Tax Benefits for Retirees and Older Adults
Jan 30, 2023
Although aches and pains might become more prevalent as we age, there are many benefits of getting older like special tax breaks. Older adults, even those as young as 50, can take advantage of various tax benefits.
To help older adults save for retirement, the IRS has increased the limits for retirement account contributions based on your age.
- $20,500 in 2022
- $22,500 in 2023
SIMPLE 401(k) deferral limits:
- $14,000 in 2022
- $15,500 in 2023
IRA contribution limits for people 50 and older:
- $7,000 in 2022
- $7,500 in 2023
Depending on your retirement plan, you may be able to make additional catch-up contributions after the age of 50.
If you withdraw money early from an IRA, you typically have to pay a 10% penalty. However, after age 59½, the penalty for early withdrawal is waived.
There’s a similar rule with some fine print. If you’re 55 or older and are terminated from or leave a job, you can withdraw money from your 401(k) without a penalty, but that income is taxed. If you withdraw money from your IRA in that scenario, you will still be subject to a penalty.
You can start drawing Social Security at age 62; however, if you wait longer to claim those benefits, the payments will be higher. Whenever you decide to start your Social Security benefit, consider whether that income will be taxed.
Depending on your total income, a portion — 50% or even 85% — of your Social Security benefits may be taxable. Visit the IRS website for details.
At age 65, several other tax breaks kick in:
- Your standard deduction increases, which can be helpful if you don’t itemize.
- The Credit for Elderly or Disabled becomes available. However, your eligibility to claim the credit depends on your age, filing status, and income, including nontaxable income like Social Security, pensions, annuities, or disability payments.
- Your filing threshold increases, so you may not need to file taxes if your income is below $14,700 (single) or $27,300 (married filing jointly). However, you must account for all sources of income to ensure you qualify for the exemption from filing.
If you or your spouse has a disability, you may qualify for additional tax relief.
- If either of you is blind, your standard deduction is higher.
- Additionally, if you are permanently and totally disabled, even if you’re younger than 65, you may be able to claim the Credit for Elderly or Disabled. Eligibility depends on age, filing status, and income, including nontaxable income like Social Security, pensions, annuities, or disability payments.
Learn more about these various credits on the IRS website.
Need help determining your eligibility for these and other tax advantages? We can help you identify applicable credits and benefits for your unique situation. Contact us to schedule an appointment.