Tax Breaks After 50 You Can't Afford to Miss

Contributions to a traditional IRA are tax-deductible as long as you meet IRS rules, including income limits. IRA contributions are fully deductible if you (and your spouse) aren't covered by a retirement plan at work. However, the deduction may be limited if you are (or your spouse is) covered by a workplace retirement plan and your income exceeds certain limits. For 2023, IRA deductions for singles covered by a retirement plan at work aren't allowed after modified adjusted gross income (MAGI) hits $83,000; the deduction disappears for married couples filing jointly when MAGI hits $136,000.

Retirement contributions made to a Roth IRA or Roth 401(k) are done on an after-tax basis: You get no up-front tax break for these contributions, but withdrawals taken from Roths in retirement are tax-free. The pretax money in traditional IRAs and 401(k)s grows tax-free, but you'll eventually pay taxes when you start making withdrawals in retirement.

Clark Randall, a certified financial planner at Financial Enlightenment in Dallas, encourages his clients to rethink their budgets to increase their regular retirement contributions throughout the year. “Budgeting for this expense is the same as any other. It takes discipline and compromise.”

If you still want to make catch-up contributions to a traditional IRA or Roth IRA for 2022, you have time. The deadline is April 18, the filing date for your tax return, unless you file for an extension. However, 401(k)s, 403(b)s, Thrift Savings Plans and most 457 plans go by the calendar year, so you’ll be investing for 2023 and have until the end of the year to do so.

You can wait until 73 to start your RMDs

Speaking of which, there's also good news on required minimum distributions (RMDs), the minimum amount you must withdraw from a tax-deferred retirement plan, such as a traditional IRA. (Roth IRAs don't require distributions while the owner is alive.)

Under rules that kicked in in 2023, you can wait until the year in which you reach age 73 before having to start taking RMDs.  (For your first RMD payment, you can wait until April 1 of the following year, but you'll also have to pay an RMD in December of that year.) Previously, the age was 72. If you don't need the RMD, consider donating it to charity. If you donate your RMD to a qualified charity directly from your retirement account, up to $100,000, you won't owe income tax on the distribution.

Don’t forget your HSA

If your employer offers a health savings account (HSA), you’ll want to make sure to take full advantage of it. The IRS allows you to deduct your contributions to your retirement account from your gross income, even if you don’t itemize, and those made by your employer are excluded from your gross income, too. Any earnings are tax-free. Your distributions aren’t taxed, provided you use them for qualified medical expenses, of which there are many — from ambulance rides to X-rays. Plus, the account is yours: You can take it with you to a new job and use the funds in retirement.

For 2023, you can contribute up to $3,850 if you have coverage for yourself, or up to $7,500 for family coverage. The catch-up is an additional $1,000 if you reach 55 during the year. However, your contribution limit is reduced by any amount your employer contributed that has been excluded from your income.

You get a bigger standard deduction at 65

The standard deduction, which reduces your taxable income and, in turn, lowers your tax bill, gets better with age. In 2023, when you fill out your federal income tax forms for income earned in 2022, married couples will get a standard deduction of $25,900. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950.

If you are 65 or older and file as a single taxpayer, you get an extra $1,750 deduction for tax year 2022. Married and filing jointly? The extra standard deduction is less per person if only one person is 65 or older — $1,400 for the tax year. If both are 65 or older, the standard deduction increases by $2,800. For taxpayers who are both 65-plus and blind, the extra deduction is doubled.

The only drawback for some taxpayers with the higher standard deduction is that it sets a very high bar for itemizing deductions. It doesn't make sense to itemize if your deductions aren't higher than the standard deduction. Nevertheless, a deduction is a deduction, and getting a larger standard deduction is something to cheer about.

Bonus: If you're 65 and up and have a straightforward return, you might be able to use the new simplified Form 1040-SR for seniors. It has larger type for those who still file taxes by paper, there are places to enter such things as Social Security benefits and retirement distributions, and there's a handy chart that shows the bigger standard deductions.

Your $600 charitable deduction is gone

Because the standard deduction is so high, many people are no longer able to itemize their deductions. (It makes no sense to itemize if you get a bigger bang for your buck from the standard deduction.) For tax year 2021, however, a person filing a single return could take a $300 deduction for cash gifts to qualified charities. Those filing jointly could take $600. You could take this deduction if you took the standard deduction but not if you itemized.

Alas, those days are gone. The $600 charitable deduction isn’t available for 2022.