Retirement can be a financial challenge, and it’s important to take advantage of all the tax breaks available to you.
Here are three tax breaks that retirees often miss out on and how to make sure you get them.
Medical expense deduction
Retirees often miss out on the medical expense deduction because they don’t realize they are eligible.
Anyone can deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). This includes a wide range of expenses, from doctor visits and prescription drugs to long-term care insurance premiums.
To take advantage of this tax break, make sure to keep accurate records of all your medical expenses throughout the year, including receipts and bills. You never know which year it might suddenly matter, so better to keep steady records.
You can use the IRS medical and dental expenses form (Publication 502) to calculate your deductions.
Charitable contribution deduction
Retirees who are 70 ½ or older can make charitable contributions directly from their IRAs. This is known as a qualified charitable distribution (QCD).
A QCD is excluded from your taxable income and counts toward your required minimum distribution. Since your income is lower, so too will be your taxes that year.
To take advantage of this tax break, contact your IRA administrator and request a QCD.
Be sure to keep records of the charitable contributions you make, including the name of the organization and the date and amount of the contribution.
Retirement plan contributions
Retirees often miss out on the opportunity to contribute to their retirement plans after they reach 70 ½. This is because they believe they are no longer eligible to contribute.
However, there is no age limit for making contributions to a traditional IRA and you can make contributions to a Roth IRA at any age as long as you have taxable compensation.
To get this tax break, consider making contributions to your retirement plan, even if you are over 70½. This can help lower your taxable income now or, in the case of the Roth, provide a source of tax-free income in retirement.
Retirement can be a challenging time financially. By taking advantage of these three tax breaks, you can reduce your taxable income and maximize your retirement savings.
Make sure to keep accurate records, consult a tax professional, and consider making contributions to your retirement plan if you plan to keep working.
