Get tax breaks just for getting older
As much as most people dread getting older, they also know age has its advantages, like gaining wisdom, experience and patience. But if you're over age 50, you can also gain a number of tax advantages. Here are some that can save you a lot of money.
Larger standard deduction:For 2015 tax returns, once you reach age 65, you can claim an additional standard deduction of $1,550 for singles and an extra $1,250 for a spouse. That means the standard deduction amount for single filers age 65 or older is $7,850 (versus $6,300 for singles under age 65), and for married filers it's $15,100 (versus $12,600 for couples under age 65).
Increased medical expense deduction:When it comes to deducting out-of-pocket medical expenses, for those under 65, only the amounts paid that exceed 10 percent of adjusted gross income (AGI) are deductible. But if at least one member of a married couple is 65 or older, the threshold drops to 7.5 percent of AGI. So, for a household with AGI of $75,000, out-of-pocket medical costs in excess of $5,625 can be deducted versus $7,500 for those under 65.
Higher long-term care insurance premium deduction: Individuals who purchase qualified long-term care insurance are eligible to claim only a few hundred dollars of the premiums paid toward the medical expense deduction mentioned above. But once you reach age 51, this amount jumps to $1,430. When you reach age 61, it climbs to $3,800, and at 71, it tops out at $4,750.
Catch-up contributions to retirement accounts: People 50 or older are allowed to make higher tax-advantaged contributions to their retirement accounts. As long as you're at least 50 by the last day of the year, you're eligible to do so, as follows:
- Additional catch-up contributions to 401(k) type retirement plans: $6,000
- Additional catch-up contributions to IRAs: $1,000
- Additional catch-up contributions to SIMPLE IRA Plans: $3,000
Catch-up contributions to Health Savings Accounts:Workers who are enrolled in a high-deductible health plan are also eligible to make tax-advantaged contributions to a Health Savings Account, or HSA. The maximum anyone with individual coverage can contribute is $3,350, and it's $6,650 for family coverage. But if you're 55 or older, you can make an additional $1,000 contribution above these limits.
Penalty-free withdrawals from retirement accounts: Once you turn age 59½, you can withdraw money from your retirement accounts without fear of triggering the pesky 10 percent early-withdrawal penalty tax. And when you turn 70½, you can withdraw money from an IRA completely tax-free, as long as the amount is directly distributed to a charity and doesn't exceed the $100,000 annual limit. If you're that age, have money in IRAs and want to make a charitable donation, you'll find this tax break particularly attractive.