Turning 50 opens you up to a new world of tax breaks, and after you turn 65, you can qualify for even more tax advantages. Let’s look at some ways to save money on taxes as you age.
IRA deductions – at age 50 you now qualify for an additional contribution of $1,000 to an IRA, or a total of $6,500 in 2016, helping you save more on your current tax bill.
401(k) catch-up contributions – For those employees over 50 that have a 401(k) plan you can make an additional catch-up contribution up to $6,000, for a total of up to $24,000. These contribution limits change annually to track inflation, check with you tax consultant.
HSA Contributions – at age 55 or older you are allowed to add an extra $1,000 as a catch-up contribution to your HSA account. That’s a total of $4,350 for an individual and $7,750 for a family. If you are married and are both over 55, the other spouse can contribute another $1,000 – but only if they have a separate HSA account.
Profit from Sale of Home – as we age, selling the family home and downsizing is a common practice. As long as you live in your home for at least two out of the five years before you sell, the profit will be tax-free. For single taxpayers, the amount is up to $250,000 and $500,000 for married taxpayers filing jointly.
No More Early Withdrawal Penalties – Once you reach the age of 59 ½ you are no longer required to pay a penalty of 10% on withdrawals; the most owed is regular income tax on the money you take out. Keep in mind withdrawals for a Roth IRA are tax fee.
Greater standard deduction – As long as you do not itemize your tax deductions, you can claim a larger standard deduction. The standard deduction for older taxpayers is $1,250 higher than for those under age 65. If a retiree is unmarried and not a surviving spouse, the standard deduction is $1,550 higher than a younger taxpayer.
Tax-filing – The threshold for people age 65 and older is a gross income of $11,900 or $23,200 for couples both ages 65 or older before they are required to file a tax return. This gives you an additional $1,550 (or $1,250 per spouse) more than a younger worker filing threshold.
Property tax – rules vary by state and local jurisdiction. However, in some places, people who are above a certain age and who have earnings below a particular income level may qualify for property or school tax deferrals or exemptions.
Disabled or Elderly – if you have low income and you or your spouse is 65 or older and disabled, you may be eligible to claim a tax credit. This tax credit may also be available to younger people who are retired and disabled.
So, enjoy the many benefits that come with age and retirement, like traveling, buying a luxury item, or doing things that are a treat – you have earned them at this point in life. And remember, as tax season approaches, be sure and go over all the tax breaks available to you with your certified tax consultant.
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