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Retirement Planning

Tax provisions on retirement income

The IRS continues to add and change tax laws that could impact you in retirement. Find out which may affect you and how to plan for them.

Did you know that the IRS continues to adjust more than 50 tax provisions every year?1 With the constant flux of new rules and tax laws, it has never been more important to learn how certain tax liabilities can affect your retirement income.

Whether you're pre-retirement, still planning for retirement, or living in retirement, here are seven tax provisions that you should know about when planning for your golden years.

  • The IRA to IRA rollover limit
    As of 2015, you will be limited to only one IRA rollover to another IRA per calendar year, regardless of how many IRAs you own.2 With a rollover, you transfer money out of one Qualified retirement plan into another (such as a traditional IRA). The tax consequence for completing more than one IRA to IRA rollover will result in your income being taxed, as well as a 10% penalty if you're under age 59½.
  • Social Security taxation
    How much Social Security taxation you can expect depends on your total income. The higher your income is, the more taxes you'll pay on your benefits. For example, if you and your spouse file a joint return with a combined income between $32,000 and $44,000, up to 50% of your benefits may be taxable. If your combined income is more than $44,000, you could be taxed as high as 85%.3
  • The state inheritance tax
    In 2024, the federal estate tax exemption (the amount of money you can pass onto to your heirs tax free) has increased to $13.61 million - double that for a married couple.4 However, depending on your state of residence, your estate may be subject to a state inheritance tax. This additional state tax means that your heirs may be forced to give up a sizable chunk of their inheritance when you pass away.
  • The personal exemption elimination
    As part of the 2022 tax reform, you will no longer be able to claim a personal exemption for yourself, your spouse, or any dependents. 
  • Standard deduction increase
    While deductions for personal exemptions have been suspended as of 2018, the Standard Deductions for all filers have increased.
  • The health insurance penalty
    You're probably aware that if you don't have health insurance you'll pay a penalty.  To see how the fee is calculated, visit Healthcare.gov.
  • The credit for the elderly
    The Credit for the Elderly is just that - a credit that may be applied to your taxes that may help reduce the amount of income tax you owe to the IRS. According to the IRS, you may be able to qualify for this credit if you are a U.S. citizen or resident alien and either of the following applies:
    • You were age 65 or older at the end of the previous year or
    • You are under age 65 and retired, and meet all of the following criteria:
    • You retired on permanent and total disability.
    • You received taxable disability income for the previous year.

    The Credit for the Elderly or Disabled is meant to help reduce the taxes for low-income retired and disabled retired individuals. For this reason, there are eligibility limits that are based on your adjusted gross income (AGI), or the total of your nontaxable Social Security and other nontaxable assets.

 

1.  https://www.irs.gov/newsroom/in-2018-some-tax-benefits-increase-slightly-due-to-inflation-adjustments-others-unchanged
2.  https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira distributions#:~:text=IRA%20one%2Drollover%2Dper%2D,the%20distribution%20was%20rolled%20over
3. https://www.ssa.gov/planners/taxes.html
4. https://taxfoundation.org/data/all/state/state-estate-tax-inheritance-tax-2023/

  

WEB.1416.04.15

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