Tax Credits and Savings for Seniors

Did you know you can sell all or a portion of a life insurance policy, even term insurance?

(4 minute read)

For many seniors entering or already in retirement, managing a household budget is as much about keeping the money you have as it is about earning new income. Financial advisors can offer seniors an invaluable service in helping them explore their options for taking withdrawals from retirement accounts, maximizing social security income, and lowering expenses.

Another key part of any retiree’s financial strategy is tax management. Whether you are a financial advisor working with senior clients or a senior looking to learn more about tax strategy, don’t miss these often-overlooked opportunities to keep more of your money in your pocket—and not Uncle Sam’s.

Increased Standard Deduction

Many Americans today choose the standard deduction to simplify their taxes, and the normal amount of $12,200 for 2019 tax returns makes it an easy choice to make. It can be difficult to surpass that amount when itemizing your deductions—but even more so if you’re 65 or older. Once you hit 65 years of age, the IRS offers an additional $1,650 on top of the standard deduction if you’re single. Married couples filing jointly can add $1,300 for each person over 65, which means a total of $2,600 above and beyond the standard deduction.

Tax Credit for the Elderly or Disabled

Beyond the additional standard deduction, there is a credit designed specifically for individuals who are over the age of 65 and/or disabled and unable to work. There are several rules to qualify individuals for this tax credit. If married, you need to file jointly to qualify. Additionally, there are maximum income limits, and social security income can count against those limits. However, for those who do qualify, this credit can offer anywhere between $3,750 and $7,500. Keep in mind that this credit is nonrefundable, which means you won’t get a check if your tax liability falls short of the amount of credit you qualify for. To learn if you qualify for the credit, and how much you’d receive, use this tool from the IRS.

Itemized Medical Expenses

If you do choose to itemize your deductions rather than selecting the standard deduction, you can deduct some of your medical expenses, as well. Any expenses that are out-of-pocket and unreimbursed can be deducted, but only the expenses that are above and beyond 7.5% of your total adjusted gross income. But seeing as the average retiree spends $4,300 on out-of-pocket medical expenses while taking only $17,000 per year in social security benefits, it’s safe to assume that many seniors will easily spend more than 7.5% of their income on healthcare—making this a tax deduction very much worth considering. 

Spouse’s Contributions to an IRA

When one spouse retires, it’s important to consider how to maximize tax savings on the other spouse’s income. Individuals over 50 years of age are permitted to contribute up to $7,000 per year to an Individual Retirement Account (IRA). For married seniors, this presents a unique opportunity to create tax-sheltered income. If one spouse is retired but the other is still working, the working spouse can continue to contribute the maximum to their IRA in order to limit the couple’s total tax liability by $7,000. This is allowed until the retired spouse reaches 70½ years of age for a standard IRA.

Capital Gains Exclusion for Home Sales

For many retirees looking to make the most of retirement income, downsizing is an attractive proposition. The family homestead purchased decades ago may simply be too large for an individual or even a married couple living in retirement. From property taxes to energy bills and potentially even lingering mortgage payments, the expense may simply no longer be justified. But what happens when a home purchased for $100,000 in 1990 sells for $350,000 in 2020? Fortunately, seniors need not fear capital gains taxes on any profit made from the sale of a home. As long as the home being sold is your primary residence, individuals can exclude up to $250,000 in capital gains from their income. Married couples can exclude up to $500,000! Check this list of rules to see if you would qualify for this exclusion on the sale of your empty nest.

Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.

Leo LaGrotte
Life Settlement Advisors
llagrotte@lsa-llc.com
1-888-849-0887

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