Senior/Retiree Tax Tips 2009
adonis hunter via flickr
We’ve seen some good coverage of tips on taxes for seniors and retirees lately. We’ve picked a number of good ones that cover a range of topics. Some of them address filings for this year (2009) and some have to do with strategies for 2009 and beyond. If you have tax questions you need help with, consider the AARP Tax-Aide program that we covered in an earlier post: Know a Senior That Needs Help With Tax Preparation?
One-year break on minimum distribution
Legislation passed by Congress last year temporarily waives the normally large penalty for failing to take money out of their IRAs, 401(k)s, 403(b)s and similar plans—though not defined-benefit plans. The penalty is usually 50% of the amount that should have been taken out. Both Boston.com and Freep.com have articles covering this one-year break:
Retirees can reap some tax savings in down year – Boston.com
Deal affects IRA, 401(k) withdrawal | Freep.com | Detroit Free Press
The Smart Money 2009 Tax Guide
The Smart Money 2009 Tax Guide (PDF) covers more than just retirees, but there is a section that is specifically focused on retirement (page 17) and covers it more thoroughly than a newspaper can. The three topics in the retirement section are as follows:
- Mixed News for Senior IRA Holders – Covers the law that was passed at the end of 2008 suspending the minimum required distribution from retirement plans. The above item covers this too, but the Smart Money piece is much more detailed.
- Tax Tips: Seniors, Don’t Forget April 1 – This item is for those who have turned 70 1/2 years old in 2008 and will have to take mandatory disbursements from traditional IRAs.
- How to Deduct IRA Losses – Given the precipitous fall of the stock market, this is something to consider. According to the article, it’s not likely that you’ll get the write off on a traditional IRA, but it’s somewhat more likely that you’ll get one from a Roth IRA.
Tax Tips for Seniors and Caregivers
A Place for Mom has a post from 2007 that covers both sides of the equation: seniors and their caregivers. We wish it was newer, but we think it gives good information to consider. At a high level, the tax topics that they cover include:
- 7.5% rule – If medical expenses exceed 7.5% of your adjusted gross income, then you may be able to deduct them.
- Dependency deduction – If you’re substantially supporting a relative, you may be able to count them as a dependent.
- Multiple support agreement – If a group of people are sharing costs for a qualifying relative, a multiple support declaration (IRS Form 2120) can be filed to grant one family member the exemption.
- Long-term care services – Long-term care medical expenses—including diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative, and maintenance and personal care services—are deductible if the services are required by a chronically ill individual and a licensed health care practitioner prescribes the care.
- Long-term care insurance – Senior citizens and caregivers should be aware that premiums paid for qualified long-term care insurance contracts are also deductible medical expenses.
Can software make tax time less taxing?
Tax software can make a time-consuming job and make it quicker and less stressful. While those with more complicated tax returns may want to consider seeing a professional, if you’re planning on preparing your taxes yourself, tax software is a great way to reduce the chance of errors. The AARP Bulletin has a good article on the ins and outs of using tax software.
A couple of cautions:
- Everyone’s situation is different and tax law is complicated, so be thorough in your research and if you’re not 100% confident, check with a tax professional.
- Be careful that the info you find is current. In the process of conducting the research for this post, I found a number of articles/posts that weren’t dated and later found them to be a number of years old.
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I am an investment advisor for Smart401k, a company that specializes in providing advice to company sponsored retirement plan participants. We have seen a steady increase in the number of questions from our clients regarding MRDs. In order to address those questions, I recently wrote an article for our blog discussing MRDs and the recent rule changes. I thought some of you would be interested in the article so I have included it here: http://blog.smart401k.com/2009/03/17/what-you-need-to-know-minimum-required-distributions/.