Retiring Soon? Unlocking the Benefits: Tax Deductions and Credits for Retirees
Retiring Soon? Unlocking the Benefits: Tax Deductions and Credits for Retirees
As the Bible says, "The plans of the diligent lead to profit as surely as haste leads to poverty" (Proverbs 21:5). In the context of retirement planning, this proverbial wisdom is especially apropos. It's not just about what you've earned over your lifetime, but how wisely you manage it in your golden years. Tax planning should be an integral part of this phase, often overshadowed by other aspects like estate planning and lifestyle changes.
So, let's take a prudent approach to unravel the often-overlooked tax deductions and credits available to retirees. By fully utilizing these benefits, you're not just complying with the laws of the land but stewarding your resources in a way that can enhance your retirement income.
The Various Avenues of Tax Deductions
Navigating through the maze of tax codes can be overwhelming. Yet, there are some crucial deductions that can help reduce your taxable income. Remember, a dollar saved in taxes is an extra dollar in your pocket. Let's delve into some of these:
Medical Expense Deductions
As you age, medical expenses tend to rise. The IRS allows you to deduct the amount that exceeds 7.5% of your adjusted gross income (AGI). This includes everything from surgical procedures to prescription medication.
Charitable Contributions
Your charitable contributions can also work in your favor. Not only is giving part of a biblically-based lifestyle, but your gifts can also offer tax incentives. You can deduct donations up to 60% of your AGI. Additionally, if you donate assets like appreciated stocks or real estate, you may avoid capital gains tax … even if you’re not in a position to itemize your deductions.
State and Local Taxes (SALT)
If you reside in a state with income tax, you can opt for State and Local Tax deductions. While there is a $10,000 limit ($5,000 for married individuals filing separately), every bit counts when optimizing your tax profile.
Tax Credits That Speak to You
Credits are even more potent than deductions because they reduce your tax liability dollar-for-dollar. For retirees, there are some significant credits to consider:
Retirement Savings Contributions Credit
Also known as the Saver’s Credit, this applies to eligible individuals who make contributions to retirement accounts like a Roth IRA. If you’re still working part-time in retirement and contributing to retirement accounts, this credit can be beneficial.
Elderly and Disabled Tax Credit
If you're 65 or older, or retired on permanent and total disability, you may qualify for the Elderly and Disabled Tax Credit, which could be worth up to $7,500.
The Importance of Professional Guidance
King Solomon, renowned for his wisdom, once said, "Plans fail for lack of counsel, but with many advisers they succeed" (Proverbs 15:22). Consulting a tax professional, along with your financial advisor, ensures that you're not only adhering to tax laws but also maximizing your retirement income. The complexities of retirement tax planning are navigable, but they require diligent planning and sound advice. At Allgood Financial, we aim to be part of your advisory team, working toward maximizing what you keep from what you've earned.
The Confluence of Diligence, Wisdom, and Stewardship
Retirement isn't merely an end; it's a new beginning. A phase that promises the joy of reaping the fruits of years of labor, but also a stage that demands the wisdom of a steward. As we are told in the parable of the talents (Matthew 25:14-30), good stewardship is rewarded. By prudently leveraging tax deductions and credits, you're not just adhering to a biblical ethos of wise financial management; you're actively improving your standard of living in retirement. This isn't about tax evasion or loopholes; it's about making informed choices that align with both the laws of the land and the principles of good stewardship. Because in the end, your golden years should be just that—golden.
