Did you know your age can affect how much you pay in taxes? It’s true! Several tax benefits and rules depend on how old you are. For example, reaching a certain age might allow you to deduct more money from your taxes for long-term care insurance premiums. In other cases, your age might determine when you have to start following specific tax rules, such as taking money out of your retirement accounts.
Knowing these age-related tax breaks and rules can be a big help when planning for your taxes. This knowledge can potentially save you money before you retire and during your retirement years.
This blog post will get you started by exploring six tax breaks that change as you age. We’ll also tell you the ages at which you might become eligible for these benefits. Remember, this information is for general knowledge only. If you’re unsure whether a specific credit, deduction, or tax rule applies to you, always consult with our tax professional and financial advisor.
Saving More for Retirement: Catch-Up Contribution Limits for People 50 and Over
The good news is that if you’re 50 or older, you can sock away more money for retirement thanks to something called catch-up contributions. These allow you to contribute extra money beyond the standard limits to retirement accounts like IRAs and 401(k)s.
Here’s a breakdown of the extra savings you can qualify for:
a. IRAs
For IRAs, the annual contribution limit for everyone in 2024 is $7,000, but if you’re 50 or older, you can add an extra $1,000 on top of that, bringing your total possible contribution to $8,000 per year.
b. 401(k)s and Other Employer-Sponsored Plans
Similar catch-up provisions apply to 401(k) plans, 403(b) plans, and most 457 plans, as well as the federal government’s Thrift Savings Plan. The standard contribution limit for these plans in 2024 is $23,000, but if you’re 50 or older, you can contribute an additional $7,500 each year. That means you could potentially sock away up to $30,500 annually in these plans.
c. SIMPLE IRAs
There’s also a catch-up option for SIMPLE IRAs if that’s your retirement savings vehicle of choice. If you’re 50 or older and contribute to a SIMPLE IRA, you can make catch-up contributions of up to $3,500 in 2024.
Important Note for High Earners: There’s a new rule under the SECURE 2.0 Act that applies to catch-up contributions for high earners. If you’re 50 or older and earned $145,000 or more in the previous year, your future catch-up contributions to your employer-sponsored 401(k) will need to be made on a Roth basis, using after-tax dollars, starting in 2026. This means you won’t get a tax deduction upfront on those contributions, but the benefit is that you’ll be able to withdraw the money tax-free in retirement. This Roth catch-up contribution rule won’t affect those making $144,999 or less in a tax year.
d. HSAs for Ages 55 and Over:
Finally, if you’re using a Health Savings Account (HSA) to save for healthcare expenses, there’s a catch-up provision for you too! If you’re 55 or older by the end of the tax year, you can increase your annual HSA contribution by up to $1,000. The IRS recently announced record-high HSA contribution limits for 2024, with individuals able to contribute up to $4,150 and families able to contribute up to $8,300.
Accessing Your Retirement Savings: Understanding Early Withdrawal Rules
The good news is, that reaching age 59½ unlocks greater flexibility in accessing your retirement savings from traditional IRAs and 401(k)s. You can now make penalty-free withdrawals, avoiding the 10% tax bite that typically applies to early withdrawals made before this age. This allows you to tap into your retirement nest egg for unexpected expenses or financial needs without facing a tax penalty.
For Roth IRAs, the rules are even more generous. Contributions to Roth IRAs are made with after-tax dollars, meaning you’ve already paid taxes on them. So, qualified distributions from a Roth IRA, which means you’ve had the account for at least five years and are 59½ or older, are completely tax-free. This can be a significant advantage if you’re looking to access your retirement savings without incurring additional tax burdens.
There’s also some good news for those aged 65 and over who have Health Savings Accounts (HSAs). If you use your HSA funds for non-medical expenses after reaching age 65, you won’t face the additional 20% tax penalty. However, it’s important to note that you will still owe ordinary income tax on those withdrawals, just like with any other taxable income. But, if you use your HSA funds for qualified medical expenses, they remain tax-free regardless of your age.
Free Tax Help for Seniors and Beyond
If you’re 60 or older, the IRS has a program specifically designed to help you with your taxes: the Tax Counseling for the Elderly (TCE) program. This program partners with the AARP Foundation’s Tax-Aide program to provide free tax assistance to seniors. TCE volunteers are IRS-certified and specially trained in the unique tax issues faced by older adults, such as pensions and retirement income.
Finding a TCE site near you is easy. The IRS has an online lookup tool that can help you locate a qualified TCE provider in your area.
It’s important to note that TCE isn’t the only option for free tax filing. The IRS offers other free tax filing resources as well. We’ll explore those options in more detail in the following section.
Good News for Taxpayers 65 and Older: Bigger Standard Deduction
Turning 65 comes with many benefits, and reducing your tax bill is definitely one of them! The IRS offers a special standard deduction for taxpayers 65 and older, on top of the regular deduction everyone gets. This means you get to deduct more money from your taxable income, potentially lowering your overall tax burden and keeping more of your hard-earned cash.
Here’s how much extra you can deduct:
- Single or Head of Household: If you file your taxes as single or head of household and are 65 or older, you get an additional standard deduction of $1,850 (for tax year 2023).
- Married Filing Jointly or Separately: If you’re married and filing jointly or separately, and either you or your spouse is 65 or older, you get an additional standard deduction of $1,500 per qualifying individual (for tax year 2023)
If you are 65 or older and blind, the standard deduction gets an even bigger bump:
- Single or Head of Household: If you’re single or head of household, you get an additional standard deduction of $3,700 (for tax year 2023).
- Married Filing Jointly or Separately: If you’re married and filing jointly or separately, and either you or your spouse is 65 or older and blind, you get an additional standard deduction of $3,000 per qualifying individual (for tax year 2023).
Looking Ahead to 2024?
The exact amounts for the additional standard deduction may change slightly for tax year 2024 (tax returns filed in 2025). For the latest details, you can refer to a resource like Kiplinger’s report: “The Extra Standard Deduction for 65 and Older.”
Reduce Your Taxes While Supporting Charities with Qualified Charitable Distributions (QCDs)
Did you know that if you are 70½ years old or older, you can donate directly to qualified charities from your IRA and potentially lower your tax bill? This is possible through a program called a Qualified Charitable Distribution (QCD).
Here’s how it works:
a. Reduce your tax bill: Unlike regular withdrawals from your IRA, QCDs are not taxed as income. This means you can donate up to $105,000 in 2024 (or $100,000 for 2023) and lower your taxable income.
b. Fulfills RMD requirements: Once you reach 73 (thanks to the SECURE 2.0 Act), the IRS requires you to take minimum withdrawals from your retirement accounts (except Roth IRAs) each year. A QCD counts towards this requirement, so you can satisfy your RMD while also supporting worthy causes.
c. No need to itemize: Even if you claim the standard deduction on your tax return, you can still benefit from a QCD. The donated amount isn’t counted as a charitable deduction, but the tax savings from the reduced income can be significant.
There are a few limitations to keep in mind:
a. The contribution limit: The annual limit for QCDs is $105,000 for individuals and $210,000 for married couples filing jointly in 2024. These limits were $100,000 and $200,000 respectively for tax year 2023.
b. Direct donations only: To qualify for a QCD, the money must be donated directly to a qualified charity from your IRA custodian.
Overall, QCDs offer a valuable tool for retirees who want to support their favorite charities and minimize their tax liability. If you’re over 70½, consider speaking with your financial advisor to see if a QCD strategy is right for you.
Property Tax Relief for Older Adults
Property taxes can be a significant expense, especially for older adults on fixed incomes. But wait, many states offer property tax relief programs specifically designed to help seniors stay in their homes.
These programs come in different forms, but they all share the same goal: to ease the financial burden of property taxes. While some states offer these breaks to homeowners 65 and older, others extend them to qualifying individuals under 65 as well.
The exact benefits and eligibility requirements vary depending on your location. Some programs offer exemptions that reduce the amount of your property tax bill, while others provide credits that lower your overall tax liability. In some cases, disability status might also be a factor in determining eligibility.
Bottom Line
The bottom line is, there’s a good chance there’s help available. Don’t wait, take the initiative to find out if you qualify. The next steps are simple: visit your state’s government website or contact your state Department of Revenue. They’ll be happy to guide you through the process and answer any questions you might have about available tax credits specifically for housing, real estate, and property taxes. By taking advantage of these programs, you can free up valuable resources and ensure you can stay comfortably in your home for years to come.
