They say that with age comes wisdom. But with age also come a few perks that can cut your taxes in retirement.
Once your birthday cake has 50 candles on it, the IRS starts to lighten up a bit. And when you hit 65, the IRS has a few more small presents for you — if you know where to look.
Here are five tax deductions and credits you don’t want to miss after you’ve blown out all those candles.
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1. A higher standard deduction
If you take the standard deduction instead of itemizing, you'll be able to deduct the amounts in the table below. Importantly, the standard deduction is higher for those who are over 65 or blind. It's even higher if you're also unmarried and not a surviving spouse.
Filing status | Standard deduction 2023 | Standard deduction 2024 |
|---|---|---|
Single | $13,850. | $14,600. |
Married, filing jointly | $27,700. | $29,200. |
Married, filing separately | $13,850. | $14,600. |
Head of household | $20,800. | $21,900. |
For the 2023 tax year, you get to add an additional $1,500 to your standard deduction if you're over 65 or blind; if you're also unmarried and not a surviving spouse, you get to add $1,850. For the 2024 tax year, the amount you can add rises to $1,550 and $1,950, respectively.
» MORE: How to choose between the standard deduction or itemizing on your taxes.
2. More room to shelter income
Because contributions to a 401(k) are tax-advantaged, the IRS limits how much you can contribute each year. For folks under 50, that limit is $22,500 in 2023 and $23,000 in 2024. If you’re 50 or older, though, you can put in $30,000 in 2023 and $30,500 in 2024.
But alas, that assumes that you’re still working and that your employer offers a 401(k) plan.
If you’re no longer working, you may still be able to contribute an extra $1,000 a year to a traditional IRA or a Roth IRA (if you qualify for a Roth). That’s thanks to the IRS' catch-up provision for people 50 and older.
» MORE: Learn how an IRA works and the different types
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3. The deduction for medical expenses
If you itemize, you may be able to deduct unreimbursed medical expenses — but only the amount that exceeds 7.5% of your adjusted gross income. For example, if your adjusted gross income is $40,000, the threshold is $3,000, meaning that if you rang up $10,000 in unreimbursed medical bills, you might be able to deduct $7,000 of it from your taxes in retirement.
And if you’ve recently purchased long-term care insurance, you may be able to add in $480 to $5,960 of the premiums in 2023 ($470 to $5,880 in 2024), depending on your age (the older you are, the more you can deduct from your taxes in retirement).
» MORE: How to claim the medical expenses deduction
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4. A safety net for selling that empty nest
This tax deduction is available to everyone regardless of age, but it’s especially useful if you're itching to sell your house and downsize in retirement. The IRS lets you exclude from your income up to $250,000 of capital gains on the sale of your house. That’s if you’re single; the exclusion rises to $500,000 if you’re married.
So, if you bought that four-bedroom ranch house back in 1984 for $100,000 and sold it for $350,000 today, you likely won’t have to share any of that gain with Uncle Sam. There are a few conditions, though:
The house has to have been your primary residence.
You must have owned it for at least two years.
You have to have lived in the house for two of the five years before the sale, although the period of occupancy doesn’t have to be consecutive. (People who are disabled, and people in the military, Foreign Service or intelligence community can get a break on this, though; see IRS Publication 523 for details.)
You haven’t excluded a capital gain from a home sale in the past two years.
You didn't buy the house through a like-kind exchange (basically swapping one investment property for another, also known as a 1031 exchange) in the past five years.
You aren't subject to expatriate tax.
» Ready to work with a wealth advisor? See which advisors can help with tax and estate planning.
5. More help if you’re disabled
You may qualify for a $3,750 to $7,500 tax credit, depending on your filing status, if you or your spouse retired on permanent and total disability. IRS Publication 524 has all the details.
But be prepared for this one to give you a few gray hairs if you're relying on it to cut your taxes in retirement. First, pensions and Social Security benefits can cause you to exceed the income limits. Plus, the tax credit is nonrefundable, which means that if you owe $250 in taxes but qualify for a $5,000 credit, for example, you won’t get a check from the IRS for $4,750. But at least you'll get to enjoy a $0 tax bill.
