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At this point in your life, you probably have the whole tax thing down. You know the drill. Take some papers into your accountant and see how much you owe, pay it, and then repeat the next year. But now that you are probably thinking about retirement or currently retired, you might need to be a bit more diligent about your tax strategies to make the most of the money you’ve saved. Here are some tax strategies for seniors that you may want to try in order to hang on to as much of your money as possible.
Keep Track of Medical Expenses
Seniors spend more on healthcare than any other age group. In fact, the average senior spends around $4,300 a year in out-of-pocket expenses. If you itemize your taxes, then this could actually help lower what you pay come tax day. While you can’t deduct all of your medical and dental expenses, you can deduct everything that goes beyond 7.5% of your gross adjusted income.
Enroll in an HSA, ASAP
Perhaps the best way to combat a high tax bill while dealing with medical expenses is by investing your money in a Health Savings Account (HSA). On average a retired couple needs at least $280,000 to cover medical expenses in retirement. All the money that you put in an HSA is contributed pre-tax, meaning you are getting the most out of your paycheck by putting it towards an account full of money that will be spent on medical bills. While there’s a limit to how much you can contribute to an HSA, if you are 55 or older your limit is $1,000 higher. Which means you can contribute up to $4,450 if you are single and $7,900if you are married. If you are thinking about retiring soon, it might be a good idea to start one of these pronto.
Keep Contributing to Your Savings Plans
Most people think that you stop contributing to a 401(k) after you retire, but did you know, if you have a part-time job you can keep investing in your 401(k) up until the age of 70 and a half? This will lower the amount of your taxable income while you keep stockpiling away money for the future. If you are older than 70 and a half, you can still invest in an IRA. If you or your spouse has a part time job or make a little money by working for yourself, you can keep putting money in this type of an account, which grows interest and can be withdrawn tax-free.
Consider Downsizing Your House
If you’ve reached the age where a comfy little cabin somewhere makes more sense than a big house, there is a major tax advantage. If you’ve had your house for a while, there is a good chance that it is more valuable than when you purchased it. If this is the case and you can make a profit from selling your house, this profit is tax free up to $250,000 for a single person and $500,000 for a couple filing jointly. Just make sure that you’ve lived in the house for 2-5 years before you sell it. An added bonus to downsizing is the fact that your property taxes also get downsized, which will help lower your yearly tax bill.
Donate to Charity
Charitable donations are great for everybody.You have more time to put more efforts into philanthropic endeavors when you’re retired, and many people get a lot of joy out of doing so. While helping others financially, did you know you are actually helping yourself as well? If you’re itemizing your deduction, these contributions are considered deductible up to a certain point. You can only deduct these cash contributions up to 50 percent of your annual gross income.However, if you are donating something tangible like a house or land, you can deduct 100 percent of that item’s value.
If you didn’t employ any of these senior tax strategies last year, you may end up paying more than you should to the IRS. Make sure to talk to an accountant or tax specialist to get started on the right foot this year. You may also want to consider a life settlement if you have a life insurance policy you don’t need anymore. Did you know that you can sell all or a portion of a life insurance policy, even term insurance? Many seniors may have life insurance plans they may not need for one reason or other which can be sold to get a quick infusion of cash that you can use to pay a tax bill, supplement your tax savings, or take that trip you’ve always wanted to take.If this sounds like something you’re interested in, contact Life Settlement Advisors today!
Case Study: Harrison was forced to retire ahead of schedule due to a chronic illness. The medical bills have been piling up and Harrison and his wife have become concerned about their finances. Harrison sold his term life insurance policy on the recommendation of a family friend. Harrison and his wife used the proceeds to pay off the medical bills, take a trip and boost their retirement.
Life Settlement Advisors