Aug 2, 2022

The 7 Most Popular Tax Benefits for Seniors

Manny Cominsky

There are many things that you can do to make make sure that you have an affordable retirement, like downsizing your home or moving to a low cost of living state. Yet another way to make sure that your retirement dollar stretches as far as possible is to take advantage of all of the tax benefits available to older adults. These benefits, which are offered at both the state and federal levels and become available at different ages, can be very significant and save seniors thousands of dollars each year. While you should consult a tax or financial professional before making any important financial planning decisions, these popular tax breaks are an important starting point for thinking about how best to maximize your retirement savings.

Increased standard deduction

One of the most popular tax benefits for older adults is the increased standard deduction for those over the age of 65. The standard deduction is the amount that you can deduct from your income for the purposes of calculating your final tax liability if you choose not to itemize your deductions. In 2022, for example, the standard deduction is $12,950 for single taxpayers below the age of 65, but is $14,700 for those 65 and older. This means that single taxpayers aged 65 and above get to deduct an additional $1,750 from their income should they choose the standard deduction. Depending on what income tax bracket you ultimately fall into, the increased standard deduction can end up saving seniors hundreds of dollars each year on taxes.

Higher spousal contribution limits

Another popular tax benefit for older adults is the increased spousal contribution limits to IRAs for married individuals over the age of 50. Spousal contribution rules allow spouses who do not work to contribute to personal IRA or Roth IRA accounts provided that they jointly file their tax return with their working spouse. Importantly, these accounts are not co-owned and are held in each spouse’s individual name regardless of who funds the account. The contribution limit to spousal IRA’s is the same as for traditional IRA’s, which in 2022 is $6,000 for individuals below 50 and $7,000 for individuals aged 50 and above. Therefore, a couple where only one spouse is over 50 can contribute $13,000 per year, while a couple where both spouses are over 50 can contribute $14,000 each year. Finally, spousal IRAs follow the same tax deduction rules as other IRAs. 

Higher spousal contribution limits can help some married couples save even more for retirement each year as they age.

Special tax credit for low-income seniors

One often overlooked tax benefit that is available to some older adults is the special tax credit for low-income seniors, which is available to qualified individuals who pass two income tests. Qualified individuals are defined as people who, at the end of the relevant tax year, are either above the age of 65, or under the age of 65 but who have retired due to permanent and total disability and are receiving taxable disability income. The income tests determine whether you qualify as low income, and are based on both your adjusted gross income as well as your non-taxable Social Security, pension, annuity and disability income. While eligibility will change based on each individual's filing and financial status, the credit can generally be thought to help those making under roughly $25,000 a year. Because the calculations to determine whether you are eligible for the credit can be complicated, the IRS provides a helpful free tool for determining whether you apply for this credit.

Deducting Medicare premiums

If you are over 65 but still working and self-employed, then you may be able to deduct some of your Medicare expenses such as your premiums or the cost of supplemental Medicare coverage. This tax benefit is often very popular as many seniors choose to continue working part time in some capacity even after they’ve formally considered themselves retired. In fact, adults aged 65 and over have the highest rate of self-employment in the country. One thing to keep in mind, however, is that this deduction is not available in two rather common scenarios: where you are eligible for coverage by an employer-subsidized health plan that is offered by either your or your spouse’s employer. 

HSA catch-up contributions

There are also savings for older adults related to HSAs. An HSA is a type of savings account that allows you to save money on a pre-tax basis to pay for qualified medical expenses. Like IRA accounts, HSA accounts also allow for greater contribution limits for older adults, meaning that older adults can contribute more on a pre-tax basis to their HSA than younger individuals. Specifically, for tax years 2022 and 2023 the contribution limit is $3,650 for an individual and $7,300 for a family under the age of 55, but those limits are both $1,000 higher for individuals over the age of 55.

Charitable donations

Another great tax benefit for seniors is the “qualified charitable distribution”, which is a tax-friendly way to make charitable donations once you’ve reached the age of 70 ½. A qualified charitable distribution allows you to make a transfer of up to $100,000 per year directly from your IRA to a charity. Importantly, not only is the transfer excluded from taxable income, but it also counts towards your minimum distribution requirement. This allows you to make charitable donations in an easy and tax efficient manner. 

State homestead exemptions

Another valuable and popular source of tax savings for retirees and older adults comes from individual states’ homestead exemptions. In Georgia, for example, the state homestead exemption provides that every Georgia homeowner regardless of age who uses the home as their primary residence is allowed to exempt the first $2,000 from the 40% assessed value from property taxes. But this exemption can be even more valuable for seniors in Georgia, as some may also qualify for a double homestead exemption. Relatedly, in nearby Alabama, some seniors are eligible to be exempt from 100% of property taxes under the state’s homestead exemption. Wherever you choose to retire, make sure to confirm whether the state has a homestead tax exemption, and if it does, if it has any particular benefits for seniors, as these could save you a substantial amount each year in taxes.

Make sure to confirm whether your state has a homestead tax exemption, and if it does, if it has any particular benefits for seniors.

Before making any big decisions about your taxes or any other important personal financial matters, be sure to consult an accountant or other financial professional. To learn more relocation or other solutions that can help you save money in retirement, reach out to us at info@sunboundhomes.com or check out our services page to learn about all the ways in which Sunbound can help you have your easiest move yet.

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