important to recognize that retirement is a significant milestone in life, and for individuals aged 65 and older, it’s crucial to make the most of available tax breaks to ensure financial stability during this phase. After all, retirees typically rely on their hard-earned savings to cover their expenses after retirement.
Here are some valuable tax-saving opportunities that seniors often overlook.
Extra Standard Deduction for Seniors:
One of the first tax benefits to consider is the extra standard deduction offered by the IRS to individuals aged 65 and older. For instance, if you’re a single taxpayer aged 64, you can claim a standard deduction of $13,850 on your 2024 tax return. However, if you turn 65, your standard deduction increases to $15,700 for that year. This additional deduction can make it more appealing to take the standard deduction rather than itemizing your deductions. If you’re married and at least one spouse is 65 or older, you can enjoy a larger standard deduction as well.
IRA Contributions from a Spouse:
The end of your working years does not mean the end of your ability to contribute to an Individual Retirement Account (IRA). Typically, you need earned income to make IRA contributions, but if you’re married and your spouse is still earning an income, they can contribute up to $6,500 to your IRA on your behalf. This limit increases to $7,000 in 2024. It’s important to note that contribution limits are based on age, so it’s crucial to stay informed.
Deduction for Medicare Premiums:
If you venture into self-employment after retirement, such as working as a consultant, the premiums you pay for Medicare Part B and Part D, as well as supplemental Medicare (Medigap) policies and Medicare Advantage plans, may be deductible. This deduction is available to self-employed retirees regardless of whether they itemize their deductions.
Tax Credit for Low-Income Seniors:
Low-income seniors may be eligible for a tax credit designed specifically for them. To qualify, you must meet certain criteria, including age requirements and income limits. Your tax bill can be reduced if you take advantage of tax credits, but calculating them can be tricky. Thankfully, the IRS offers assistance in calculating the credit amount for eligible individuals.
Timing Tax Payments:
Retirement changes the way taxes are managed. While taxes are typically withheld from paychecks, retirees need to proactively manage their tax payments. Waiting until the following year to pay taxes can result in penalties and interest. Retirees have two options: withholding and quarterly estimated tax payments. Withholding is similar to how taxes are withheld from paychecks and can help spread the tax liability evenly throughout the year. Alternatively, retirees can make quarterly estimated tax payments if their expected tax bill exceeds a certain threshold.
Retirement brings both opportunities and challenges, especially when it comes to managing your taxes. By staying informed about these often-overlooked tax breaks and benefits for seniors aged 65 and older, you can ensure financial security during your golden years and maximize your retirement savings. Don’t forget to consult with a tax professional or financial advisor to navigate your specific tax situation effectively.