It is more crucial than ever for retirees over 65 to take advantage of every tax benefit that is available. Thats especially true if youre on a fixed income. Ultimately, certain retirees need to extend their retirement funds to sustain their living expenses for the remainder of their days.
But it’s not always easy to hang onto your money in retirement. This is partially due to the taxation of various forms of retirement income. Therefore, retirees need to be very aware of their tax situation because they occasionally overlook important tax-saving opportunities. It can be beneficial to become aware of typical but frequently disregarded tax breaks for retirees over 65.
As you enter your golden years, you may be wondering if you can finally say goodbye to taxes. While there’s no magic age where taxes disappear entirely, understanding the nuances of taxation for seniors can help you minimize your tax burden and maximize your retirement income.
At What Age Can You Stop Filing Taxes?
Contrary to popular belief, there’s no specific age at which you can stop filing taxes. The requirement to file taxes hinges on your income, not your age. However, if you’re 65 or older, the income threshold at which you’re required to file taxes is lower than for younger individuals.
For the 2023 tax year, here’s a breakdown of the income thresholds for filing taxes based on age and filing status:
- Single or Married Filing Separately and 65 or Older: $15,700
- Married Filing Jointly and Both Spouses 65 or Older: $30,700
- Married Filing Jointly and Only One Spouse 65 or Older: $29,200
These thresholds increase slightly each year to account for inflation.
The Exception: Social Security Income
If your only source of income is Social Security benefits, you typically don’t need to file a tax return, regardless of your age. However, there are some exceptions to this rule. If your combined income, which includes half of your Social Security benefits plus all of your taxable income and tax-exempt interest and dividends, exceeds $25,000 for single filers or $32,000 for joint filers, a portion of your Social Security benefits may be subject to federal income tax. Additionally, certain states may tax Social Security benefits.
Common Taxes Seniors Pay
While you may not be able to avoid taxes altogether, understanding the different types of taxes you might encounter as a senior can help you plan and manage your finances effectively. Here are some of the most common taxes seniors face:
- Social Security Taxes: If your income exceeds certain thresholds, a portion of your Social Security benefits may be taxable. The percentage taxed depends on your combined income.
- Retirement Account Taxes: Distributions from retirement accounts like IRAs and 401(k)s are typically taxed as income in the year they are withdrawn. However, there are exceptions for Roth IRAs and other tax-advantaged accounts.
- Pension Taxes: Similar to 401(k)s, pensions are usually funded with pre-tax money, so withdrawals are subject to income tax in the year they are received.
Strategies to Minimize Your Tax Bill
Even though taxes are a fact of life for most seniors, there are ways to minimize your tax burden and keep more of your hard-earned money. Here are a few strategies to consider:
- Take Advantage of the Tax Credit for the Elderly and Disabled: This credit can significantly reduce your tax bill if you meet the eligibility requirements.
- Maximize Your Standard Deduction: Seniors over 65 are entitled to a higher standard deduction, which can lower your taxable income.
- Make Catch-up Contributions to Retirement Accounts: Individuals 50 and older can contribute additional funds to their retirement accounts, reducing their taxable income and boosting their retirement savings.
- Seek Professional Help: A financial advisor can help you develop a tax-efficient retirement income plan and guide you on strategies to minimize your tax liability.
Navigating taxes as a senior can be complex, but understanding the rules and available strategies can empower you to make informed financial decisions and keep more of your retirement income. Remember, you’re not alone in this journey. Utilize free tax assistance programs and professional guidance to ensure you’re maximizing your tax benefits and minimizing your tax burden.
By implementing these tips and staying informed, you can enjoy your retirement years with greater financial security and peace of mind.
IRA contribution from a spouse
Saving money for an IRA doesn’t always have to end when you retire.
In general, in order to make an IRA contribution, you need to be employed. Nonetheless, if you are married and your partner is still employed, they can typically make contributions to your traditional or Roth IRA totaling up to $6,500. The 2024 IRA contribution limit jumps to $7,000. You are qualified for this tax benefit if your spouse makes enough money to cover both the contribution to your account and any deposits made into it.
Theres an important limitation to keep in mind, though. If only one of you is 50 years of age or older, the total combined contributions to your IRA and your spouse’s IRA cannot exceed $13,000 for the 2023 tax year. If both of you are at least fifty years old, the total contributions cannot exceed fifteen thousand dollars ($16,000 for 2024).
Extra standard deduction for people over 65
The IRS provides you with a tax benefit upon turning 65, known as the additional standard deduction for individuals 65 and over. For instance, a taxpayer who is 64 years old and single may deduct $13,850 from their taxes in 2023. However, for the 2023 tax year, a single 65-year-old taxpayer will receive a $15,700 standard deduction.
It is more likely that you will choose to take the standard deduction in 2023 rather than itemizing because of the additional $1,850. (The extra standard deduction amount is $1,850 for 2024).
You also receive a larger standard deduction than taxpayers under the age of 65 if you are married and one or both of your spouses are 65 or older. The additional amount for 2023 is $1,550 if only one spouse is 65 or older, and $3,000 if both spouses are 65 or older.
How Much Income Can You Have in Retirement and Not Pay Taxes?
FAQ
How much money can seniors make and not file taxes?
At what age is income no longer taxable?
How much can a retired person earn without paying taxes in 2024?
How much can you make before Social Security is taxed?
Is Social Security income taxable if you are over 65?
If a taxpayer is over 65 and still working in a wage-paying job, the earnings from that position will be taxable. Note that wages earned after age 65 are still subject to social security and Medicare withholding. The taxability of social security income depends on the taxpayer’s total income.
How much income do seniors need to file a tax return?
For seniors who are married where both spouses are 65 or older, they must file a return if their gross income was at least $27,800, and for couples where only one spouse is 65 or older, that amount is $26,450.
Are older taxpayers eligible for income tax benefits?
While most federal income tax laws apply equally to all taxpayers, regardless of age, there are some provisions that give special treatment to older taxpayers. The following are some examples. Higher gross income threshold for filing. You must be age 65 or older at the end of the year to get this benefit.
How much money can a single person earn before paying taxes?
For example, in the year 2021, the maximum earning before paying taxes for a single person under the age of 65 was $12,550. If you’re unsure how to file taxes and whether you need to, this article will guide you through the process and the considerations involved.