Over 65? Don't miss out on these retirement tax breaks

Retirement is about spending time with loved ones, traveling or simply enjoying the slower pace of life—not stressing over taxes. But as you navigate this new chapter, it's important to understand how retirement tax breaks can impact your income.

Here's the good news: Specific tax breaks are designed to benefit people ages 65 and older. Whether it's claiming a larger standard deduction, taking advantage of special tax breaks that seniors often overlook or strategizing your withdrawals, each smart move helps you keep more of your hard-earned money.

Here's a breakdown of six key tax breaks that can help simplify your taxes and help you enjoy a more secure retirement.

One of the most straightforward ways to reduce your tax bill in retirement is through the standard deduction. It's an amount you automatically subtract from your income before calculating taxes. The IRS offers a higher standard deduction for seniors who will be 65 or older by the end of the tax year. This means more of your income is shielded from taxes immediately.

For the 2024 tax year, the additional standard deduction for seniors is $1,950 if you're single or filing as head of household and $1,550 for each spouse if you're married and filing jointly.

While deductions can lower your taxable income, tax credits directly reduce the amount of tax you owe. The IRS has at least two tax credits that are designed to benefit seniors. Even if you're not sure you qualify for these tax credits, it can't hurt to check.

• Federal tax credit for elderly and disabled adults. This credit is available if you're 65 or older or if you're younger than 65, were permanently and totally disabled on the date you retired, received taxable disability income and haven't yet reached the age your employer's retirement program would have required you to retire. The amount you can claim depends on your filing status and income level.

• State or local property tax credit. Depending on where you live, you may be eligible for a property tax credit. State or local governments usually offer these credits to help offset the cost of your property taxes. If you're a homeowner, it's worth considering whether you qualify for these extra savings.

Tax credits and deductions can be complex, and eligibility requirements can change. Consult with a tax professional to see which credits you qualify for and how to claim them correctly.

If you're a self-employed retiree who pays for Medicare Part B (medical insurance) and/or Part D (prescription drug coverage), you may qualify for a potential tax break. In many cases, you can deduct these premiums along with the cost of Medigap or Medicare Advantage plans from your taxable income, which can lead to a lower tax bill.

Your retirement accounts, that you still may be contributing to if you aren’t yet retired, are designed to provide income throughout your retirement years. But how and when you take withdrawals from these accounts can significantly impact your tax situation.

Traditional IRAs and traditional workplace retirement plans like 401(k)s and 403(b)s offer you tax-deferred savings and earnings growth. Contributions are made with pre-tax dollars, and would lower your taxable income in the year you contribute. You can take penalty-free contributions starting at age 59½, but you'll pay your regular income tax rate at that time on the amounts you withdraw.

Roth IRAs and Roth employer-sponsored plans (like Roth 401(k)s and Roth 403(b)s) are funded with after-tax dollars, so you didn't get an immediate tax deduction when you made contributions.

After age 59½, contributions are available for tax-and penalty-free withdrawals.^* And a key benefit only available to Roth accounts is that your earnings also can be withdrawn tax-free as long as you are at least 59½ and after you've held the account for at least five years. That means that Roth IRA earnings have the potential to never be taxed if you follow the rules.

Learn more about the Roth five-year rule

The answer depends on your circumstances. The key to maximizing your retirement savings is careful planning. Here are some general considerations:

• Weigh your tax bracket now versus later. If you’re not yet retired and you expect to be in a lower tax bracket in retirement, deferring withdrawals until retirement and paying taxes later may make sense.
• Consider the benefits of tax diversification. Having traditional and Roth accounts can give you some flexibility in managing your taxes in retirement efficiently.
• Factor in required minimum distributions (RMDs). Once you reach a certain age, you have to take RMDs from traditional accounts, like 401(k)s and IRAs, or pay a tax penalty. Roth IRAs and Roth employer qualified plans don't have RMDs.

By taking a proactive approach to tax efficiency, you can help ensure your retirement savings last as long as needed. A financial advisor can help you come up with a withdrawal strategy that aligns with your income needs, tax situation and overall financial goals.

Retirement isn't just about financial security; it's about enjoying the freedom to share your wealth and make a meaningful impact on the lives of your loved ones. But giving away money and assets strategically can be a smart tax move.

Here are some considerations for seniors when making financial gifts:

The IRS allows you to give up a certain amount to people each year without incurring a gift tax. For 2024, that amount is $18,000 per person. You could gift $18,000 to each of your children, grandchildren or anyone else you choose without tax consequences for you or them.

In addition to the annual exclusion, there's a lifetime limit on the amount you can give away tax-free. For 2024, that exemption is $13.61 million, although that amount soon could be lower with the Tax Cuts and Jobs Act sunset. While most people won't hit this limit, it's good to know if you have a large estate.

By gifting assets during your lifetime, you can potentially reduce the size of your taxable estate, which could lower the estate tax burden for your heirs.

Remember, gifting can have complex tax implications, so it's important to consult with a financial advisor or tax professional to understand the rules and ensure you're making informed decisions.

Gifting isn't just about tax advantages. It's about sharing your legacy and ensuring your loved ones are cared for. Whether helping a grandchild with college tuition or supporting a beloved charity, there's power in giving for you and the recipient.

If you're passionate about supporting charities and are 70½ or older, a qualified charitable distribution (QCD) could be a powerful way to give generously and lower your tax bill.

A QCD allows you to transfer funds from your IRA to a qualified charity directly, and the amount is excluded from your taxable income, lowering your overall tax burden. Plus, these transfers count toward your RMDs.

The maximum annual amount you can give through QCDs is $105,000 in 2024, and will be adjusted for inflation each year. Consider consulting with a financial advisor and a tax professional to ensure QCDs fit your circumstances and goals.