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8 Income Tax Breaks That Retirees Often Overlook

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How does the adage go? With age comes … new ways to save on taxes.

While you can’t stop filing taxes just because you retire, being a retiree often means you can claim some worthwhile tax credits and deductions.

In some cases, these tax breaks are available to both workers and retirees, so the latter often don’t realize they might be eligible. In other cases, these tax breaks are effectively reserved for older taxpayers, meaning taxpayers may not hear about them until later in life.

Following are several examples of federal income tax breaks that retirees often overlook.

1. Bigger standard deduction

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For seniors who don’t itemize their tax deductions, a higher standard deduction is a free potential reduction in your tax bill.

Taxpayers age 65 or older generally get an increase from the usual standard deduction. For the 2023 tax year — the one for which returns are due by April 2024 — the increase is $1,500 per married person or $1,850 per single person. For the 2024 tax year, the increase is $1,550 or $1,950, respectively.

For two married seniors, for example, that’s an extra $3,000 they get to subtract from their 2023 taxable income — without doing any work or keeping any receipts. What savings that actually translates into will depend on their income, but it means a lower starting figure for Uncle Sam to tax them on.

2. Saver’s credit

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What’s better than a tax deduction? A tax credit! A deduction lowers your taxable income, but a credit reduces your tax bill dollar for dollar.

The saver’s credit (also called the retirement savings contributions credit) isn’t specifically for retirees, so they might easily overlook it. The tax credit is for any eligible taxpayer who is saving money in a retirement account. That means it’s available to retirees who are still able to stash cash in a retirement account — assuming they otherwise qualify for the credit.

So, for as long as you’re contributing to a retirement plan, you should be checking your eligibility for the saver’s credit each year. If you’re eligible, it could reduce your taxes by up to $1,000 — or $2,000 for married taxpayers filing a joint return.

The main eligibility requirement, besides saving money in a retirement account, is having an income below a certain threshold, as we detail in “Few Baby Boomers Know This Retirement Tax Credit Exists.”

3. Health insurance premium deduction

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If you are self-employed, you may be able to deduct your premiums for Medicare or other health insurance plans as a business expense. According to the IRS:

“This is an adjustment to income, rather than an itemized deduction, for premiums you paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for yourself, your spouse, and dependents.”

For example, the Medicare Part B standard monthly premium for 2024 is $174.70 — a potential write-off of $2,096.

4. Contributions to traditional IRAs

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A federal law known as the Secure Act of 2019 repealed the maximum age for contributing to a traditional individual retirement account (IRA).

So, ever since the 2020 tax year, retirees who still are bringing in earned income, such as from a part-time job, can save money in this type of account no matter how old they are — and thus write off that contribution on their taxes.

There is no maximum age for contributing to a Roth IRA, either, although contributions to this type of account are not deductible on your tax return. Instead, you get to withdraw the money tax-free, provided that you otherwise follow the IRS rules for Roth accounts. (With a traditional IRA, withdrawals are considered taxable income.)

To learn how much you can contribute to an IRA, see “IRS Hikes Limits for 6 Types of Retirement Accounts for 2024.”

5. Spousal contributions to traditional IRAs

Happy senior couple
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While you can contribute to an individual retirement account (IRA) only if you have earned income such as wages, that also can be your spouse’s income. This means a working spouse can help a non-working spouse save money in a retirement account.

Spousal contributions to a traditional IRA also qualify you for a tax deduction, assuming you meet eligibility requirements.

6. Qualified charitable distributions

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Generally, taxpayers have to itemize their deductions — as opposed to claiming the standard deduction — if they want credit for donating to charity. And after the enactment of the federal Tax Cuts and Jobs Act of 2017, standard deductions got bigger, meaning fewer people benefit from itemizing.

Some retirees may effectively be able to get around this, however.

After age 70½, you can transfer money from an IRA to a charity without it counting as taxable income for you. The IRS calls it a “qualified charitable distribution,” or QCD.

This isn’t a true tax credit or deduction but still has the effect of lowering your taxable income. And if you make a QCD after you reach your RMD age — which is now age 73 or 75, depending on when you were born — the amount of the QCD counts toward your required minimum distribution (RMD) for the year, the IRS says.

7. Social Security benefits exemption

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At most, Social Security recipients could pay taxes on 85% of their benefits. Anywhere from 15% to 100% is exempt, depending on a person’s combined income. People in these categories are less than 100% exempt:

  • Individuals: Combined income over $25,000
  • Married filing jointly: Combined income over $32,000

Only about 40% of beneficiaries end up paying taxes on Social Security.

8. Contributions to HSAs

Health savings account
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Health savings accounts have numerous tax advantages that make them an incredible way to save for retirement, as we detail in “5 Reasons This Is the Best Type of Retirement Account.” One of those tax advantages is the fact that contributions to HSAs are deductible.

Before you try to take advantage of this tax break, though, note a couple of quirks:

  • HSAs are only available to people enrolled in high-deductible health plans.
  • You generally can’t contribute to an HSA once you start Medicare, lest you face an IRS penalty and higher income taxes.

This effectively means the tax-deduction for HSA contributions is only available to retirees who have high-deductible plans and retired before age 65.

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