Let’s get this out of the way. No one likes to pay taxes. While it’s a social responsibility, paying taxes can be considered a financial burden. What’s more, with today’s constantly changing rules and regulations, paying taxes can be a confusing task, especially for loved ones who are retired. 401(k) plans, IRAs and other investment accounts are popular among retirees, but they also carry with them tax traps that are a source of nightmares. As such, in order to provide you with more details and information about paying tax as a retiree, here are some frequently asked questions.
Is the Tax Rate Higher or Lower for Retirees?
Even though the popular assumption is that applying for retirement plans is a way to pay lower taxes, that’s not always the case. It largely depends on a case-by-case basis. As most retirees have fully paid their homes and their children are already working adults, they are no longer able to claim tax deductions. If the retiree is continuing to bring in income, it will be taxable. And the bad news is that the tax rate will only increase in the future. Considering that the current economy is not doing that great and the amount of debt our country has incurred, it only makes sense that we have to pay a higher tax rate.
Are My Social Security Benefits Taxed?
Unfortunately, yes. Depending on how much is your “provisional income”, it’s possible up to 85% of your social security benefits are taxable. In order to find out your “provisional income”, take your gross income, add half of your social security benefits, and add the tax-exempted interest. On the account that you have a spouse and file taxes as joint applicants, there will be no tax on your social security benefits if the provisional income is less than $32,000. 85% of the social security benefits will be taxed only for those earning above $44,000.
Can I Still Contribute to IRA After I Have Retired?
Of course you can! As long as you continue to receive a salary, you can contribute to IRAs. For those below the age of 50, the highest amount of money you can put in an IRA is $6,000 in 2022. Do note that money contributed to a traditional IRA may be taxed, though that’s not the case for Roth IRAs. This is so as you must pay the taxes before making contributions. As such, you now have the freedom to withdraw from a Roth IRA at any time without worries of paying taxes or a penalty.
As a Retiree, Can I Take a Higher Standard Deduction?
Yes. If you’re single, the standard deduction is $12,950 in 2022. For married couples filing for joint tax returns, it would be $25,900. However, for those aged 65 and above, they are entitled to a further $1,750 in 2022. The only requirement is that they must file as a single or head of the household.
