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Taxes are a worry for most retirees, even as they put their working years behind them and ease into what should be a more relaxing time.
Taxpayers were expecting to face even more worries at the end of this year, when the Tax Cuts and Jobs Act of 2017 was set to expire.
Fortunately, many of the act’s provisions became permanent when Congress passed and the president signed the One Big Beautiful Bill (OBBB).
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But the new law has done more than that. It also includes tax changes that are especially amenable to many retirees and near retirees.
However, they aren’t all going to last, so it may be wise to take advantage sooner rather than later.
The 65-and-older advantage
One of those changes is that many taxpayers age 65 and older can qualify for an extra $6,000 standard deduction. This not only lowers your tax bill but could also reduce your taxable income enough to avoid taxes on your Social Security benefits.
Yes, up to 85% of your Social Security benefits can be taxed, depending on your income.
If couples filing jointly are both at least 65, they can each qualify for the extra deduction, making it a total of $12,000.
But there are income restrictions on who qualifies. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 (or $150,000 for joint filers).
The deduction also won’t be around forever; it lasts only through 2028.
Higher deductions for state and local taxes
Some federal income taxpayers may also be able to take advantage of a higher deduction for what they pay in state and local taxes, the so-called SALT deduction, at least until 2029, when this law expires.
The cap on how much you can deduct has been raised from $10,000 to $40,000, but once again, there are income limits.
In this case, the new cap applies to incomes under $500,000 for those filing jointly, or under $250,000 for individuals or married couples filing separately.
For those whose taxable income is over $500,000, the cap is gradually reduced until it reaches the previous level of $10,000.
This new cap could change whether you decide to itemize your deductions rather than take the standard deduction.
Good opportunity for Roth conversions
In addition to taking advantage of the tax changes, there are other steps to consider during this limited period when your tax liability could be lower.
For example, this would be a great time to consider a Roth conversion if you have been saving money for retirement in a traditional IRA, 401(k) or other tax-deferred accounts.
Those accounts are great for saving money, and you do have immediate tax advantages with them since your yearly contributions aren’t taxed.
The downside is that when you retire and start spending the money you saved, your withdrawals are taxed.
Plus, once you reach age 73 (age 75 for those born in 1960 or later), required minimum distributions (RMDs) kick in, forcing you to withdraw a certain percentage each year whether you want to or not.
Roth accounts, on the other hand, grow tax-free, aren’t taxed when you make withdrawals and don’t have RMDs. You do, however, pay taxes when you make a conversion from a traditional account to a Roth.
But that’s one reason these next few years may be a good time to move some of your money to a Roth.
You have some wiggle room in your tax bill, thanks to tax provisions such as the extra deduction for those 65 and older, and you can also take advantage of the higher SALT cap.
Pay less, keep more for yourself
One criticism of the OBBB is that lower taxes could increase the federal deficit and add to the country’s growing debt. At some point in the future, that debt will need to be addressed — possibly through higher taxes.
In the meantime, consult with a financial professional to make sure you are getting the most out of the tax advantages currently available to you.
An adviser can review your individual situation, analyze your income sources and any available deductions or financial moves, and help you craft a plan that works best for you.
Yes, taxes are a concern even in retirement. But good planning and an awareness of changes that apply to you can allow you to give Uncle Sam less money and keep more for yourself.
Ronnie Blair contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
