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.