Published by: AARP

Year-to-year changes in areas key to retiree life — Social Security benefits, Medicare premiums, tax and savings policies geared for older adults — can greatly impact that balance, especially as they interact with economic shifts such as higher inflation or a market downturn. Here are seven things to know about your retirement money for the coming year.

1. Social Security payments

Social Security recipients will see their monthly payments rise 3.2 percent as the 2024 cost-of-living adjustment (COLA) kicks in. The estimated average retirement benefit will increase by $59 a month, from $1,848 to $1,907.

2. Medicare costs

After coming down by 3 percent in 2023, standard premiums for Medicare Part B are going back up in 2024, from $164.90 to $174.70 per month, a 6 percent increase.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments.  For this group, the premium increase takes a $9.80-a-month bite out of the COLA benefit boost.

3. Retirement plan contributions

If you are 50 or older, you can put up to $8,000 into an individual retirement account (IRA) for the 2024 tax year. That includes the $1,000 catch-up contribution available to older savers. The cap for people under 50 is $7,000. In both cases, the contribution limit has been bumped up by $500 from 2023.  (By the way, you can still make your contributions for the 2023 tax year — the deadline is April 15, 2024.)

4. RMDs

Required minimum distributions (RMDs) are a fact of later life for holders of most types of retirement savings accounts. (The notable exception is Roth IRAs, which are not subject to annual required withdrawals while the owner is alive. Starting with the 2024 tax year, this exception will also apply to Roth 401(k) and 403(b) accounts.)

5. Standard tax deduction

Most taxpayers take the standard deduction rather than itemizing on their tax returns. For the 2023 tax returns they must file by April 15, 2024, married couples in that majority can take $27,700 off their taxable income, up from $25,900 the year before. For individual taxpayers (single or married filing separately), the standard deduction increases from $12,950 to $13,850. Those filing as a head of household can deduct $20,800, up from $19,400 the previous year.

6. Full retirement age

Congress voted in 1983 to gradually raise the Social Security full retirement age (FRA) from 65 to 67.  Four decades on, the change is nearly complete, with FRA reaching 66 and 8 months in the latter half of 2024.

7. Social Security earnings test

If you claim Social Security retirement benefits before reaching FRA and continue to do paying work, your benefits may be temporarily reduced. That depends on whether your annual working income exceeds a set limit called the earnings test.

The post 7 Ways Retirement Will Be Different in 2024 appeared first on C-Medisolutions.

Published by: AARP

Sometimes we forget to think things through before wrapping up our financial year. That’s why AARP is offering this unusual year-end advice list to retirees: financial moves you should not make before the end of 2023.

Much of the list is solid advice about financial moves you’d be smart to hold off — for tax purposes — until 2024. In other cases, it’s simply a reminder that while the end of the year is typically a terrific time to review your portfolio, that doesn’t mean you should make a bunch of financial moves just for the sake of making them.

1. Don’t realize capital gains before the year-end unless you use them to offset losses. “It’s the biggest mistake people make,” says Tom Balcom, a certified financial planner in Lauderdale-By-The-Sea, Florida. By patiently waiting until the calendar changes to January, you can delay paying taxes on these gains until 2025, he says.

Most people don’t even think about this, and if they need cash for, say, college tuition or a car payment, they sell without considering the potential tax implications, Balcom says.

2. Don’t take home a workplace bonus in December that you can possibly delay and accept in January. If you delay the bonus until January, that relieves you of any tax implications for a full year, Balcom says.

While it’s true that many companies won’t delay the year-end bonus until the following year, it’s worth asking because the worst they can say is no, he says.

3. Don’t spend money you don’t have. While retired folks, in particular, might like to give generously to kids and grandkids at holiday time, don’t give or purchase anything that you can’t pay off within a few months, says Crystal McKeon, a certified financial planner in Houston.

4. Don’t get divorced in December. Instead, for the best tax filing outcome, it’s usually best to wait until January, says Sara Stolberg Berkowicz, a certified financial planner in Skokie, Illinois.

She knows this very personally because that was the advice she received — and heeded — two decades ago when she divorced. After all, married couples typically receive better breaks on their taxes, and their filing status is determined on Dec. 31. So, for example, if your divorce is finalized on Dec. 30, your tax status for the entire year will be single — not married — even though you were married for 99 percent of it.

5. Don’t pay all bills exactly when they are due. For example, many folks have property taxes due or want to give sizable charitable donations at the end of the year. You might, instead, choose to make two property tax payments (or two “annual” charitable deductions) in one year, Berkowicz suggests.

This way, instead of receiving the standard deduction, if you bunch the payments into one year you might qualify for a more tax-advantageous itemized deduction. That’s ending the year tax-smart.

6. Don’t let unused services follow you into 2024. Use the end of the year as a reminder to review your recurring bills and make certain that you are using all of the services for which you’re paying, McKeon says.

7. Don’t forget to take your required minimum distributions (RMDs). The actual age for RMDs seems to be a moving target. In 2023, the federal government raised the age at which you must begin taking RMDs to the year after you turn 73.

If you fail to take the RMD — and the IRS catches you — it can penalize you up to 50 percent of the value of the distribution. “It’s really crazy that the IRS charges that high a fee,” says McKeon, so it’s critical to remember to take the distributions.

8. Don’t buy mutual funds in December. If you purchase mutual funds in December, there’s a good chance you’ll be on the hook for a capital gains tax payout for 2023, notes Balcom. If you buy today and get a capital gains distribution next week, you’ll owe taxes on money you didn’t earn.

9. Don’t forget to choose the appropriate tax filing status. This might sound simple, but there can be a more nuanced approach, says Sullivan. Your filing status is determined by your status as of the last day of the year. If your marital status has changed or one of your kids has aged out and there’s a change in the number of dependents in your family, you want to ensure that’s clear on your tax form.

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Published by: AARP

The cost-of-living adjustment (COLA) gets the headlines, but multiple aspects of Social Security change annually to reflect national trends in prices and wages, affecting the benefits paid to tens of millions of Americans and the taxes paid by nearly all U.S. workers. Here are five important ways Social Security will be different in 2024.

1. COLA benefit boost

Inflation cooled considerably in 2023, but consumer prices still went up, producing a 3.2 percent COLA for Social Security beneficiaries. That will raise the estimated average retirement benefit by $59 a month, from $1,848 to $1,907, starting in January, according to the Social Security Administration (SSA). 

2. Medicare premium offset

If you are enrolled in Medicare, chances are you have premiums for Part B — the part of the federal health care program that covers doctor visits and other outpatient treatment — deducted directly from your Social Security payments. That means an increase in Medicare premiums can undercut your cost-of-living adjustment.

3. Social Security taxes

Social Security benefits are primarily funded by a 12.4 percent tax on most workers’ incomes. If you have a job, you pay half of that rate (via FICA withholding from your paycheck) and your employer covers the rest. If you’re self-employed, you pay both shares as part of your annual tax return.

4. Social Security earnings test

If you collect Social Security and continue to work, a portion of your monthly payment may be temporarily withheld. This earnings test applies to people who collect retirement, survivor or family benefits; have not yet reached full retirement age; and have earnings above a certain level.

5. Qualifying for benefits

You become eligible for retirement benefits by collecting Social Security credits, which you get by doing “covered” work — a job or self-employment in which you pay Social Security taxes on your income. In 2024, you get one credit for earnings of $1,730, $90 more than the 2023 level.

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Published by: AARP

Many counties and cities have additional property taxes on top of the statewide rate. How much you pay in property taxes depends on the value of your home, your state’s property tax rates, and any exemptions you may have. You can lower your property taxes, however, in six ways.

1. Appeal the appraisal

Your bill is based on an appraisal, which is typically done by a state or local appraiser. Call the appraiser — politely — to discuss what went into the appraisal. You can appeal it if you feel that it doesn’t reflect the true value of your home. To do so, you’ll have to provide more evidence than the fact that you think the increase in the home’s value — and therefore your taxes — is too high.

You may need to look up the value of comparable homes in your area. And if you have problems with the house that might lower its value, now is the time to let the assessor know.

Be aware that simply appealing the appraisal may not bring relief, especially if you’re in a suburban housing development. “In my experience, the local property appraisers are using automated valuation models that are pretty accurate,” says Bankrate analyst Jeff Ostrowski. “It’s kind of unlikely that your value is going to be significantly different from your neighbors’.”

2. Look for senior exemptions

Many states offer a break on property taxes for people 65 and older. The break comes from applying the tax rate to only a percentage of your assessment. For example, New York state applies its property tax to as little as 50 percent of the appraised value of your home. You must be at least 65. The state allows each county, city, town, village, or school district to set the maximum income limit at any figure between $3,000 and $50,000.

3. Look for other exemptions

“That’s always a good idea,” Ostrowski says. “Research those and take advantage of as many of those as you can.” Many states give veterans an exemption, particularly those with disabilities. Resident veterans in Florida with at least a 10 percent disability rating are entitled to a $5,000 deduction on the assessment of their home for tax purposes. Resident veterans with a 100 percent disability rating may receive a full property tax exemption. Many states also offer a property tax exemption for those with disabilities.

4. Get help

It never hurts to ask for assistance. The AARP Foundation’s Property Tax-Aide program provides information on eligibility and how to apply for property tax relief.

Since its inception in 2019, Property Tax-Aide has served over 40,000 people with an estimated benefit of $10 million in property tax relief.

5. Move

If you think taxes are too high in your area, consider moving to someplace with lower taxes. (Bear in mind that each county or city in a different state may have its own level of property taxes.) In New Jersey, the property tax on the average home is $9,527. In neighboring Pennsylvania, the tax on the average home is $3,983. Don’t forget, that you may get fewer services in areas with lower overall taxes.

6. Be wary of property tax scams

Scary — and fake — letters demanding overdue property taxes are a fixture of most four-star scam shops. A variant of that scam is the fake property tax assessor. You’ll get a letter suggesting that you’re paying too much in property taxes because home values have fallen. The scammer will try to get you to pay thousands of dollars in fees to get the home reassessed, thereby reducing the property taxes. Be sure to check with the Better Business Bureau or with your state tax office about any company that promises big breaks on your property tax returns.

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Published by: AARP

If you’re 50 or older, there is one benefit to reaching this milestone that you may be overlooking: tax breaks aimed right at you. Now you can contribute more to your Roth or traditional individual retirement account (IRA), to your employer-sponsored plan, or to your health savings account (HSA) than you could when you were younger. You can even exclude more income from your tax computations.

Congress included some of these provisions in the Economic Growth and Tax Relief Reconciliation Act, which took effect in 2002, out of concern that the boomer generation had not saved enough for retirement. Congress included other tax-saving provisions, such as a bigger standard deduction, in the Tax Cut and Jobs Act of 2017.

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If you’re behind on your retirement savings, the tax law gives you a chance to catch up. And if you’re in retirement, or near it, the tax code allows you to pay a bit less in taxes. That’s a combination you shouldn’t pass up.

Contribute more to your retirement fund

For 2023, the contribution limit for employees who participate in 401(k) and 403(b) programs, most 457 retirement saving plans and the federal government’s Thrift Savings Plan has been increased to $22,500, from $20,500 in 2022. Employees 50 and older can contribute an additional $7,500 (up from $6500 IN 2022), for a total of $30,000.

The contribution limit for a traditional or Roth IRA is $6,500 for the tax year 2023. The catch-up is $1,000, the same as for 2022. It is $3,500 for a Savings Incentive Match Plan for Employees (SIMPLE) plan, up from $3,000 in 2022.

Many folks are missing this opportunity. Despite generous catch-up provisions for those 55 and older, just 16 percent of those who are eligible are making these contributions, according to the Vanguard Group’s “How America Saves 2022” report.

At the same time, data from the National Retirement Risk Index compiled by the Boston College Center for Retirement Research indicates that half of the American households won’t be able to afford their current standard of living once their regular paychecks stop. As of June 2020, 50 percent of married retirees were relying on Social Security payments for at least half of their income; for single people, that number was 70 percent. As of November 2022, the average Social Security retirement benefit is estimated at just $1,632 a month.

Those retirement contributions can lower your tax bill

Aside from making your retirement more comfortable, contributing to a tax-deferred retirement plan, such as an IRA or a 401(k), also reduces your taxable income — which, in turn, reduces your income taxes. Thanks to that reduction in taxes, increasing your contribution won’t take as much of a bite from your paycheck as you might think. If you earn $75,000 a year, for example, a 5 percent contribution to your 401(k) would put $144 into your account for each biweekly paycheck. Assuming a 25 percent tax rate, your take-home pay would fall by just $108, according to Fidelity Investments.

Contributions to a traditional IRA are tax-deductible as long as you meet IRS rules, including income limits. IRA contributions are fully deductible if you (and your spouse) aren’t covered by a retirement plan at work. However, the deduction may be limited if you are (or your spouse is) covered by a workplace retirement plan and your income exceeds certain limits. For 2023, IRA deductions for singles covered by a retirement plan at work aren’t allowed after modified adjusted gross income (MAGI) hits $83,000; the deduction disappears for married couples filing jointly when MAGI hits $136,000.

Retirement contributions made to a Roth IRA or Roth 401(k) are done on an after-tax basis: You get no up-front tax break for these contributions, but withdrawals taken from Roths in retirement are tax-free. The pretax money in traditional IRAs and 401(k)s grows tax-free, but you’ll eventually pay taxes when you start making withdrawals in retirement.

Clark Randall, a certified financial planner at Financial Enlightenment in Dallas, encourages his clients to rethink their budgets to increase their regular retirement contributions throughout the year. “Budgeting for this expense is the same as any other. It takes discipline and compromise.”

If you still want to make catch-up contributions to a traditional IRA or Roth IRA for 2022, you have time. The deadline is April 18, the filing date for your tax return, unless you file for an extension. However, 401(k)s, 403(b)s, Thrift Savings Plans and most 457 plans go by the calendar year, so you’ll be investing for 2023 and have until the end of the year to do so.

You can wait until 72 to start your RMDs

Speaking of which, there’s also good news on required minimum distributions (RMDs), the minimum amount you must withdraw from a tax-deferred retirement plan, such as a traditional IRA. (Roth IRAs don’t require distributions while the owner is alive.)

Under rules that kicked in in 2020, you can wait until the year in which you reach age 72 before having to start taking RMDs.  (For your first RMD payment, you can wait until April 1 of the following year, but you’ll also have to pay an RMD in December of that year.) Previously, the age was 70.5. If you don’t need the RMD, consider donating it to charity. If you donate your RMD to a qualified charity directly from your retirement account, up to $100,000, you won’t owe income tax on the distribution.

Don’t forget your HSA

If your employer offers a health savings account (HSA), you’ll want to make sure to take full advantage of it. The IRS allows you to deduct your contributions to your retirement account from your gross income, even if you don’t itemize, and those made by your employer are excluded from your gross income, too. Any earnings are tax-free. Your distributions aren’t taxed, provided you use them for qualified medical expenses, of which there are many — from ambulance rides to X-rays. Plus, the account is yours: You can take it with you to a new job and use the funds in retirement.

For 2023, you can contribute up to $3,850 if you have coverage for yourself or up to $7,500 for family coverage. The catch-up is an additional $1,000 if you reach 55 during the year. However, your contribution limit is reduced by any amount your employer contributed that has been excluded from your income.

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You get a bigger standard deduction at 65

The standard deduction, which reduces your taxable income and, in turn, lowers your tax bill, gets better with age. In 2023, when you fill out your federal income tax forms for income earned in 2022, married couples will get a standard deduction of $25,900. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950.

If you are 65 or older and file as a single taxpayer, you get an extra $1,750 deduction for the tax year 2022. Married and filing jointly? The extra standard deduction is less per person if only one person is 65 or older — $1,400 for the tax year. If both are 65 or older, the standard deduction increases by $2,800. For taxpayers who are both 65-plus and blind, the extra deduction is doubled.

The only drawback for some taxpayers with the higher standard deduction is that it sets a very high bar for itemizing deductions. It doesn’t make sense to itemize if your deductions aren’t higher than the standard deduction. Nevertheless, a deduction is a deduction, and getting a larger standard deduction is something to cheer about.

Bonus: If you’re 65 and up and have a straightforward return, you might be able to use the new simplified Form 1040-SR for seniors. It has larger type for those who still file taxes by paper, there are places to enter such things as Social Security benefits and retirement distributions, and there’s a handy chart that shows the bigger standard deductions.

Your $600 charitable deduction is gone

Because the standard deduction is so high, many people are no longer able to itemize their deductions. (It makes no sense to itemize if you get a bigger bang for your buck from the standard deduction.) For the tax year 2021, however, a person filing a single return could take a $300 deduction for cash gifts to qualified charities. Those filing jointly could take $600. You could take this deduction if you took the standard deduction but not if you itemized.

Alas, those days are gone. The $600 charitable deduction isn’t available for 2022.

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