“E” is for the elderly.  Some of my favorite people are elderly, but instead of singing the praises of my grandma, I suppose I will discuss the tax implications of being old.  There aren’t really tax credits for being old.  There is a slightly increased standard deduction for taxpayers over 65, but that’s not really noteworthy.  Being old does have its perks though.  For one it means you are retired, and with retirement comes Social Security.  Social Security is up to 85% taxable depending on your income level.  For some thoughts on when to claim Social Security, check out my posts from June.

The other part of retirement is the ability to withdraw money from IRAs and 401(k)s.  Taxpayers older than 59½ can take distributions without penalty from IRAs and 401(k)s.  Anyone younger than that is going to have a 10% early distribution penalty on the withdrawal.

Being old can also work against you with those IRA and 401(k) accounts.  When you reach 70½ you will be forced to take money out of your traditional IRA and 401(k) plans whether you want to or not.  They are called Required Minimum Distributions and it’s based on your age.  At 72 it’s about 4% of the balance of your account.  By the age of 78 the RMD is roughly 5% of the balance each year.  If you make it to 92 you are looking at 10% of the account balance every year.

Being old can certainly have its tax advantages and disadvantages, but hopefully with some good tax planning you can minimize your tax and maximize the enjoyment of your golden years.

Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order.