7 Income Tax Breaks That Retirees Often Overlook

Photo by buritora / Shutterstock.com

How does the adage go? With age comes … new ways to save on taxes.

While you can’t stop filing taxes just because you retire, being a retiree often means you can claim some worthwhile tax credits and deductions.

In some cases, these tax breaks are available to both workers and retirees, so the latter often don’t realize they might be eligible. In other cases, these tax breaks are effectively reserved for older taxpayers, meaning taxpayers may not hear about them until later in life.

Following are several examples of federal income tax breaks that retirees often overlook.

1. Bigger standard deduction

For seniors who don’t itemize their tax deductions, a higher standard deduction is a free potential reduction in your tax bill.

Seniors generally get an increase of $1,300 per married person or $1,650 per single person from the usual standard deduction. For the 2020 tax year — meaning the return that’s due in April — the IRS defines “senior” as someone born before Jan. 2, 1956.

For two married seniors, for example, that’s an extra $2,600 they get to subtract from their taxable income — without doing any work or keeping any receipts. What savings that actually translates into will depend on their income, but it means a lower starting figure for Uncle Sam to tax them on.

2. Saver’s credit

What’s better than a tax deduction? A tax credit! A deduction lowers your taxable income, but a credit reduces your tax bill dollar for dollar.

The saver’s credit isn’t specifically for retirees, so they might easily overlook it. But it’s for any eligible taxpayer who is saving money in a retirement account. That means it’s available to retirees who are still able to stash cash in a retirement account — assuming they otherwise qualify for the credit.

So, for as long as you’re contributing to a retirement plan, you should be checking your eligibility for the saver’s credit each year. If you’re eligible, it could reduce your taxes by up to $1,000 — or $2,000 for married taxpayers filing a joint return.

The main eligibility requirement, besides saving money in a retirement account, is having an income below a certain threshold, as we detail in “This Overlooked Retirement Tax Credit Gets Better in 2021.”

3. Health insurance premium deduction

If you are self-employed, you may be able to deduct your premiums for Medicare or other health insurance plans as a business expense. According to the IRS:

“You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. … Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction.”

For example, the Medicare Part B standard monthly premium for 2020 was $144.60 per month — a potential write-off of $1,735.

4. Contributions to traditional IRAs

A federal law known as the Secure Act of 2019 repealed the maximum age for contributing to a traditional individual retirement account (IRA).

So as of the 2020 tax year, retirees who still are bringing in earned income, such as from a part-time job, can save money in this type of account no matter how old they are — and thus write off that contribution on their taxes.

There is no maximum age for contributing to a Roth IRA, either, although contributions to this type of account are not deductible on your tax return. Instead, you instead get to withdraw the money tax-free, provided that you otherwise follow the IRS rules for Roth accounts. (With a traditional IRA, withdrawals are considered taxable income.)

To learn more about these two types of accounts, check out “Which Is Better — a Traditional or Roth Retirement Plan?

5. Spousal contributions to traditional IRAs

While you can contribute to an individual retirement account (IRA) only if you have earned income such as wages, that can be your spouse’s income.

This means a working spouse can help a non-working spouse save money in a retirement account, as we detail in “7 Secret Perks of Individual Retirement Accounts.”

Spousal contributions to a traditional IRA also qualify you for a tax deduction, assuming you meet income and other eligibility requirements.

6. Qualified charitable distribution

Generally, taxpayers have to itemize their deductions — as opposed to claiming the standard deduction — if they want credit for donating to charity. And after the enactment of the federal Tax Cuts and Jobs Act of 2017, standard deductions got bigger, meaning fewer people benefit from itemizing.

Some retirees may effectively be able to get around this, however.

After age 70½, you can transfer money from an IRA to a charity and have the amount count toward your required minimum distribution (RMD) without counting as taxable income for you. The IRS calls it a “qualified charitable distribution.”

This isn’t a true tax credit or deduction but still has the effect of lowering your taxable income and thus possibly your tax bill, because your RMDs would usually otherwise count as taxable income.

Note that while the Secure Act changed the age at which you must begin taking RMDs from 70½ to 72, that change did not apply to qualified charitable distributions. So, they still can be made at age 70½, according to Ed Slott & Co.

7. Charitable write-off without itemizing

For the 2020 and 2021 tax years, there is another type of charitable deduction available to taxpayers who do not itemize their deductions.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 temporarily changed the federal tax code such that people who claim the standard deduction can write off up to $300 in monetary donations to charity in 2020. So retirees who donated to charities last year now can claim that break on their return.

Then, a separate law enacted in December last year extended and expanded this charitable write-off for 2021, as we report in “2 Charitable Tax Breaks Have Been Extended for 2021.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
20 Generic Brands That Amazon Created

Amazon’s growing collection of private brands offers everything from toilet paper and coffee to motor oil and clothing.

Why Is My Pension Killing My Social Security Benefit?

A reader says the government is penalizing him for having a pension. Is he right?

8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

17 Amazon Finds Under $20 That Will Organize Your Life

We’ve rounded up must-have products to help you get your ducks in a row.

7 Free Tools for Saving More Money at Amazon

Use these websites and other tools to save money — or earn extra cash — when shopping at Amazon.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

Why Your Next Stimulus Check Might Be Bigger Than You Expect

Your third coronavirus payment will be the biggest yet — and possibly even bigger than you realize.

9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.