While you spent your entire life planning for retirement, there is still more financial planning to take care of. Just because you are no longer working, does not mean that you do not owe taxes still. To keep more of the money, you saved your entire life for, take advantage of these overlooked tax deductions in retirement.
Taking the larger standard deduction
At the age of 65, your standard tax deduction is increased. In 2021, the standard deduction for a single 65-year-old is $14,250, about $1,700 more than people younger than 65. For married couples where one person is 65 or older, the increase is $1,350. If both spouses are over 65, the increase is $2,700. Do not forget about this deduction for when you turn 65!
If you remain self-employed after you leave your regular job, you are able to deduct the premiums you pay for Medicare part B and part D. You are also able to deduct the cost of supplemental Medicare policies or the cost of the Medicare Advantage plan. You can take the deduction whether you itemize your return or not. The deduction is also not subject to the 7.5% of AGI test that is normally applied to itemized medical expenses.
Donate to Charity
At the age of 70 and ½, you can make a qualified charitable distribution, which is a tax friendly way to donate to charity without having to itemize. You can transfer up to $100,000 each year from a traditional IRA directly to a charity. This transfer is excluded from taxable income and goes towards your required minimum distribution.
Give Money to Family
If you are worried about the estate tax plaguing your beneficiaries when you are gone, take advantage of the annual gift tax exclusion. You are allowed to give up to $15,000 a year to any amount of people without the gift tax. For example, if you have 4 kids, you could give each of them $15,000 a year for a total of $60,000 in tax-free gifts.
Wait until December for your distribution
Once you can access your traditional IRAs, you must meet the required minimum distribution. If you do not need the distribution to live off of during the year, you can wait until December to take the distribution. You can also ask the holder of your IRA to keep a certain percentage of it to pay for your tax bill. This way you can keep your cash in its tax shelter and avoid the underpayment penalty.
Want to keep more of your saved retirement money? Take advantage of the overlooked tax deductions in retirement. If you want to maximize your tax savings, give us a call at Mooney Lyons. We are here to help you keep more money in your pocket.