You Just Turned 65. Here are 5 Unique Tax Moves

You’re never too old to learn something new! If you just turned 65, this blog is for you. We’ve compiled 5 unique tax moves that are just for you. Let’s dive in and get you in the best position for this upcoming tax season. 

#1: Know, And Utilize, All Available Tax Credits

Tax credits are a certain amount of money that subtracts directly from the amount of taxes you owe. There are specific tax credits explicitly designed for those aged 65 and older. The credit for the elderly and disabled can range depending on income and filing status. To figure out what amount of credit you’re eligible for, use Form 1040. There are also several other tax credits you may qualify for:

• Earned Income Tax Credit

• Residential Energy Credit

• Electric Vehicle Credit

• Premium Tax Credit

In addition, in some states, older adults can apply for property tax relief. Available tax breaks can include the following:

• Deferrals: Postponing tax payments

• Tax credits: Credit for the portion of the real estate taxes or yearly rent

• Exemptions: Reduce the value of our home that is taxable

• Rate freezes: Prevents property tax increases

#2: Be Smart About Your Required Minimum Distributions (RMDs)

Required minimum distributions (RMDs) are the amount you must take out of your retirement savings accounts annually to avoid tax consequences. The amount of RMD you must take is decided by dividing the account’s year-end market value by a life expectancy factor determined and published by the IRS. Timing is essential with RMDs. You must start taking RMDs by April 1st of the year following the year you reach the required beginning age set by the IRS. For each year after, the RMD must be taken by December 31st. Timing is critical because, for example, if you choose to take your first RMD between January and April of the following year, you will be required to take two RMDs, which could place you in a higher tax bracket that year. 

#3: Deduct Your Medical Expenses - Including Long-Term Care (LTC) Insurance

If you choose to itemize your tax deduction, be sure to deduct any medical expenses you paid for yourself or a qualifying relative that exceed a percentage of your adjusted gross income (AGI), as allowed by the IRS. There are more qualifying medical expenses than you may think! Qualifying medical expenses can include:

• Inpatient hospital care

• Nursing services

• Medical insurance premiums

• Long-Term Care Services

• Home renovations for medical purposes, 

• Etc. 

Long-term care services can be costly, including insurance premiums, and you may be able to deduct them, up to limits set by the IRS, which can vary depending on age. Charts published by the IRS indicate the maximum amounts eligible for a tax deduction per person. For comprehensive guidance, see the IRS’s Publication 502: Medical and Dental Expenses.

#4: Remember, You Get A Higher Standard Deduction

If you are 65 or older, you may be eligible for an additional amount added to the standard deduction. The exact extra amount depends on your filing status, and you must meet the age requirement by January 1 of the tax year to qualify.

Remember, you can choose either the standard deduction or to itemize deductions—but not both. The base standard deduction varies depending on filing status and is adjusted annually for inflation.

Work with your tax preparer to determine whether it’s better for you to take the standard deduction or to itemize. For example, itemizing may give you a higher deduction if you have significant medical expenses, charitable donations, or other deductible items.

#5: Evaluate If and How You’ll Pay Taxes on Your Social Security Benefits

The Social Security Administration (SSA) taxes those receiving Social Security above certain income thresholds. A significant portion of beneficiaries may owe income taxes on some of their benefits. Each year, the SSA provides a summary of your benefits via Form SSA-1099, which you use to determine if any portion of your benefits is taxable.

How much of your benefits may be taxed depends on your income. The SSA provides thresholds based on filing status:

• If you file as an individual:

  • Combined income between certain limits → Up to 50% of benefits may be taxed

  • Combined income above a higher threshold → Up to 85% of benefits may be taxed

• If you file jointly with your spouse:

  • Combined income between certain limits → Up to 50% of benefits may be taxed

  • Combined income above a higher threshold → Up to 85% of benefits may be taxed

• If you are married and file separately:

  • You will likely owe taxes on a portion of your benefits.

  You can pay Social Security taxes either through quarterly estimated payments or by withholding federal income tax from your benefits. Working with a financial advisor can help you determine which method is most effective. Once you know if, when, and how you’ll pay these taxes, you can incorporate them into your retirement spending plan for more proactive financial planning.

BONUS TIP: If Your Spouse is Still Working, They May Be Able to Contribute to Your IRA

Are you 65, but your spouse is still working? What if we told you they could help contribute to your individual retirement account (IRA)? There’s something called spousal IRAs that allow working spouses to contribute to an IRA for a nonworking spouse. They’re essentially the same as Roth or traditional IRAs but are designed for married couples. There is a catch, though, spouses must file joint tax returns to use a spousal IRA.

IRAs have contribution limits, which are adjusted periodically by the IRS. People under 50 can contribute up to the standard limit, and those 50 and above can make an additional catch-up contribution. While spousal IRAs can be contributed to by the working spouse, the account must be in one person's name. But don’t worry, you can share the account distributions in retirement.

They’re designed to help couples accelerate their retirement savings. If both spouses contribute up to the contribution limit annually, that amount can grow faster. If your spouse is still working, they can contribute up to the IRA contribution amounts on your behalf, helping your retirement savings continue to grow.

If you just turned 65, you may have further questions about taxes, retirement, Social Security, Medicare, or other planning topics. We’re here to help. Even if you’re not quite 65, it’s never too early to plan for retirement. Please reach out to us anytime with your questions.