Many things occur as we age, but most individuals tend to forget about the benefits that come during tax time! Individuals aged 50 and up have the privilege of taking advantage of several excellent tax breaks, but many people may not be aware of them. This post will share with you several vital tax breaks that people 50 and over can benefit from.
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What Exactly Is A Tax Break?
A tax break is a reduction in a taxpayer’s total bill. This means that, if you qualify, the amount you would have to pay the government reduces with a tax break.
Important Tax Breaks
Traditional/Roth IRA Catch-Up Contributions Allowed. For people 50 and under, 2021 annual contribution limits stay at $6,000. However, for people 50 and over, extra contributions of $1,000 to their Roth or Traditional IRA are allowed.
Catch-Up Contributions for 401(k) Plans. All individuals can add $500 to their company retirement plan in 2021. But for individuals 50 and over, an additional $6,500 catch-up contribution is allowed.
Penalty-Free 401(k) Withdrawals. Speaking of your 401(k), before age 59 and a half, withdrawing any amount of money from your 401(k) will also bring a 10% penalty. But, once you reach 59 and a half, you have the option to take money out of that account without dealing with any penalties. Are you 55 or over? You are ready to start getting distributions from your 401(k) account!
Higher Limit For HSA Contribution. Higher HSA contribution limits are available for individuals with high-deductible health plans. People 55 and older are eligible to contribute up to $4,600 to their HSA in 2021. Please note that if you enroll in a Medicare Plan, you can no longer contribute to an HSA.
Credits For Disabled or Elderly People. If you or your spouse has low income and are over the age of 65, you could potentially be able to claim a tax credit for senior citizens. Your adjusted gross income must be below $17,500 or $25,00 if both spouses are under 65 years of age and nontaxable pension or Social Security income below $5,000 (or $7,500 for couples) to be eligible.
Breaks on Property Taxes. In some areas, people who are above a specific and earn below a certain income level are eligible for property or school tax deferrals or exemptions. For example, according to The Mississippi Department of Revenue, “Persons who are 65 years of age and older or who are disabled, upon application and proof of eligibility, are exempt from all ad valorem taxes up to $7,500.00 of assessed value.” Keep in mind that this rule may vary, depending on where you live.
Larger Standard Deductions. If you or your spouse are 65 or older, you are eligible to claim a larger standard deduction if you don’t itemize your tax deductions.
Higher Tax-Filing Threshold. According to US News, people 65 and older have the privilege of earning a gross income of up to $14,050 before they are required to file a tax return for 2020 (over $1,500 more than younger people).
Avoid Income Tax With Charitable Distributions. With a traditional retirement account, individuals are generally required to take out money, resulting in an income tax bill. However, one way to avoid paying income tax on your withdrawals is to make a qualified charitable distribution. Those 70 and a half and up who move any amount of money up to $100,000 from their retirement account to a qualified charity won’t have to pay income tax.
Not sure if you are ready for retirement? Contact Bell & Associates to learn more about what you can do to prepare when that time comes – get started today!
As we stated earlier, there are numerous things that change in your life as you age, and the last thing you want to be stressed about is how to manage your expenses. We hope that the information we have provided above will help you create a better gameplan to manage your finances and enjoy the perks of age!
This information is not intended to replace tax, legal, or accounting advice. Please consult your own tax, legal, and accounting professional before moving forward with any decision.