Roth IRA

Top Tax Deductions for Seniors and Retirees

Here are some of the most important tax deductions for seniors and retirees. 

  1. Higher standard deduction.

Any taxpayer that is 65 and older by December 31 of the tax year is entitled to a higher standard deduction. Taxpayers may take the higher standard deduction if a spouse is age 65 or older and together they file a joint return. Also, the higher standard deduction may be taken if the taxpayer files a separate return and can claim an exemption for a spouse because the spouse had no gross income and can’t be claimed as a dependent by another taxpayer. 

Tax Issues for new Widows and Widowers

It’s a traumatic experience to lose a spouse. While there is little that can be done to replace this physical and emotional loss, the Tax Code provides some relief for newly widowed taxpayers. Here is a summary of some of the tax breaks for the newly widowed:

Filing Status

Losing IRA Status Under IRC § 408(e)(2)

Owners of Self-Directed IRAs which engage in certain types of “prohibited transactions” or invest in life insurance, foreign investments or collectibles may risk losing the tax-deferred status of their IRA accounts. If the owner (or beneficiary) of an individual retirement account, as described in I.R.C. §408(a), engages in any transaction that is prohibited under IRC §4975, the entire value of the IRA, determined as of the first day of the taxable year for which the account or annuity ceases to be an IRA, is treated as distributed to the IRA owner. See I.R.C. §408(e)(2)(B).

Converting Your IRA To A Roth IRA

In 1997, the Roth IRA was introduced. Since then, many people have converted all or a portion of their existing traditional IRAs to a Roth IRAs, where interest earned may be completely tax-free. This benefit applies as, once a taxpayer has held the account for five years, no taxes will be owed when the money is withdrawn at retirement. This is the opposite of a traditional IRA where a tax break is received in the present, but income taxes are paid in retirement.

Taking A Short-Term Loan From Your IRA

When strapped for cash, IRA owners have traditionally been able to take a short-term loan from their IRA, although this has been limited in recent years. Taxpayers may withdraw money from an IRA, without penalty or any tax liability, for up to sixty (60) days. The borrowed monies must be “rolled back” into an IRA within 60 days from the day after the date of the withdrawal, or income tax and penalties apply to the amount withdrawn and unreturned. Similar rules exist for rolling over one Roth IRA to another Roth IRA. The sixty day count involves calendar days, not business days. Keep in mind there is no extension for the sixtieth day falling on a weekend or holiday.

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