ALL THE MONEY NEWS YOU NEED TO KNOW | | | | | | Daniel de Visé | Personal Finance Reporter
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Good morning. This is Daniel de Visé with your Daily Money, Sunday Tax Edition. |
On Sundays between now and April 15, we'll walk you through what's new and newsworthy in Tax Season 2024. |
In today's edition, we're going to talk about three ways older Americans can save money on taxes. |
Take the extra standard deduction |
Here's the first: Take the extra standard deduction. |
Everyone knows about the standard deduction: a flat dollar amount, set by the IRS, that lowers your taxable income. You can opt to take the standard deduction or itemize. |
But there's an extra standard deduction available to people 65 years and older. (For tax year 2023, you're considered 65 if you were born before Jan. 2, 1959.) The extra deduction further reduces your taxable income. That means a smaller tax bill and more money in your pocket. |
Here's the amount of the extra deduction for 2023: |
• $1,850 if single or head of household |
• $1,500 (per qualifying person) if married or qualifying surviving spouse |
Those amounts are in addition to the regular standard deductions, which are: |
• $13,850 if single or married filing separately |
• $20,800 if head of household |
• $27,700 if married filing jointly, or qualifying surviving spouse |
Read more about the extra standard deduction. |
Contribute more to your retirement plan |
Another easy tax break for older Americans is to contribute more to a tax-favored retirement plan. |
If you have a 401(k), the contribution limit for 2024 is $23,000. But if you're 50 or older, you're allowed a "catch-up" contribution of $7,500, for a total annual limit of $30,500. |
If you have an IRA, the annual contribution limit is $7,000 – or $8,000, if you're 50 or older. |
Those contributions reduce your taxable income, and your taxes. |
"Think of catch-up retirement contributions like extra credit in school," said David Straughan , a finance writer and researcher at MarketWatch. "With these years just before retirement being the most financially fruitful, it provides the perfect opportunity to make up for the years in the past when money was tighter." |
Read more about retirement account contribution limits. |
Older Americans have more leeway than younger taxpayers to sock away pre-tax dollars in health savings accounts. |
The health savings account is considered one of the best tax breaks. It's pre-tax money; any interest it earns is tax-free; and it isn't taxed when you spend it on a qualified medical expense. |
"Ultimately, if it's within your means to max out your HSA, I strongly encourage you to do so," Straughan said. |
For 2024, the maximum HSA contribution is $4,150 for an individual and $8,300 for a family, but participants 55 and over may contribute an extra $1,000. That means an older married couple could contribute $10,300, all pre-tax. |
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