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5 Great Ways to Cut Taxes in Retirement for 2019

A higher standard deduction, more room to shelter savings and a break for medical expenses are just a few things that can slash your taxes in retirement.
Aug. 20, 2019
Income Taxes, Personal Taxes, Taxes
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They say that with age comes wisdom. But with age also come a few perks that can cut your taxes in retirement.

Once your birthday cake has 50 candles on it, the IRS starts to lighten up a bit. And when you hit 65, the IRS has a few more small presents for you — if you know where to look. Here are five tax deductions and credits you don’t want to miss after you’ve blown out all those candles and want lower taxes in retirement.

1. A higher standard deduction

If you take the standard deduction instead of itemizing (learn how to decide here), you’ll be able to deduct the amounts in the table below. But the standard deduction is $1,300 higher for those who are over 65 or blind. It’s $1,650 higher if also unmarried and not a surviving spouse.

Filing status2018 tax year2019 tax year
Single$12,000$12,200
Married, filing jointly$24,000$24,400
Married, filing separately$12,000$12,200
Head of household$18,000$18,350

2. More room to shelter income

Because contributions to a 401(k) are tax-advantaged, the IRS limits how much you can contribute each year. For folks under 50, that limit is $19,000. If you’re over 50, though, you can put in $25,000 per year.

But alas, that assumes that you’re still working and that your employer offers a 401(k) plan.

If you’ve already kissed your cubicle goodbye, you may still be able to contribute an extra $1,000 a year to a traditional IRA or a Roth IRA (if you qualify for a Roth). That’s thanks to the IRS’ catch-up provision for people 50 and older. And remember, you can put money into a traditional IRA until the year you reach age 70½; there’s no age limit on Roth IRA contributions.

» MORE: Traditional IRAs vs. Roth IRAs

3. The deduction for medical expenses

If you itemize, you may be able to deduct unreimbursed medical expenses — but only the amount that exceeds 10% of your adjusted gross income. For example, if your adjusted gross income is $40,000, the threshold is $4,000, meaning that if you rang up $10,000 in unreimbursed medical bills, you might be able to deduct $6,000 of it from your taxes in retirement.

And if you’ve recently purchased long-term care insurance, you may be able to add in $420 to $5,270 of the premiums, depending on your age (the older you are, the more you can deduct from your taxes in retirement).

4. A safety net for selling that empty nest

This tax deduction is available to everyone regardless of age, but it’s especially useful if you’re itching to sell your house and downsize in retirement. The IRS lets you exclude from your income up to $250,000 of capital gains on the sale of your house. That’s if you’re single; the exclusion rises to $500,000 if you’re married.

So, if you bought that four-bedroom ranch house back in 1984 for $100,000 and sold it for $350,000 today, you likely won’t have to share any of that gain with Uncle Sam. There are a few conditions, though:

  • The house has to have been your primary residence.
  • You must have owned it for at least two years.
  • You have to have lived in the house for two of the five years before the sale, although the period of occupancy doesn’t have to be consecutive. (People who are disabled, and people in the military, Foreign Service or intelligence community can get a break on this, though; see IRS Publication 523 for details.)
  • You haven’t excluded a capital gain from a home sale in the past two years.
  • You didn’t buy the house through a like-kind exchange (basically swapping one investment property for another, also known as a 1031 exchange) in the past five years.
  • You aren’t subject to expatriate tax.

5. More help if you’re disabled

You may qualify for a $3,750 to $7,500 tax credit, depending on your filing status, if you or your spouse retired on permanent and total disability. IRS Publication 524 has all the details.

But be prepared for this one to give you a few gray hairs if you’re relying on it to cut your taxes in retirement. First, pensions and Social Security benefits can cause you to exceed the income limits. Plus, the tax credit is nonrefundable, which means that if you owe $250 in taxes but qualify for a $5,000 credit, for example, you won’t get a check from the IRS for $4,750. But at least you’ll get to enjoy a $0 tax bill.