You’re Retired and Concerned About Tax Reform: Here’s What You Should Do

Tax Reform

 

A lot of ink has already been spilled about the recent passage of the Tax Cuts and Jobs Act.  No matter where you stand on the issues behind this bill, it all comes down to one issue—how will this directly impact you and your finances.  For those who are retired or getting ready to retire, the news may be disconcerting because it causes anxiety about how you will be impacted.  Here’s a breakdown of exactly how this new tax reform will affect your retirement and what you should do to offset any problems.

Roth Conversions—If you have a Roth account, you may need to take a look at how these will be impacted. In the past, if a person’s Roth account didn’t perform as expected, they could “recharacterize” the conversion to lessen their tax liability.  Under the new bill, this will not be allowed.

Standard Deductions—Another area to be affected is on the standard deduction for taxpayers. If you or your spouse is over 65 and you don’t itemize your taxes, then you can claim a higher standard deduction.  For couples, this is $1,250 more than for those under 65.  For single retirees, the deduction is $1,550 more than for those under 65.

IRAs and 401(k)s—If you are nearing retirement age, you can add up to $6,500 to your IRA, an increase of $1,000 from previous years. If you are over 50, the changes to an IRA can possibly net you a saving of over $16,000.  If you have a 401(k) plan, the savings are even greater.  A person over 50 can defer paying tax on $6,000 more than those under 50.  These two types of accounts are great ways to prepare for retirement.

Elderly exemptions—Property taxes will still largely vary from jurisdiction, but those who are 65 or older may still be able to pay less in property taxes due to the deferral on school taxes. In addition, if you make less $23,200 as a couple ($11,900 for a single filer), you are exempt from having to file income tax at all.

 

The specifics of the tax bill are still being uncovered as accountants and financial advisors pour over the hundreds of pages of the new law.  However, these are a few things you can look into right now as they will definitely be areas that impact your retirement.  As always, it is best to check with your financial planner to see what your specific situation warrants.


 

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Posted in Retirement, Senior Finances
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