Getting older has its nuisances, your health starts to decline, eyesight and hearing can deteriorate, you start having aches and pains in places you did not know you had. However, it does have its benefits. Some of those benefits are in the form of tax breaks that come as you get older.
Seniors have a larger tax deduction.
If you are over the age of sixty-five you get a $1,550 higher standard deduction than someone that is younger. This is on top of the fact that if your total income as an individual is less than $25,000, you do not pay any taxes on your Social Security. While above that you start paying income taxes on half of your Social Security, above $34,000 you still have 15% that remains untaxed. Even this is a nice little tax break over someone that is younger. The effect is that seniors pay less in income taxes per dollar of income.
Seniors can deduct medical expenses at a lower percentage.
If you are under the age of sixty-five you can only deduct medical expenses that exceed ten percent of your income. However, when you reach age sixty-five that figure goes down to 7.5% of your income. What makes this a particularly good deal for seniors is the fact that your medical expenses also tend to increase when you get over age sixty-five. This makes this a double tax break because the percentage you cannot deduct goes down at about the time that your expenses go up.
Seniors can earn more without filing taxes.
Another Tax Break For Seniors
Another tax break for seniors is that an individual over the age of sixty-five can earn $1,550 more than a younger person before they even have to file taxes. This means that you do not need to take the time or expense to file an income tax return unless as an individual senior you make more than $11,850 or $23,100 as a couple. While you still must file an income tax if you make more, this is still a significant benefit for a lot of seniors.
Those Fifty and older contribute more to retirement plans
If you are over the age of fifty you can contribute $6,000 more to a 401(k) plan that is tax-deferred. Now, you do have to pay income taxes on what you withdraw, but deferment does give you a larger account to withdraw from. Consequently, if you are over the age of fifty you can contribute more to your retirement without paying taxes on it as you do so. This is a major tax break because it allows your account to grow even bigger than it would if you were having to pay those taxes.
No more early withdrawal penalty at age fifty-nine and a half.
Once you reach fifty-nine and a half you no longer have to pay a ten percent penalty for early withdrawal. You can also avoid this penalty at age fifty-five on a 401(k) associated with a job that you just left. This is a significant tax break if you need the money at this time. You will have to pay income tax on any money you withdraw, but not having to pay the penalty can make a real difference. It is extra money that you do not have to withdraw from your account.
So yes, there are tax breaks for different generations, this is because as you get older your situation changes. Your income changes, your opportunity for income changes, your sources of income change. As a result, there are going to be tax benefits you get at some ages that you do not get at others. If you are younger, remember that most seniors do not get a mortgage deduction, or the opportunity to deduct children. So, in general, various ages will get tax breaks, that other ages do not.
If you have any questions relating to investing, taxes and your financial future, do not hesitate to reach out to me to schedule a complimentary strategy session.
“Always Be Outstanding, and lets make yesterday jealous of today!”
Vincent A. Virga
President, PFS Wealth Management Group
Creator of The S.M.A.R.T. Approach, A 5 Step Process to Life, Leadership and Investing
Advisory services offered through Madison Avenue Securities LLC (MAS), a Registered Investment Advisor; MAS and PFS Wealth Management Group are not affiliated companies. MAS does not provide legal and tax advice. Seek competent legal and tax counsel for your specific needs.