IRS tax code offers perks to taxpayers of a certain age.
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If you’re 50 or older, there is one benefit to reaching this milestone that you may be overlooking: tax breaks aimed right at you. Now you can contribute more to your Roth or traditional individual retirement account (IRA), to your employer-sponsored plan or to your health savings account (HSA) than you could when you were younger. You can even exclude more income from your tax computations.
Congress included some of these provisions in the Economic Growth and Tax Relief Reconciliation Act, which took effect in 2002, out of concern that the boomer generation had not saved enough for retirement. Congress included other tax-saving provisions, such as a bigger standard deduction, in the Tax Cut and Jobs Act of 2017.
If you’re behind on your retirement savings, the tax law gives you a chance to catch up. And if you’re in retirement, or near it, the tax code allows you to pay a bit less in taxes. That’s a combination you shouldn’t pass up.
Contribute more to your retirement fund
For 2023, the contribution limit for employees who participate in 401(k) and 403(b) programs, most 457 retirement saving plans and the federal government’s Thrift Savings Plan has been increased to $22,500, from $20,500 in 2022. Employees 50 and older can contribute an additional $7,500 (up from $6500 IN 2022), for a total of $30,000.
The contribution limit for a traditional or Roth IRA is $6,500 for tax year 2023. The catch-up is $1,000, the same as for 2022. It is $3,500 for a Savings Incentive Match Plan for Employees (SIMPLE) plan, up from $3,000 in 2022.
Many folks are missing this opportunity. Despite generous catch-up provisions for those 55 and older, just 16 percent of those who are eligible are making these contributions, according to the Vanguard Group’s “How America Saves 2022” report.
At the same time, data from the National Retirement Risk Index compiled by the Boston College Center for Retirement Research indicates that half of American households won’t be able to afford their current standard of living once their regular paychecks stop. As of June 2020, 50 percent of married retirees were relying on Social Security payments for at least half of their income; for single people, that number was 70 percent. As of November 2022, the average Social Security retirement benefit is estimated at just $1,632 a month.
Those retirement contributions can lower your tax bill
Aside from making your retirement more comfortable, contributing to a tax-deferred retirement plan, such as an IRA or a 401(k), also reduces your taxable income — which, in turn, reduces your income taxes. Thanks to that reduction in taxes, increasing your contribution won’t take as much of a bite from your paycheck as you might think. If you earn $75,000 a year, for example, a 5 percent contribution to your 401(k) would put $144 into your account for each biweekly paycheck. Assuming a 25 percent tax rate, your take-home pay would fall by just $108, according to Fidelity Investments.
Contributions to a traditional IRA are tax-deductible as long as you meet IRS rules, including income limits. IRA contributions are fully deductible if you (and your spouse) aren’t covered by a retirement plan at work. However, the deduction may be limited if you are (or your spouse is) covered by a workplace retirement plan and your income exceeds certain limits. For 2023, IRA deductions for singles covered by a retirement plan at work aren’t allowed after modified adjusted gross income (MAGI) hits $83,000; the deduction disappears for married couples filing jointly when MAGI hits $136,000.
Retirement contributions made to a Roth IRA or Roth 401(k) are done on an after-tax basis: You get no up-front tax break for these contributions, but withdrawals taken from Roths in retirement are tax-free. The pretax money in traditional IRAs and 401(k)s grows tax-free, but you’ll eventually pay taxes when you start making withdrawals in retirement.
Clark Randall, a certified financial planner at Financial Enlightenment in Dallas, encourages his clients to rethink their budgets to increase their regular retirement contributions throughout the year. “Budgeting for this expense is the same as any other. It takes discipline and compromise.”
If you still want to make catch-up contributions to a traditional IRA or Roth IRA for 2022, you have time. The deadline is April 18, the filing date for your tax return, unless you file for an extension. However, 401(k)s, 403(b)s, Thrift Savings Plans and most 457 plans go by the calendar year, so you’ll be investing for 2023 and have until the end of the year to do so.
You can wait until 72 to start your RMDs
Speaking of which, there’s also good news on required minimum distributions (RMDs), the minimum amount you must withdraw from a tax-deferred retirement plan, such as a traditional IRA. (Roth IRAs don’t require distributions while the owner is alive.)
Under rules that kicked in in 2020, you can wait until the year in which you reach age 72 before having to start taking RMDs. (For your first RMD payment, you can wait until April 1 of the following year, but you’ll also have to pay an RMD in December of that year.) Previously, the age was 70.5. If you don’t need the RMD, consider donating it to charity. If you donate your RMD to a qualified charity directly from your retirement account, up to $100,000, you won’t owe income tax on the distribution.
Don’t forget your HSA
If your employer offers a health savings account (HSA), you’ll want to make sure to take full advantage of it. The IRS allows you to deduct your contributions to your retirement account from your gross income, even if you don’t itemize, and those made by your employer are excluded from your gross income, too. Any earnings are tax-free. Your distributions aren’t taxed, provided you use them for qualified medical expenses, of which there are many — from ambulance rides to X-rays. Plus, the account is yours: You can take it with you to a new job and use the funds in retirement.
For 2023, you can contribute up to $3,850 if you have coverage for yourself or up to $7,500 for family coverage. The catch-up is an additional $1,000 if you reach 55 during the year. However, your contribution limit is reduced by any amount your employer contributed that has been excluded from your income.
You get a bigger standard deduction at 65
The standard deduction, which reduces your taxable income and, in turn, lowers your tax bill, gets better with age. In 2023, when you fill out your federal income tax forms for income earned in 2022, married couples will get a standard deduction of $25,900. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950.
If you are 65 or older and file as a single taxpayer, you get an extra $1,750 deduction for tax year 2022. Married and filing jointly? The extra standard deduction is less per person if only one person is 65 or older — $1,400 for the tax year. If both are 65 or older, the standard deduction increases by $2,800. For taxpayers who are both 65-plus and blind, the extra deduction is doubled.
The only drawback for some taxpayers with the higher standard deduction is that it sets a very high bar for itemizing deductions. It doesn’t make sense to itemize if your deductions aren’t higher than the standard deduction. Nevertheless, a deduction is a deduction, and getting a larger standard deduction is something to cheer about.
Bonus: If you’re 65 and up and have a straightforward return, you might be able to use the new simplified Form 1040-SR for seniors. It has larger type for those who still file taxes by paper, there are places to enter such things as Social Security benefits and retirement distributions, and there’s a handy chart that shows the bigger standard deductions.
Your $600 charitable deduction is gone
Because the standard deduction is so high, many people are no longer able to itemize their deductions. (It makes no sense to itemize if you get a bigger bang for your buck from the standard deduction.) For tax year 2021, however, a person filing a single return could take a $300 deduction for cash gifts to qualified charities. Those filing jointly could take $600. You could take this deduction if you took the standard deduction but not if you itemized.
Alas, those days are gone. The $600 charitable deduction isn’t available for 2022.
**Content published with permission from AARP and originally published onAARP.com.
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FAQs
Do seniors still get an extra tax deduction? ›
Increased Standard Deduction
When you're over 65, the standard deduction increases. The specific amount depends on your filing status and changes each year. The standard deduction for seniors this year is actually the 2022 amount, filed by April 2023.
2023 Standard Deduction
Taxpayers who are at least 65 years old or blind can claim an additional standard deduction of $1,500 is allowed for 2023 ($1,850 if you're claiming the single or head of household filing status).
For retirees 65 and older, here's when you can stop filing taxes: Single retirees who earn less than $14,250. Married retirees filing jointly, who earn less than $26,450 if one spouse is 65 or older or who earn less than $27,800 if both spouses are age 65 or older.
What is the holy grail of tax benefits? ›Business Mileage – The Holy Grail of Tax Deductions.
At what age is Social Security no longer taxed? ›Social Security benefits may or may not be taxed after 62, depending in large part on other income earned. Those only receiving Social Security benefits do not have to pay federal income taxes.
What is the new tax return for seniors? ›What Is the Additional Standard Deduction for Seniors? For the 2022 tax year (filed in 2023), taxpayers age 65 and older can take an additional standard deduction of $1,750 for single or head of household, or $1,400 for married filing jointly or qualifying widow(er).
What is the max Social Security tax deduction for 2023? ›We call this annual limit the contribution and benefit base. This amount is also commonly referred to as the taxable maximum. For earnings in 2023, this base is $160,200. The OASDI tax rate for wages paid in 2023 is set by statute at 6.2 percent for employees and employers, each.
Is there a limit on itemized deductions for 2023? ›For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
What is the extra standard deduction for seniors over 65? ›If you are age 65 or older, your standard deduction increases by $1,700 if you file as single or head of household. If you are legally blind, your standard deduction increases by $1,700 as well. If you are married filing jointly and you OR your spouse is 65 or older, your standard deduction increases by $1,350.
How do I get the $16728 Social Security bonus? ›To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.
What changes are coming to Social Security in 2023? ›
The most impactful change in 2023 is the 8.7% cost of living adjustment, or COLA, which takes effect this month. For instance, if you receive $2,000 a month from Social Security, the monthly payout will rise to $2,174 per month.
At what age do seniors stop paying property taxes in Arizona? ›Age: At least one property owner must be the minimum qualifying age of 65 at the time of application. Residence: The property must be the owner(s) primary residence.
Which disciple of Jesus was a tax? ›Matthew was a publican, or tax collector, before he was called as one of the Lord's Apostles. Because of that profession, we can guess that he was well educated and knew how to read and write, probably in several languages, including Greek. He also knew arithmetic.
What were tax collectors called in Jesus time? ›Tax collectors, also known as publicans, are mentioned many times in the Bible (mainly in the New Testament). They were reviled by the Jews of Jesus' day because of their perceived greed and collaboration with the Roman occupiers.
What did Jesus do to the tax collectors? ›Narrative. While Jesus was having dinner at Matthew's house, many tax collectors and sinners came and ate with him and his disciples. When the Pharisees saw this, they asked his disciples, “Why does your teacher eat with tax collectors and sinners?”
At what age do you get 100 of your Social Security benefits? ›If you start receiving benefits at age 66 you get 100 percent of your monthly benefit. If you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase.
Does a 75 year old have to file taxes? ›In short, senior citizens are largely subject to the same tax requirements as other adults. There is no age at which you no longer have to submit a tax return and most senior citizens do need to file taxes every year. However if Social Security is your only form of income then it is not taxable.
What is the Social Security 5 year rule? ›You must have worked and paid Social Security taxes in five of the last 10 years. • If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.
Can I get a tax refund if my only income is Social Security? ›You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.
How much of Social Security is taxable? ›between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. more than $34,000, up to 85 percent of your benefits may be taxable.
How can I reduce my retirement taxes? ›
- Contribute to a 401(k).
- Contribute to a Roth 401(k).
- Contribute to an IRA.
- Contribute to a Roth IRA.
- Make catch-up contributions.
- Take advantage of the saver's credit.
- Avoid the early withdrawal penalty.
- Remember required minimum distributions.
The ideal way to keep your Social Security benefits free from income tax is to make sure your total combined income is less than the threshold to pay tax. You can also reduce the tax burden by optimizing the savings in your retirement accounts and the order in which you tap them for income.
How much do you pay into Social Security in a lifetime? ›Let's keep the first one simple: A single person who made the average wage (about $47,800 in 2015 dollars) and retired in 2015 would have paid about $272,000 into Social Security and would receive about $294,000 in lifetime benefits.
What is the maximum amount of Social Security? ›In 2023, the average senior on Social Security collects $1,827 a month. But you may be eligible for a lot more money than that. In fact, some seniors this year are looking at a monthly benefit of $4,555, which is the maximum Social Security will pay. Here's how to score a benefit that high.
What is the new tax proposal for 2023? ›Biden's 2023 federal budget plan proposed a 20% levy on households with the same level of wealth, applying to “total income,” including regular earnings and so-called unrealized gains. Senate Democrats pushed for a similar tax in October 2021 to help pay for their domestic spending agenda.
Can I deduct medical on my 2023 taxes? ›Medical expense deduction 2022
For tax returns filed in 2023, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2022 adjusted gross income.
- Make 401(k) and HSA Contributions. ...
- Make Charitable Donations. ...
- Postpone Your Income. ...
- Pay for Your Business Expenses Early. ...
- Consider Your Losing Investments. ...
- Don't Forget About Office Expenses. ...
- Consult a Tax Professional.
You report the taxable portion of your social security benefits on line 6b of Form 1040 or Form 1040-SR. Your benefits may be taxable if the total of (1) one-half of your benefits, plus (2) all of your other income, including tax-exempt interest, is greater than the base amount for your filing status.
Is Social Security taxed after age 70? ›Are Social Security benefits taxable regardless of age? Yes. The rules for taxing benefits do not change as a person gets older.
What are the odds of being audited by the IRS? ›Odds of being audited by the IRS
Last year, 3.8 out of every 1,000 returns, or 0.38%, were audited by the IRS, according to a recent report using IRS data from Syracuse University's Transactional Records Access Clearinghouse.
Who gets the $1657 from Social Security? ›
The checks worth $1,657 are only for Social Security recipients, not the general public. The Sun newspaper mentions that later in its story but not in the misleading headline.
What is the Social Security bonus trick? ›Social Security doesn't randomly award money to people. And there's no way to legally trick Social Security into giving you more money. Instead, Social Security benefits are paid out according to a specific formula used by the Social Security Administration, which is based on your lifetime earnings.
What is the Social Security loophole? ›The Restricted Application Loophole
Every year you delay, your monthly retirement benefit increases (until age 70). One Social Security loophole allowed married individuals to begin receiving a spousal benefit at full retirement age, while letting their own retirement benefit grow.
Social Security recipients will be getting much bigger payments in 2023 thanks to an 8.7% cost-of-living adjustment that will boost the average check by more than $140 a month. But if you heard that an extra $200 will be tacked on top of that this year, you heard wrong.
What are the 3 biggest Social Security changes in 2023? ›- Cost of living adjustment (COLA) rises. ...
- Maximum taxable earnings going up. ...
- Maximum Social Security benefit also set to increase. ...
- Average benefit for spouses and disabled workers is increasing, too. ...
- Social Security adjusts earnings test exempt amounts.
The Social Security COLA for 2024 is projected to be 3% — and likely less — says Mary Johnson, a Social Security policy analyst at The Senior Citizens League.
Do seniors get a tax break in Arizona? ›Are Seniors in Arizona entitled to some property tax relief? Yes. The relief comes in several forms. First, there is an exemption for widows, widowers and totally disabled persons.
What is the senior freeze in Arizona? ›The Senior Valuation Protection Option freezes the property valuation of residential homeowners who are 65 years of age or older if they meet specific qualifications and make application to the County Assessor. The valuation freeze is for three years and may be renewed at the end of the third year.
Who is eligible for property tax reduction in Arizona? ›Arizona provides property tax exemptions, in varying dollar amounts, to qualifying disabled persons and widows/widowers, whose spouses passed away while residing in Arizona. Anyone with questions regarding deadlines and criteria for property tax exemptions may phone contact the Assessor's Office.
How do I get a $10000 tax refund 2023? ›- Select the right filing status.
- Don't overlook dependent care expenses.
- Itemize deductions when possible.
- Contribute to a traditional IRA.
- Max out contributions to a health savings account.
- Claim a credit for energy-efficient home improvements.
- Consult with a new accountant.
What medical expenses are tax deductible for seniors? ›
Medical expenses that are tax-deductible include:
Items such as false teeth, eyeglasses, hearing aids, artificial limbs, and wheelchairs. Hospital service fees such as lab work, therapy, nursing services, and surgery. Medical services fees from doctors, dentists, surgeons, and specialists.
The OASDI tax rate for wages paid in 2023 is set by statute at 6.2 percent for employees and employers, each.
Who gives the biggest tax refund? ›| Rank | State | Average refund for tax year 2020 |
|---|---|---|
| 1 | Wyoming | $4,877 |
| 2 | District of Columbia | $4,462 |
| 3 | Florida | $4,337 |
| 4 | Texas | $4,317 |
- Try itemizing your deductions.
- Double check your filing status.
- Make a retirement contribution.
- Claim tax credits.
- Contribute to your health savings account.
- Work with a tax professional.
The IRS allows you to deduct unreimbursed expenses for preventative care, treatment, surgeries, and dental and vision care as qualifying medical expenses.
Are eyeglasses tax deductible? ›The bottom line. You can deduct the costs for prescription eyeglasses and eye exams on your tax return. But they must be a part of your itemized medical deductions, which need to exceed 7.5% of your adjusted gross income.
Are car insurance tax deductible? ›Car insurance is tax deductible as part of a list of expenses for certain individuals. Generally, people who are self-employed can deduct car insurance, but there are a few other specific individuals for whom car insurance is tax deductible, such as for armed forces reservists or qualified performing artists.