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Six Tax Breaks for Seniors

Posted on October 17, 2008 by bobrichards

Here are six tax breaks that apply to seniors or affect seniors because of their retirement status or age.
Immediate Annuities - an income source for those 60+

Immediate annuities pay a regular income and because the payments are based on age, it only makes sense for people age 60+ to use these vehicles (the higher the age when you invest, the higher the payment--see the immediate annuity calculator). The senior tax break is that IRA considers some of the payment return of principal (untaxed) and some of the payment interest (taxed). For an investor age 60+, 60% or more of each payment will not be taxed (unless the investor exceeds their life expectancy in the case of a life annuity). The fact that IRS excludes a portion of the payment from tax is a tax break for seniors.

Social Security Income is Taxed on  Favorable Basis

While working people pay tax on their social security income, seniors pay tax on only part their social security income.  The portion of social security income that is taxed can vary from 0% to 85%, based on the senior's total amount of income. Since only people age 62 receive social security retirement benefits, we can refer to this as a tax break for seniors. Retirees can actually manage their finances to reduce taxes on their social security benefits by moving money from assets that increase total income (CDs, bonds, tax free bonds, savings bonds) to deferred annuities or immediate annuities, some or all of the income form which does not appear on the tax return. These investments lower the total income appearing on the tax return and thus the percentage of social security income subject to tax.

Control the pace of IRA distributions

People age 70 1/2 must take distributions from their IRA, but above a minimum required amount, they can decide how much to take.  The less they take, the less tax is paid today.  Over the last 10 years, the government has reduced the minimum amount that needs to be taken creating a tax break for seniors. As a senior, you can manage your finances to take just the minimum required IRA distribution and using non-IRA assets for living expenses.

Select Which Funds to Use First and Reduce Your Taxes

If you spend $ of your IRA money, you may pay up to 35% tax on that IRA withdrawal.  But if you spend $1 from your savings account, you pay no tax to withdraw that money.  Therefore, because as a senior, you live off different parts of your nest egg, you can control your tax bill in a way that working person living from salary cannot.

Long Term Care Insurance-two levels of tax breaks for seniors

The federal government wants you to have long term care insurance so they provide two senior tax breaks as an incentive (see estimated costs using the long term care calculator). Since the average buyer of long term care is age 60+ any tax breaks regarding long term care are essentially tax breaks for seniors. Although not many people qualify for the first tax break, to the extent your out of pocket medical expenses and health insurance premiums exceed 7.5% of your adjusted gross income, you can deduct that excess as an itemized deduction on our tax return. There is a limit to how much can be deducted but that limit increases with age--in effect an age-based tax break for seniors.

Long-term Care Premium Deduction Limits

Age of Taxpayer

2007

2008

Age 40 or younger

$290

$310

Ages 41 - 50

$550

$580

Ages 51 - 60

$1,110

$1,150

Ages 61 - 70

$2,950

$3,080

Over age 70

$3,680

$3,850


Want to know more about tax breaks for seniors? Click on the booklet to get your copy.

Tax Breaks for Seniors

You Pay More Taxes Than Necessary

And we guarantee your CPA has never told you The problem with paying taxes is that most people overpay. So if you are concerned about having enough in retirement, you must stop overpaying taxes. I know you think your CPA takes care of this for you. WRONG. I AM a CPA (retired) and I can tell you that 90% of CPAs do nothing more than enter your information into the little boxes on the tax return but NEVER tell you how to pay less next year. Why? Many of them simply do not know what we can show you. In ten minutes.
Get Your Copy Now - 6 Ways to Cut Retirement Taxes

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Filed Under: Tax Savings

About bobrichards

Bob Richards
Editor | Involved in Various Marketing Positions within the Financial Services Industry

Comments

  1. Best etf funds list says

    May 19, 2009 at 12:55 am

    One thing you did not mention is some dividends get favorable tax rates. This applies when income is under certain amount and can be a good way to save on taxes and have income.

    Best etf funds lists last blog post..Bond etf.

    Reply
  2. Skin Care Anti Aging says

    July 12, 2009 at 7:22 am

    I've always disagreed that Social Security Income should be taxed on a favorable basis but instead should be put against the aquisition model furthered by john stoltz, duke economic prof.

    Reply
  3. Vermont Wedding says

    February 17, 2010 at 2:27 pm

    Just recently here in the Philippines the president officially declared tax exemption for seniors. I don't know if this is a good news or not.

    -Andre

    Reply
  4. ETF Funds says

    April 6, 2010 at 7:09 am

    Tax benefits can be found in ETF Funds. Anyone looking to restore their retirement portfolio's should consider investing in etf funds, they are a great way to 'repair' much of the damage done to our portfolio's over the last 18 months. tax benefits are just one of the core advantages...

    Reply
  5. contractors tax says

    July 18, 2010 at 12:09 am

    Hi ETF funds. I don't trust gold and silver ETF's, especially for pensions. Being that most physical assest are not there. What are you thoughts on that?

    Reply
  6. bijuterii argint says

    September 27, 2010 at 4:02 am

    tax benefits for seniors are one of the current world crisis decisions. we'll see how long this will be supported. (please delete my previous comment)

    Reply
  7. Tax Consultants Ireland says

    December 14, 2010 at 12:26 am

    I agree with you that tax benefits for seniors is the situaton for World crisis. Tax benefits are the advantages for the people. If anyon egts any sort of tax advantage they can save a big part of their income from paying to the Government which is only 20-30% used in the development of the contry rest everything goes in the account of the leaders.

    Reply

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