Tax Breaks for Seniors

So after age 50 and especially after age 65, you may be able to qualify for some additional tax breaks. So let’s walk through some of those. There’s especially the bigger standard deduction after you reach age 65. So in 2022, that was an additional $1,400 each or $2,800 for a married couple. If you have a lower income, there may some different tax credits available for you, if you’re under probably approximately $25K for a married household. And at age 50, you can start contributing an additional $1K into your IRA or Roth IRA, for a total of $7K in 2022. Meanwhile, you have 401K, 403B, 457. You have what’s called “catch up contributions.” Where you can do an additional $6,500, ultimately to max out at $27K per year in 2022. Another key area, key age is age 59.5 where the 10% early withdrawal penalty for taking withdrawals out of your IRA or other qualified plans goes away. So again, that key age for you is 59.5 where that opens things up. Meanwhile, one thing to be aware of is it doesn’t prevent you from converting from IRA to Roth prior to 59.5. But you’d want to be careful of how you are paying the taxes for that Roth conversion. So you’d want to talk to a professional about that. If you leave your job at age 55 or older and you still have a 401K plan with that employer, it does open up opportunities where you can start taking withdrawals from that plan without penalties. Another is qualified charitable distributions. So beginning at age 70.5 you have the ability to give any amount, up to $100K from your IRA and there’s no tax implications. So if you’re already, say receive the standard deduction and not getting a write off for any charitable distributions that you’re doing, a smart way to consider is maybe taking that money from your traditional IRA or taxable dollars and gifting that which is then a non-taxable event for you as well as a non-taxable event for that church of charity that’s receiving those funds. Another piece is at age 55 and above, you can increase your HSA or Health Savings Account contributions by $1K, up to $4,650 in 2022 which would then allow you some future tax-free distributions from the Health Savings Account down the road. So again, there’s a lot of different tax breaks and things that you want to be made aware of. And I’m curious if you know of all of those different advantages? If not, you’re welcome to give us a call here at Centennial Wealth Advisory.