Tax Breaks Overlooked by New Retirees
The IRS offers several advantages to newly retired taxpayers. Don't miss out.
So you've put enough aside to enjoy a comfortable retirement. Good for you! But you're not off the hook just yet, at least not if you want to make sure you don't pay more taxes than you need to. Now that you're no longer working, your tax situation is different, too.
Here are three of the most overlooked tax breaks for the newly retired.
Bigger Standard Deduction
When you turn 65, the IRS offers a gift in the form of a bigger standard deduction. For 2015, for example, it's $7,850 for a 65-year-old single, versus the standard deduction of $6,300 for younger singles. The extra $1,550 will make it more likely you’ll take the standard deduction rather than itemizing and, if you do, the additional amount will save you almost $400 if you’re in the 25% tax bracket. Couples in which one or both spouses are age 65 or older also get bigger standard deductions than younger taxpayers.
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Easier Medical Deductions
It also gets easier to deduct medical expenses. Those 65 and older who itemize these get a money-saving deduction to the extent their medical bills exceed 7.5% of adjusted gross income. For younger taxpayers, the income threshold is 10%.
Spousal IRA Contributions
And remember that retirement doesn't necessarily mean an end to the chance to shovel money into an IRA and enjoy the tax breaks that come along with it. If you’re married and your spouse is still working, he or she can contribute up to $6,500 a year to an IRA that you own, assuming you’re at least 50 years old. If you use a traditional IRA, spousal contributions are allowed up to the year you reach age 70 and a half. If you use a Roth IRA, there is no age limit. As long as your spouse has enough earned income to fund the contribution to your account -- and any deposits to his or her own -- this tax shelter’s doors remain open to you.
Check out even more overlooked tax breaks for the newly retired.
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