Tax Returns - Key Considerations for Retired Individuals (1)

As another tax season approaches, retired individuals across the country are gearing up to review their tax returns. Tax season can be daunting for anyone, but for retired individuals, it often comes with its own set of complexities and considerations. While retirement may mean bidding farewell to the daily grind, it doesn’t exempt one from tax responsibilities. In fact, understanding the nuances of tax returns becomes even more crucial during this phase of life. Let’s explore some key considerations to help retired individuals navigate tax season with confidence.

Retirement Income Sources:

Retirement income can come from various sources, such as pensions, Social Security benefits, retirement account withdrawals (like 401(k)s and IRAs), annuities, and investment dividends. Each of these sources may be taxed differently, and understanding the tax implications of each is essential. For instance, while Social Security benefits may or may not be taxable depending on your overall income, withdrawals from traditional retirement accounts are generally taxable.

Required Minimum Distributions (RMDs):

Once you turn 73, you must start taking required minimum distributions (RMDs) from your tax-deferred retirement accounts. These include traditional IRAs, rollover and inherited IRAs, SIMPLE IRAs, SEP IRAs, 401(k)s, 403(b)s and 457(b)s.

Until recently, RMDs were required starting at age 72, but the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 changed the age to 73. Starting at age 73, the pre-tax money you put away over the course of your career will now be subject to tax, and the government has a specific method of calculating how much you must withdraw every year based on your account balance and life expectancy.

If you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled. If you’re turning 72 in 2024 and have already scheduled your withdrawal, you may want to consider updating your withdrawal plan to reflect the later starting age.

Tax Returns - Key Considerations for Retired Individuals - Distribution Period Chart

Tax Credits and Deductions:

Retired individuals may be eligible for various tax credits and deductions that can help reduce their tax burden. For example, credits like the Elderly or Disabled Tax Credit and deductions such as medical expenses, property taxes, and charitable contributions can significantly lower taxable income. Understanding which credits and deductions you qualify for can lead to substantial tax savings.

Health Care Costs:

Healthcare expenses are often a significant concern for retirees. While medical expenses can be a burden, they may also provide opportunities for tax deductions if they exceed a certain percentage of your adjusted gross income. Additionally, premiums for certain types of health insurance, such as long-term care insurance, may also be tax-deductible. Properly accounting for these expenses can help minimize taxes and maximize savings.

Estate Planning and Inheritance:

Retired individuals should also consider the implications of estate planning and inheritance on their tax returns. Inheritances, including assets passed down from family members, can have tax consequences depending on the type of asset and its value. Estate planning strategies, such as gifting assets during one’s lifetime or establishing trusts, can help minimize estate taxes and ensure a smooth transfer of assets to beneficiaries.


In conclusion, tax returns for retired individuals involve many considerations that require careful attention and planning. By understanding the tax implications of retirement income sources, navigating RMDs, potentially maximizing tax credits and deductions, managing healthcare costs, and incorporating estate planning strategies, retirees can effectively manage their tax obligations and preserve their hard-earned savings.

 

View our FREE Guide on Required Minimum Distributions. Click Here

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View our FREE Guide for the 2023 filing numbers. Click Here

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If you’re unsure about any aspect of your tax situation, don’t hesitate to seek guidance from an Asset Strategy Advisor. Asset Strategy can provide personalized advice tailored to your circumstances.

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Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor.

This is for informational purposes only, does not represent legal or tax advice does not indicate suitability for any particular investor, and does not constitute an offer to purchase or sell investments. Please consult the appropriate professional regarding your individual circumstance.

There are retirement account risks that could diminish investor returns, such as, but not limited to: low interest rates, market volatility, withdrawal timing and sequence of returns risk, government policy uncertainty and increased longevity. Prospective investors should perform their own due diligence carefully and review the “Risk Factors” section of any prospectus, private placement memorandum or offering circular before considering any investment.

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Some disadvantages of a qualified longevity annuity contract (QLAC) include but may not be limited to illiquity due to the inability to withdraw money early or borrow against premiums, loss of funds due to premature death before the policy begins distribution, fixed minimum interest rates which may yield limited rates of return, inflation risk, and contribution limits.

Annuities are complex products and subject to risks which include but may not be limited to high up-front costs, high fees (e.g., administrative, mortality and expense risk fees), and low liquidity. Investors are advised to consider the investment objectives, risks, and charges and expenses of annuities and underlying investment options carefully before investing.

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