Here's one of the benefits of being older: You may have special ways to cut your income tax bill. If you were at least age 50 last year, you could qualify for several money-saving tax breaks and deductions. Here's a rundown of the tax advantages that await you as you get past various thresholds of age:
Senior tax credit
Also called the Tax Credit for the Elderly and Disabled, it's only for taxpayers who are age 65 or older, or retired and on total and permanent disability. The credit can be a dollar-for-dollar offset of your tax liability up to $7,500.
But if you have too much income, you won't qualify. For example, if you're married and have an adjusted gross income of $25,000 or more, or have $7,500 or more of nontaxable income from Social Security, pensions, annuities or disability, you won't qualify. For single filers, the income limits are $17,500 and $5,000. One final point: This credit isn't "refundable," so the best you can do is to lower your tax liability to zero -- you won't get money back if you have no liability.
Larger standard deduction
For 2018 tax returns, once you reach age 65, a single filer can claim an additional $1,600 standard deduction, and marrieds get an additional $1,300 for each spouse. That brings the standard deduction amount for single filers age 65 and up to $13,600 (versus $12,000 for singles under age 65), and to $26,600 for married filers (versus $24,000 for couples under age 65).
Long-term care insurance deduction
Individuals who purchase qualified long-term care insurance are eligible to claim a few hundred dollars of the premiums paid as part of the deduction for qualified medical expenses. But once you reach age 51, this amount jumps to $1,560. When you reach age 61, it goes to $4,160, and at age 71, it tops out at $5,200.
Catch-up contributions to retirement accounts
People age 50 or older can make higher tax-advantaged contributions to their retirement accounts. If you're at least age 50 by the last day of the year, you're eligible to make special "catch up contributions" over and above what those under age 50 can contribute:
- 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. The normal maximum HSA contribution for someone with individual coverage in 2019 is $3,500 and $7,000 for those with family coverage. But if you're age 55 or older, you can make an additional $1,000 contribution.
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 penalty tax on "early withdrawals."
Tax-free withdrawals from your IRA
When you turn age 70½, you can withdraw money from an IRA completely tax-free, if the amount is directly distributed to a charity and doesn't exceed the $100,000 annual limit.