Retired? Don't Overlook These Sweet Tax Breaks

As nice as the fantasy of retirement may be, the reality can be a little scary. For some, retirement means having a set amount of money that needs to last the rest of your life. Fortunately, there are tax breaks that can help you maximize every dollar.

So whether you're already enjoying your retirement years or just dreaming of the day, be sure to take advantage of every potential tax break available to you.

Extra standard deduction

Once a person turns 65, the IRS provides a larger standard deduction. For example, for the 2023 tax year, a single taxpayer was able to claim $15,700 rather than the $13,850 claimed by those under 65. That's a bump of $1,850. For the tax year 2024, the standard deduction for a single taxpayer under the age of 65 is $14,600.

If you're 65 or older, you can increase that amount by $1,950 to $16,550. That means you could have a little extra to slip into a high-yield savings account.

Required minimum distributions workaround

Did you know that if you don't need the required minimum distribution (RMD) from a traditional IRA, you can transfer it directly to a charity and avoid taxes on the funds altogether? Thanks to qualified charitable distribution (QCD), you are able to transfer up to a whopping $100,000 annually to an eligible charity if you're age 70 1/2 or older. It's a win for the charity and a win for you.

Spousal IRA

While you typically have to earn income to contribute to an IRA, you can contribute to a spousal IRA if your spouse is still working. The money you contribute is in your name alone, even if your spouse is the one earning the lion's share of the money. The contribution limit for a spousal IRA in 2023 was $6,500, but has been raised to $7,000 for the 2024 tax year. It's a smart way to pad your retirement budget.

One caveat: If both you and your spouse are over the age of 50, your total household contribution to an IRA cannot exceed $16,000.

Medical deductions

Medical deductions cover all kinds of expenses, including trips to the doctor, medical tests, eye care, hearing aids, and dental work. As long as your total medical expenses are more than 7.5% of your adjusted gross income (AGI) and you itemize deductions on your taxes, here's a sample of deductions that can help reduce the amount you pay:

• Medicare premiums
• Prescription drugs
• Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
• Hospitalization
• Inpatient treatment for alcohol or drug addiction
• Amounts paid for false teeth, reading or prescription eyeglasses, contact lenses, hearing aids, a guide dog or other service animal to help a visually impaired or hearing disabled person, or a person with other physical disabilities, crutches, or wheelchairs
• Weight-loss programs for specific medical issues, including obesity
• Nursing home care
• Transportation for essential medical care
• Long-term care insurance premium

While this list is not complete, it does offer a peek at the wide range of medical services that are deductible. Let's say your AGI in retirement is $60,000. That means as long as you've spent $4,500 or more on medical-related expenses and itemize your taxes, you have a hefty deduction on your hands.

Self-employment 401(k)

Another sweet tax break is a Solo 401(k). There is no age limit on who can contribute, so if you have a side hustle or own a small business with no employees, you can contribute for as long as the business remains active. Better yet, if you're married and pay your spouse for their work in the business, they can also open a Solo 401(k). Like most employer-sponsored 401(k) plans, contributions are made pre-tax, meaning you won't pay taxes on those funds until you withdraw them.

What makes a Solo 401(k) even more attractive than a traditional 401(k) is the fact that small business owners over the age of 50 can contribute up to $76,500 in pre-tax dollars. It's an amazing way to make the most of a side hustle small business.

Growing older does have its advantages, and knowing enough to make the most of every dollar in retirement may just be one of them. Whether you hand your taxes off to a professional tax preparer or use free tax software to help you tackle them at home, every single tax break helps.