Tax Breaks After 50 You Can’t Afford to Miss

Contributions to a traditional IRA are tax-deductible as long as you meet IRS rules, including income limits. IRA contributions are fully deductible if you (and your spouse) aren’t covered by a retirement plan at work. However, the deduction may be limited if you are (or your spouse is) covered by a workplace retirement plan and your income exceeds certain limits. For 2023, IRA deductions for singles covered by a retirement plan at work aren’t allowed after modified adjusted gross income (MAGI) hits $83,000; the deduction disappears for married couples filing jointly when MAGI hits $136,000.

Retirement contributions made to a Roth IRA or Roth 401(k) are done on an after-tax basis: You get no up-front tax break for these contributions, but withdrawals taken from Roths in retirement are tax-free. The pretax money in traditional IRAs and 401(k)s grows tax-free, but you’ll eventually pay taxes when you start making withdrawals in retirement.

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Clark Randall, a certified financial planner at Financial Enlightenment in Dallas, encourages his clients to rethink their budgets to increase their regular retirement contributions throughout the year. “Budgeting for this expense is the same as any other. It takes discipline and compromise.”

If you still want to make catch-up contributions to a traditional IRA or Roth IRA for 2022, you have time. The deadline is April 18, the filing date for your tax return, unless you file for an extension. However, 401(k)s, 403(b)s, Thrift Savings Plans and most 457 plans go by the calendar year, so you’ll be investing for 2023 and have until the end of the year to do so.

You can wait until 73 to start your RMDs

Speaking of which, there’s also good news on required minimum distributions (RMDs), the minimum amount you must withdraw from a tax-deferred retirement plan, such as a traditional IRA. (Roth IRAs don’t require distributions while the owner is alive.)

Under rules that kicked in in 2023, you can wait until the year in which you reach age 73 before having to start taking RMDs. (For your first RMD payment, you can wait until April 1 of the following year, but you’ll also have to pay an RMD in December of that year.) Previously, the age was 72. If you don’t need the RMD, consider donating it to charity. If you donate your RMD to a qualified charity directly from your retirement account, up to $100,000, you won’t owe income tax on the distribution.

Don’t forget your HSA

If your employer offers a health savings account (HSA), you’ll want to make sure to take full advantage of it. The IRS allows you to deduct your contributions to your retirement account from your gross income, even if you don’t itemize, and those made by your employer are excluded from your gross income, too. Any earnings are tax-free. Your distributions aren’t taxed, provided you use them for qualified medical expenses, of which there are many — from ambulance rides to X-rays. Plus, the account is yours: You can take it with you to a new job and use the funds in retirement.

For 2023, you can contribute up to $3,850 if you have coverage for yourself, or up to $7,500 for family coverage. The catch-up is an additional $1,000 if you reach 55 during the year. However, your contribution limit is reduced by any amount your employer contributed that has been excluded from your income.

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