Your 21st birthday might have been a favorite birthday but when it comes to taxes, three other birthdays can significantly affect your financial picture. Maggi Tax shares more about these important milestones that may have implications for both retirement and tax situations.
The first critical age that can color your retirement plans is 50 years old. At this time, employees can make an annual “catch-up” contribution in addition to their usual contributions. Currently, up to $6,000 can be contributed to an IRA if you are under 50 years old and an additional $1,000 if you are older than 50 years or older. If you are 50 years and older, you can also contribute up to $6,500 to a 401(k), 403(b), 457 plans, and for federal employees, a total of $27,000 to a Thrift Savings Plan. By contributing additional earned income to a tax-deferred account now, you can alleviate future tax burdens.
Before 65 years old, a standard deduction for the 2021 tax year was $12,550 for single filers and $25,100 for married couples filing jointly. However, when age 65 is reached the standard deduction increases by $1,700 for single filers and $2,700 for married couples filing jointly if both are of age. Because retirement can cause dramatic changes to tax situations, you may make changes to your filings. For example, many decide to forego itemizing and instead claim the standard deduction if other popular deductions like mortgage interest are unavailable.
At age 72, Required Minimum Distributions (RMDs) are applied to qualified retirement plans like 401(k)s, 403(b)s, and IRAs. This rule requires a minimum amount withdrawn annually but more can also be withdrawn. Withdrawals from a retirement account can cause a higher tax burden that can terminate tax-free growth quickly. If you forget an RMD, there is a 50% penalty based on the amount on top of any owed taxes. Working with a tax professional can help you project amounts and plan accordingly.
As you approach retirement, consider a company that has spent over 30 years guiding Tampa Bay residents with all aspects of their financial well-being. Contact us here or call (727) 799-1701 to schedule your appointment today.