Tax deductions in retirement

[jIMOh]

I read a blog today about higher tax deductions in retirement. For the group here which is retired already, are your deductions higher now (health care costs, health insurance costs were examples listed) than they were when w*rking?

I would think example cited in the blog were less than common, but asking anyway.

The Retirement Cafe - Home

 

[Rosie]

In a word, no.

 

[W2R]

Not really.

My tax rate is much, much lower than it was while working, though.

 

[Oleanmike]

I answered "lower" but in reality deductions haven't changed much since the mortgage has been paid-off. This is my second year of retirement and we're still healthy, so Health Care costs are non-deductible. I have to bundle property taxes every other year in order to exceed the standard deduction.

 

[Mulligan]

I have more deductions mostly to now having an HSA that I was not able to have while working, and I get a big state income tax exemption amount on my pension that saves me $2000 in yearly taxes. Also retirees in my state get a deduction for paid health insurance premiums. So my taxes are appreciably less in retirement.

 

[retiredatfifty]

We don't have enough deductions available to us anymore to exceed the Standard Deduction threshold.

 

[REWahoo]

None of the poll options are applicable to our situation.

Our deductions went up initially after retiring primarily due to significantly higher HI premiums. That changed once we both reached Medicare age - we no longer have enough deductions to itemize.

 

[RE2Boys]

No difference. Since mortgage paid off in 1996, never have enough schedule A deductions to itemize, have taken standard deduction since, retired in 2000. No option for "stayed the same" provided in poll

 

[scrabbler1]

I answered "No" mainly because my state income taxes went down a lot after I ERed. I have itemized in some of the years and have taken the SD in others. It depended on if my HI deduction was enough to offset the reduction in state income taxes. I have looked into bunching my estimated state income taxes (paying the 4th quarters of 2 consecutive tax years in the same calendar year) but I still have to consider the effect on the ACA subsidy because I receive a property tax rebate which becomes income in the following year, and also displaces some of my growing 0% income tax rate on LTCG and QD. I would have to figure out a 2-year effect on bunching but I have nearly a year to determine if it will benefit me.

 

[Zathras]

Our tax deductions went up, mostly due to more donations.
However, this is partially due to our income increasing by a fair amount the first few years of retirement, and now settling back down.
We lost our health deductions (no longer met the threshold), but gained donations.
Our medical bills continue to rise and our income is returning closer to our pre-retirement levels so we should soon start deducting some medical again.

 

[audreyh1]

More charitable donations. Doubling up property-taxes every other year.

We added a charitable donor-advised fund this year which will allow us to make tax-deductible charitable contributions every other year, yet gift the money every year.

 

[Midpack]

We've been standard deduction since we paid off our mortgage. The rest, medical, state & prop taxes, charity, etc. hasn't been enough to exceed standard. And now that I'm retired, I doubt we'll ever itemize again.

I hope no one here has high enough medical to itemize...

Medical expenses; 10 percent of their adjusted gross income. Previously, the law permitted deductions for unreimbursed expenses in excess of 7.5% of their adjusted gross income.

 

[audreyh1]

We've been standard deduction since we paid off our mortgage. The rest, medical, state & prop taxes, charity, etc. hasn't been enough to exceed standard. And now that I'm retired, I doubt we'll ever itemize again.

I hope no one here has high enough medical to itemize...

Better to have an HSA and pay for medical expenses with pre-tax dollars.

BUT health insurance premiums count towards that medical expense deduction as do dental and vision expenses and transportation to/from treatment. With 9% being considered the "affordability" test for health insurance, it might not be so hard to reach that 10% limit.

And if you or your spouse are 65 or older it's still only 7.5% of AGI through 2016.

 

[Midpack]

Better to have an HSA and pay for medical expenses with pre-tax dollars.

+1, we do as long as the account lasts. I guess I need to see if I have any HSA options in retirement, I am sure there's a thread here somewhere if we do.

 

[pb4uski]

Our deductions have changed mostly some medical expense and much lower tax deductions, but are much lower overall.

We now get a smidgen of benefit from the medical expense deduction because we have individual insurance which costs a lot and our income is lower. However, much lower state income tax deduction commensurate with our lower income.

No significant change in property taxes or mortgage interest. Charitable deductions are lower as well.

 

[audreyh1]

+1, we do as long as the account lasts. I guess I need to see if I have any HSA options in retirement, I am sure there's a thread here somewhere if we do.

If you are under 65 and your health insurance is HSA eligible - meeting the deductible and max OOP ranges and no copays for things like doctor's visits and prescriptions - then you can set up and contribute to an HSA. You can contribute to the HSA until you reach 65 and become Medicare eligible. You can still use the account after age 65 to cover medical, dental, and vision expenses and to pay Medicare part B premiums.

 

[Independent]

I read a blog today about higher tax deductions in retirement. For the group here which is retired already, are your deductions higher now (health care costs, health insurance costs were examples listed) than they were when w*rking?

I would think example cited in the blog were less than common, but asking anyway.

The Retirement Cafe - Home

When I followed the link, I got the home page at "Retirement Cafe". I couldn't find the word "deductions" anywhere on that page.

Maybe you could link to the specific article.

 

[Independent]

Our deductions are higher because we hit very high medical expenses. But, covering those expenses meant extra withdrawals from the IRA. I don't see the "benefit" of those deductions.

 

[Midpack]

If you are under 65 and your health insurance is HSA eligible - meeting the deductible and max OOP ranges and no copays for things like doctor's visits and prescriptions - then you can set up and contribute to an HSA. You can contribute to the HSA until you reach 65 and become Medicare eligible. You can still use the account after age 65 to cover medical, dental, and vision expenses and to pay Medicare part B premiums.

I'm retired and DWs employer plan is not eligible, so we'd have to find another angle to restart HSA contributions. Thanks...

 

[jebmke]

Made large donations of appreciated securities to DAF in 2007 (last working year). Will not see deductions this large until I hit 70 and start doing this again.

 

[audreyh1]

I'm retired and DWs employer plan is not eligible, so we'd have to find another angle to restart HSA contributions. Thanks...

You have to get eligible health insurance first. As long as you both are on a plan that is not eligible, you can't fund an HSA.

 

[daylatedollarshort]

We have some of the same deductions as this article from the WSJ on how not to pay any federal income taxes -

ROI: How to Avoid Paying Income Taxes - WSJ.com

 

[jebmke]

Most of this is not applicable to the truly retired.

 

[Katsmeow]

Up until now our deductions were much higher while both of us were working full-time. That is because we had a very large house with an expensive mortgage and it had high property taxes.

Since then we've move to a smaller house with a tiny mortgage and much lower property taxes so the last couple of years we couldn't even itemize.

We do get an education credit that we couldn't get in the past due to income too high.

However, 2014 is looking to be interesting. We are paying our property tax twice in 2014 and should get to itemize. The big wild car is medical expenses. Our insurance premiums are very high this year (about $16000). Adding in any medical expenses and we have a nice deduction. In the past getting over the 7.5% was challenging (DH is over 65).

However, for 2014 we plan to mostly live off some taxable money and DH's SS income and what I make from very part-time work. Basically we won't have to withdraw from the IRA at all. If we left it there all those deductions wouldn't help us since we wouldn't have any taxable income.

However, we anticipate high expenses in 2015 (kids in college) and we can avoid being in the 25% bracket in 2015 if we could withdraw some money from the IRA in 2014 (or Roth convert it). Basically with the deductions we will have we could withdraw a significant amount and pay no taxes or pay some up to some point in the 25% tax bracket. What I will have to figure out later in the year is whether we are better off doing that to minimize 2015 taxes or whether we are better off keeping our AGI very low so DS could get more financial aid. Right now it seems a bit of a toss up so we'll see how it looks middle of 2014.

 

[lemming]

My income went down so it was easier to meet medical floor -plus the 5k of health insurance that was once employer paid. Mortgage is almost low enough to be no help-about even with standard deduction. Must be time to pay it off-or not.