2019’s Top Tax Tips for Retirement Planning
Did you know that experts recommend saving $1 million for retirement?
Unfortunately, most Americans have only saved 12% of what they need as they come close to retirement age.
Americans between the age of 55 and 64 with retirement savings only have an average of $120,000 stashed away.
While a quarter of responders said they actively saved between 6 and 10% of their incomes, 20% of people reported that they didn’t save anything at all.
To enjoy all the potential benefits of your retirement, there are top tax strategies that will help you prepare for and enjoy your golden years to their fullest.
Keep reading to uncover 2019’s top tax tips!
Why Do People Retire Early?
Many Americans retire earlier than planned, for reasons they don’t see coming.
Sometimes new positions don’t work out the way an employee expects, and they might not get paid enough or be able to handle the job. Finding work after a layoff can be difficult, especially at a time where you may be a victim of ageism.
Often, an individual will have to stop working to care for a loved one, which leads to unplanned and early retirement.
Health isn’t always predictable. Sometimes a professional is forced to leave their careers earlier than planned because unforeseen health issues affect their ability to work.
Health issues account for the biggest reason people retire early.
What’s the Average Age of Retirement in the United States?
The average age for retirement in the United States is 65 years old.
At 62 years old, you can start claiming your social security. However, Medicare doesn’t become available until age 65.
If you work until age 70, you’ll get delayed retirement credits, which help to maximize your benefits.
Are you planning on retiring early? Here are 5 things to consider if you are.
Now let’s learn about all the best tax tips!
Take Advantage of Deductions
Standardized and itemized deductions determine how much of your income won’t get taxed. Taking advantage of those deductions is an essential retirement planning tip.
What’s left after you make deductions is your taxable income, and how high that income is, determines your bracket and tax rate.
Just remember that you can’t claim the standard deduction AND itemize deductions for your filing status. You have to choose either or.
A financial advisor will tell you to check the numbers both ways. If you work with an accountant, ask them to check for you.
On loans up to $750,000, or with mortgage interest, retirees can coordinate their taxable retirement distributions. Other available itemized deductions are real estate taxes up to $10,000 and medical expenses over 10% of adjusted gross income.
Even still, the standard deduction can often be a better deal because it increases for taxpayers 65 or older. For your spouse, you’ll get an additional $1,300, or $1,650 if you’re single.
Don’t Forget About Your RMDs
If you have a traditional IRA, a 401k, or another form of employer-sponsored retirement plan, you have to start making yearly withdrawals from your retirement accounts once you reach the age of 70 1/2.
They’re called “required minimum distributions” or, RMDs. Once you turn 70 1/2, you have until April 1 of the next year to take your RMDs. After that first year, however, you have to take your money by the end of each calendar year.
Your required minimum is based on your age and other factors, and the IRS has tables that detail the amount you must take out based on your income and other details.
If you forget to take your minimum distribution, you’ll get a huge tax penalty, 50% of the amount of money you were supposed to take out.
Also, remember that you have to take RMDs from inherited accounts too, but the withdrawal rules are different.
Understand Your Social Security
When you’re a retiree or of the senior age, the chances are high that a good portion of your income comes from Social Security.
That’s why it’s vital you understand the rules for how these benefits are taxed.
If your income exceeds a certain amount, then social security benefits are taxed. At this point, your income is defined as half of what your Social Security benefits are, plus any taxable income and some nontaxable income, such as municipal bond interest.
For example, if your income is above $25,000 and you’re single, or if you’re married filing jointly and your income is above $32,000, up to 50% of your Social Security benefits are eligible to be taxed.
If you’re married filing jointly and make $44,000 or more in income, up to 85% of your benefits could get taxed.
There are 13 states that tax Social Security Benefits, so make sure you speak with your financial advisor about your state’s rules.
There’s a Tax Credit for the Elderly
There’s a Tax Credit for the Elderly, and taxpayers who are 65 years of age or older can claim it.
But to qualify, your AGI must fall beneath certain limits, so you’ll need to invest in careful tax planning to make sure you qualify.
As of 2019, the credit could be anywhere from $3,750 to $7,500. The number depends on factors such as income.
Keep Track of Medical Expenses
Seniors face some of the biggest medical expenses. Unfortunately, some of these aren’t covered by Medicare.
If you incur any unreimbursed expenses during your retirement, keep track of the total. Once those expenditures exceed 10% of your AGI, you can take a deduction for any amount above that threshold.
You do have to itemize to claim this deduction, so it doesn’t make sense for seniors who claim the standard deduction, which may be the larger of the 2.
Talk to Your Accountant About Tax Strategies
When it comes to planning for retirement, there are many tax strategies that can greatly impact your future spending and living.
It’s important to know and understand all the ways in which you can save and make the most of your retirement funds and Social Security benefits.
Would you like to speak with a financial advisor to gain some peace of mind knowing you have more control over your future?
If you are ready to retire, ready to start planning your retirement or need any financial planning help, call us at 419.491.0909 or email us. Our team is made up of financial experts who can help you ensure your financial future and retirement is secure. We will help create a custom plan based on your needs, ensuring you can move to and live wherever you desire after retirement.
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