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Impactful ways retirees can save more on taxes

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In 2023, Social Security and Supplemental Security Income (SSI) recipients received a higher cost-of-living adjustment of 8.7%, with an average of $140 more per month. According to the Social Security Administration, for 2024, that increase will only go up 3.2%. With economic headwinds and continued inflation persisting, it’s important for retirees and those approaching retirement to learn how to save in different ways.

Yahoo Finance Senior Columnist Kerry Hannon joins the Live show to give insight into some of the best ways retirees can save money through their taxes.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Nicholas Jacobino

Video Transcript

RACHELLE AKUFFO: Well, we’re going to stay with taxes. A potentially steeper tax bill could be on the horizon for some people this year. Now with Social Security recipients, receiving a higher cost of living adjustment in 2023, that extra income could make their benefits taxable. Here with ways retirees can save this tax season is Yahoo Finance’s Kerry Hannon. Kerry, good to see you. So what do retirees need to know?

KERRY HANNON: Well, great to see you. So in addition to that bump up in the cost of living adjustment, retirees also in their non-retirement accounts saw some boost there as well. You figure the S&P 500 was up like what? 24% or something last year. So in capital gains and dividends, they saw a little more juicier income coming in. But there are a couple of things there’s still time to do. There’s three basic things.

The first thing is– and this is absolutely true. Many retirees continue to work part time or as a consultant. If you’re doing that, you can contribute to an individual retirement account. And if you have up until April 15th, if you’re 50 and over, you can put in $7,500, lop that off your gross income. And that’s a great savings right there if you can get to that. The second thing is a health savings account.

If you haven’t started taking Medicare yet and you’re in a high deductible medical plan, if you’re over 55, 55 and over, you can set aside $4,850 this year in that account by April 15th. What I love about these, Rachelle, is it’s a triple tax advantage. You don’t pay tax going in, the money grows tax free in the account. And when you take it out for medical expenses that are approved medical expenses, it’s not taxed then either.

So it’s a really great asset if you can shift money over there this year. The third thing is itemize. You might want to itemize. It depends on your situation, but the standard deduction is $27,500 if you’re married, filing jointly. And I think it’s 13,500 for single filers. Now if you’ve had a big medical bill, come on, you can easily exceed that.

So it might be worth your time to talk to your accountant a little bit and find out if in fact your medical expenses bump you up over so it makes sense to itemize this year. The final thing is, a lot of people forget about there’s an extra standard deduction if you’re 65 and over. Now it’s a smidge. I mean, really it’s not a huge amount, it ranges from $1,500 to $1,850 depending on your filing situation.

But it’s certainly worth a consideration. So I encourage everyone really to really scrutinize, where can I get a little bit off the top here because last year, in fact, was pretty good for some retirees.

RACHELLE AKUFFO: And Kerry, some retirees stick their heads in the sand and stick things on autopilot. What’s the biggest mistake they can make in this time so that they don’t– in case they end up missing out on a bunch of money when they don’t have to?

KERRY HANNON: Yeah. I think you really need to be proactive. And I love your guys, your discussion earlier about, do you have a tax? Do you work with an accountant or do you do it yourself? And if you choose to do it yourself, stay on top of these things because there are ways. And then I also think it’s really important to look ahead. I think retirees this coming– for next year’s tax season, are going to find that those who are already taking their required minimum distributions from their retirement accounts are going to have bigger distributions next year.

I mean, during this tax year, for 2024, so for next year. So I’m confusing everyone. But 2025 tax bill may be a bit bigger. So right now, start looking at what you might be able to get some breaks during this year so that you will be in a better position next tax year.

RACHELLE AKUFFO: Always have to plan ahead. Appreciate, you’re always breaking that down for us. Our very own Kerry Hannon, thank you.

KERRY HANNON: Thank you.

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