When you retire or reach a certain age, you may no longer need to do certain things. You may be able to skip the commute or qualify for great discounts. But regardless of your age, you can’t opt ​​out of taxes. It’s important to understand why seniors are still taxed, what taxes seniors pay, and how you can minimize your tax bill. If you need individualized help preparing for retirement or developing a tax strategy, you can rely on a Financial Advisor.
At what age can you stop filing taxes?
Taxes are not determined by age, so you will never age by paying taxes. In short, if you are 65 or older, you can do that too have to file a tax return in 2022 if your gross income is $14,700 or higher. If you are married together and are both 65 or older, that amount is $28,700. If you file jointly and only one of you is 65 or older, that amount is $27,300.
That said, there is one situation where you can kiss taxes goodbye. If your only income is Social Security benefits, you owe no taxes and owe no taxes probably not necessary file a tax return.
Common taxes that seniors pay
If you are 65 years or older, you may also be (partially) retired and receive benefits from your pension savings. Retirement savings and investments can have more complex tax rules than income, often requiring you to have taxes automatically deducted from each paycheck and a W-2 at the end of each year. Here are some of the most common taxes retirees face and how they work.
Social Security Taxes
If you have significant retirement income other than Social Security, you may need to do this pay income tax on your social security benefits. The percentage of your Social Security benefits that are taxable depends on your joint income. Combined income is defined as your adjusted gross income plus non-taxable interest plus half of your Social Security benefits.
If you file taxes separately and your combined income is $25,000-$34,000, you may owe income tax on 50% of your Social Security benefits. If your combined income exceeds $34,000, up to 85% of your benefits may be taxable.
If you file a joint return and you and your spouse’s combined income is $32,000 – $44,000, you may owe income tax on 50% of your Social Security benefits. If that number exceeds $44,000, 85% of your benefits could be taxed.
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Joint retirement accounts
IRAs, 401(k) plans and other popular retirement savings vehicles have different tax treatments. Generally, some are pre-taxed and some are taxed upon withdrawal. For example, IRAs that are funded with money that was already taxed (for example, if you take $1,000 from a paycheck and put it into a Roth IRA) are not taxed when you withdraw that money in retirement, as long as you meet IRS requirements.
On the other hand, 401(k) plans are usually funded with pre-tax money, so you typically owe income taxes on withdrawals in the year you take them.
Pension taxes
Like 401(k) plans, pensions are usually funded with pre-tax money, so you’ll owe federal income taxes on withdrawals in the year you take them. If you choose a lump sum instead of annual or periodic payments, you will owe the total tax bill in the year in which you receive the payment.
In many cases, your employer through whom you receive the pension will withhold taxes when your pension payments are made, which can help reduce the tax bill.
How to Minimize Taxes as a Senior
While seniors can’t avoid taxes entirely, there are several ways you can save on your taxes once you reach a certain age. Here are a few.
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Take advantage of the tax credit for the elderly: The Credit for the elderly and disabled is worth between $3,750 and $7,500. You can use the instrument of the tax authorities to see if you qualify and how much credit you might get. Generally, you must be 65 or older and earn less than $17,500 in adjusted gross income if filing alone or as head of household. This limit increases to $20,000 if you are married filing jointly and only one spouse is 65 or older and $25,000 if you are married filing jointly and both are 65 or older.
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Use your larger standard deduction: If you are 65 years or older and do not itemize the deductions, you are entitled to them a higher standard deduction. A single filer over age 65 gets an additional deduction of $1,750, a married couple filing jointly gets an additional $1,400 for each spouse age 65 or older. So if only one spouse is 65 or older, the additional deduction amount is $1,400, but if both are 65 or older, it is $2,800.
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People aged 50 or older can make a catch-up contribution to their pension account: The 2023 contribution limit for a traditional or Roth IRA is $6,500, up from $6,000 in 2022, but if you’re 50 or older, you’ll get an extra $1,000. The 2023 contribution limit for a 401(k) plan is $22,500, up from $20,500 in 2022, and those age 50 and older will get an additional $7,500, up from $6,500 in 2022. Contributing to a deferred retirement account reduces the amount of income taxes that you have to pay. owe – and ensures that you have a more secure retirement.
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You are not alone: If navigating tax breaks or understanding changing catch-up limits seems overwhelming, you don’t have to go it alone. Take advantage of free tax assistance from the IRS for people aged 60 and over or free AARP tax assistance for people over 50 with a low or middle income.
For help with your retirement and tax goals, contact a financial advisor.
It comes down to
Unless you have no income outside of Social Security benefits, you will likely have to continue filing taxes. The good news is that there are tax breaks and other strategies you can use to keep your tax bill low. You may want to work with a financial advisor to ensure you have a clear tax strategy during your retirement.
Tips to save on taxes during your retirement
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a Financial Advisor can help you draw up a retirement income plan. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool connects you with up to three vetted financial advisors in your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to create a comprehensive retirement plan, start now. You can also read SmartAsset reviews.
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Usage SmartAsset’s pension calculator to ensure you can continue your retirement savings, or find out how to adjust your savings strategy to make your plan work.
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Taxes aren’t the only surprise expense in retirement. Make sure you take your Medicare costs into account as you also plan your retirement income. Check out the SmartAsset Guide to Medicare Part A, Part B, Part C And Part D.
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Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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