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Senior Finances

The 5 Best Tax Breaks for Seniors

Growing old doesn’t have to mean dealing with the onset of aches and pains, gray hair, and wrinkles: It can also mean financial freedom, better judgment, and a more secure sense of self. And when it comes to planning your finances, there are many tax breaks exclusively available to senior citizens (usually classified as those age 65 and older). Seniors may also benefit from other, more age-inclusive tax breaks. Read on to learn more about the five best tax breaks for seniors.

tax breaks for seniors

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Investment Tax Breaks

Even if you didn’t use a broker to manage your investments during your working years, upon retirement you may find yourself generating more investment fees and expenses than usual. Rolling over funds and transferring assets from one retirement account to another (or taking out required minimum distributions) can incur charges, but you’ll be able to deduct the portion of these expenses that exceed 2 percent of your adjusted gross income (AGI). It may make sense to plan your investment expenses for a tax year in which your AGI is expected to be much less than usual, as this will allow you to get the most tax breaks when it comes to calculating the deductible portion of your investment expenses.

Higher Retirement Contribution Limits

Once you hit your 50th birthday, you’re eligible to make “catch-up” retirement contributions. Your annual IRA contribution limit will increase to $6,500 (from $5,500), while your 401(k) or 457 contributions limit will increase to $24,500. Increasing your retirement contributions can be a great way to reduce your taxable income and boost your nest egg.

medical tax breaks for seniors

Healthcare Tax Breaks

The golden years can often lead to higher healthcare spending. Fortunately, seniors dealing with higher-than-usual medical costs can tax breaks for medical expenses that exceed 7.5 percent of their AGI. And for those age 55 and older who have high-deductible health plans (HDHPs) and access to a Health Savings Account, the contribution limits increase to $4,450 for singles and $7,900 for those with family coverage. Increase in the Standard Deduction

The recent tax bill increased the amount of the standard deduction to $12,000 for individuals, $18,000 for heads of household, and $24,000 for couples who utilize the “married filing jointly” status. Married people over age 65 or who are blind or disabled can tack on an additional $1,300 to this total, and single taxpayers over 65 can add $1,600, further reducing the amount of income subject to federal income tax.

Tax-Free Social Security Income

Depending upon the amount of taxable income a senior generates during the 2018 tax year, some (or all) of their Social Security retirement benefits may be tax-free. If the total of all a person’s taxable income plus one-half of their Social Security income is under $25,000 for singles, heads of household, and widows or widowers, their Social Security benefits won’t be taxed. Those who are married and file a joint return won’t need to pay taxes on Social Security income unless their taxable income plus half their Social Security benefits exceeds $32,000. For example; a single retiree who receives pension income of $18,000 per year and Social Security benefits of $12,000 per year will be just under the $25,000 threshold ($18,000 plus half of $12,000) and won’t need to pay federal income taxes on even a dime of their Social Security income.

The taxability of Social Security benefits in combination with a senior’s other taxable income can often drive the decision whether to take a lower amount of Social Security benefits at age 62 or to put off claiming these benefits until age 70.

tax breaks after retirement

It’s always a good idea to do research on other tax breaks available to you!

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    Phil Town is the founder of Rule One Investing, a hedge fund manager, a two-time New York Times best-selling author, an ex-Grand Canyon river guide, and a former lieutenant in the U.S. Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.

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