7 Big Tax Breaks for Retirees

Itemizing long-term care expenses

If you incurred hefty medical or insurance expenses related to long-term care in 2024, itemizing your return instead of taking the standard deduction can produce a significant tax advantage.

To take advantage of this deduction, your medical and insurance expenses must exceed the standard deduction and amount to at least 7.5 percent of your adjusted gross income (AGI) for the year. AGI is the sum of your wages, dividends, capital gains, and business and retirement income, minus adjustments such as self-employment taxes, student loan interest and contributions to a traditional individual retirement account (IRA).

The numbers can run well over the standard deduction. HHS estimates that an American turning 65 in 2022 will incur $120,900 in future long-term services and support costs over their lifetime. Average annual costs in 2023 ranged from $24,700 for adult day care to $116,800 for a private room in a nursing home, according to data from insurer Genworth. You may also be able to deduct the cost of long-term care insurance premiums and qualified medical and dental expenses such as hospital, nursing home and rehabilitation care, prescription drugs, false teeth, wheelchairs and weight loss and nutrition programs.

Spousal IRA

Older taxpayers can kick extra dollars into a traditional IRA or Roth IRA. But there’s only one way to do that if you’re retired, and only one of the accounts yields a tax deduction.

To contribute to a traditional or Roth IRA, you generally have to have earned income from work. But there’s a loophole: A nonworking spouse can open and contribute to either type of IRA, provided that the other spouse is working and the couple files a joint return.

Traditional IRAs can be funded with either pretax or post-tax dollars. Only pretax contributions are deductible. With pretax accounts, the money grows tax-deferred and you pay ordinary income tax rates on withdrawals, which you have to start making once you reach age 73. With post-tax traditional IRAs, you must carefully document your contributions to avoid paying tax on withdrawals.

Roth IRAs are funded with after-tax dollars, so come tax time there’s no deduction for contributions — but you can make tax-free withdrawals of those contributions at any time, and earnings on the account are tax-free once you hit age 59½ and have had the account for at least five years. Unlike traditional IRAs, Roth IRAs don’t have required minimum distributions (RMDs), even if you are older than 73, unless you inherited the account from someone other than a spouse.

For the 2024 tax year, the IRA contribution limit for those age 50 and older is $7,000, plus a $1,000 catch-up amount for a total of $8,000. Taxpayers have until this year’s April 15 filing deadline to make contributions for 2024, meaning a nonworking spouse (either retired or stay-at-home) with an account still has time to make contributions and claim the tax deduction.

Credit for the elderly or the disabled

This tax break lets individuals and couples with very low income reduce the amount of income tax they owe. To qualify, taxpayers must be 65 or older by the end of 2024, or be retired on permanent and total disability and receiving taxable disability income. 

The credit, which ranges from $3,750 to $7,500, reduces a tax bill dollar for dollar. It’s nonrefundable, meaning that if it exceeds the amount of tax you owe, you don’t get the remainder as a cash refund. There's an income cap for eligibility, ranging from $12,500 to $25,000 depending on marital and filing status.

HSA contributions

The tax beauty of a health savings account, or HSA, is threefold.

Contributions are made with pretax dollars, which reduces your AGI and thus the taxes you owe. That means an HSA account can put a person with steep medical costs closer to the 7.5 percent threshold needed to itemize medical costs not paid through the HSA. As long as the account’s funds are used for approved health care expenses, withdrawals are tax-free. Some HSAs invest in stocks, mutual funds or exchange-traded funds, and the gains they notch over time are also tax-free. It’s a three-bagger come tax time.

As with IRAs, you have until April 15 to make a contribution to an HSA. For tax year 2024, individuals can kick in up to $4,150; for family plans, the limit is $8,300. People 55 and older can throw in an extra $1,000.

But there are a few catches. The accounts are available only through health insurance plans sponsored by employers or purchased through the Affordable Care Act marketplace, and you have to be enrolled in a high-deductible health plan to contribute to an HSA. In 2024, that means a minimum deductible of $1,600 for individuals and $3,200 for families, and a maximum out-of-pocket limit of $8,050 for single coverage and $16,100 for family coverage. Nearly 6 in 10 covered workers were enrolled in a high-deductible plan in 2023, according to Peterson-KFF Health System Tracker.

Charitable donations

Distributing funds from a traditional IRA to a charity recognized by the IRS offers a couple of tax benefits.

First, a qualified charitable distribution (QCD) counts toward the RMDs that set in once you turn 73, if you have a traditional IRA. Second, it lowers your taxable income, potentially reducing the taxes owed on Social Security benefits and Medicare surcharges, which could keep you out of a higher tax bracket. QCDs can start at age 70½.

However, there’s fine print. In tax terms, a QCD is an exclusion — meaning an item on which you don’t pay taxes — and not a deduction, which is an item that reduces the total income on which you pay tax. Also, for a QCD to count toward your RMD, the money must come out of your IRA by the RMD deadline, which is typically Dec. 31. Taxpayers can move up to $105,000 for tax-free charitable giving for 2024.

While you can make a QCD from a Roth IRA, there’s no additional tax benefit to doing so, as the accounts are already exempt from tax and your distributions aren’t deductible.

Some nonprofits, including private foundations and donor-advised funds, don’t qualify for QCDs. But starting last year, the law known as SECURE 2.0 allows taxpayers to use QCDs to fund a charitable remainder unitrust, charitable remainder annuity trust or charitable gift annuity, up to a maximum one-time donation of $53,000 for tax year 2024.

Need help with your tax return? Try AARP's tax calculator, or visit AARP Foundation Tax-Aide to learn about free tax prep services by 30,000 volunteers nationwide.​​