Top 5 Tax Breaks for Retirees in 2024:
The Top 5 Tax Breaks for Retirees in 2024:
As we (once again!) enter tax season, it’s a good idea to review the most common tax breaks that might be approprite for you to use this year. If you aren’t sure how to take advantage of any of these, let’s talk!
Increased Standard Deduction: Retirees often benefit from the higher standard deduction compared to itemizing deductions. For 2024, the standard deduction for individuals (single or married filing separately) is $13,850, and for married couples filing jointly it's $27,700. This effectively reduces your taxable income without needing to track numerous expenses. Your CPA may recommend that you “stack” expenses in one year (e.g. prepay 2 years worth of charitable deductions) and take the standard deduction in other years.
Qualified Charitable Distributions (QCDs): If you're 70½ or older, you can donate directly from your IRA to qualified charities without paying income tax on the withdrawn amount. This can lower your taxable income and fulfill your charitable goals. Remember, QCDs only count towards your required minimum distribution (RMD). But this strategy can effectively make your RMD tax-free.
Social Security Tax Benefits: Depending on your income and filing status, a portion of your Social Security benefits may be taxable. However, many retirees fall below the income thresholds for taxation, making their benefits entirely tax-free. Additionally, if you delay claiming Social Security until age 70, your monthly benefit amount increases, potentially pushing you further into the tax-free zone.
Medical and Dental Expense Deductions: Retirees often face higher healthcare costs. You can deduct eligible medical and dental expenses exceeding 7.5% of your adjusted gross income (AGI). This includes expenses like Medicare premiums, prescription drugs, doctor visits, and certain medical equipment.
Roth IRA Conversions: It might make sense to convert some or all of your IRA to a Roth IRA. While this won’t save you taxes this year, it could result in big savings in future years. Roth IRAs are not subject to RMDs, withdrawals are almost always tax-free, and your tax will be paid based on today’s historically low rate, which means if taxes go up, you don’t pay more.
Retirement Account Tax Advantages: Traditional IRAs offer tax-deferred growth on contributions, meaning you pay taxes on withdrawals later in retirement. Roth IRAs allow you to contribute with after-tax dollars, but qualified withdrawals in retirement are tax-free. Depending on your income and future tax projections, choosing the right type of retirement account can significantly impact your tax burden.
Bonus Tip: Consider consulting a tax professional to analyze your specific situation and maximize your tax benefits in 2024. They can help you navigate complex tax rules and tailor strategies to your financial goals.
Remember, these are just general highlights, and individual circumstances may vary. Always consult with a qualified financial advisor or tax professional for personalized advice.
I hope this helps!