As the April 15 tax deadline approaches, retirees still have opportunities to reduce their taxable income and keep more of their savings. From IRA contributions to strategic deductions, these tax-saving strategies could significantly lower this year’s bill.
Understanding available tax breaks is crucial, especially for those on a fixed income. By taking advantage of last-minute deductions and credits, retirees can maximize their savings while ensuring compliance with federal and state tax laws.
Maximizing retirement account contributions
One of the most effective ways retirees can lower their taxable income is by making contributions to a traditional IRA. Even though retirement is in full swing, many older Americans still generate earned income from consulting, part-time jobs, or small business ventures, making them eligible to contribute.
According to the Internal Revenue Service (IRS), there is no age limit for contributing to a traditional IRA, as long as an individual or their spouse has earned income. Contributions can be made up until the tax filing deadline of April 15, 2025, for the 2024 tax year, potentially reducing taxable income.
However, the deductibility of these contributions depends on whether the retiree or their spouse is covered by an employer-sponsored retirement plan.
For those not yet enrolled in Medicare, contributing to a Health Savings Account (HSA) is another tax-efficient option. HSAs offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses remain untaxed.
According to the IRS, individuals with a high-deductible health plan (HDHP) can continue contributing to an HSA until Medicare enrollment, helping to offset healthcare costs in retirement.
Taking advantage of deductions and tax credits
Retirees must carefully assess whether to take the standard deduction or itemize deductions, as this decision can have a significant impact on their tax liability. For 2024, the standard deduction is set at $29,200 for married couples filing jointly and $14,600 for single filers.
Those aged 65 and older receive an additional deduction—$1,950 for single filers and $1,550 per spouse for joint filers if both qualify.
However, retirees with substantial medical expenses, state and local tax payments, or charitable donations may benefit more from itemizing deductions.
According to Isaac Bradley, director of financial planning at Homrich Berg, unreimbursed medical expenses exceeding 7.5% of adjusted gross income (AGI) can be deducted. This is often one of the largest tax-deductible expenses for retirees.
Additionally, certain states provide property tax relief for seniors. In Washington, D.C., for example, the Senior Citizen Tax Relief program reduces property taxes by 50% for eligible homeowners. Retirees should check with their state tax agency to explore potential credits and exemptions.
By strategically managing contributions, deductions, and state-specific tax breaks, retirees can reduce their tax burden and optimize their finances before the filing deadline.
