Retired Early or Lost a Job
If this applies to you, you may have little taxable income for the year, especially if you itemize deductions. In years like these, consider Roth conversions.
Ideal for: Those who’s taxable income will be taxed at a lower rate now than later in retirement.
Tip: In low-income years, you may have more deductions than income. You may be able to convert a portion of a traditional IRA to a Roth without paying a tax. You could convert an amount to match your deductions which could make your taxable income zero.
If you think you’ll be a higher bracket in retirement, you may choose to convert enough to meet the 10% or 15% tax brackets. This should be uncovered during year-end tax planning before December 31.
Retired Late in Year or Early Next Year
If you recently retired or are planning to retire soon, your tax situation will change.
Ideal for: Those who expect lower income next year than in the current year.
Tip: If an employment status change makes your tax bracket lower next year, you may defer income or bonuses from this tax year to a future tax year when your tax bracket is lower.
Age 63 or Older
Medicare Part B premiums are based on your tax return from two years ago. If you had higher income due to a specific event, your Part B premiums will be higher two years later.
Ideal for: Those age 63 or older who expect capital gains or an installment sale, such as the sale of a business.
Tip: Find out if there’s a way to spread gains and income over more than one tax year. If you experience a one-time event that put you over the Medicare Part B threshold, you can file an appeal with Social Security to explain why your income is not as high now.
Turning Age 70
By age 70 ½, you must take required minimum distributions from your retirement accounts. This taxable income may make more of your Social Security benefits taxable. This catches many off guard with a higher tax bill than expected.
Ideal for: Those starting required minimum distributions.
Tip: Withhold the correct amount of tax from your IRA distribution. Proper year-end tax planning can help you estimate your new tax bill to make sure you have the enough tax withheld.
Don’t Forget LTCI Premiums May Be Deductible
A portion of your Long Term Care insurance premium is considered a medical expense and could be deductible. Talk to your accountant about how this could apply to your situation.
|Age Before Close of Tax Year||2016 Eligible LTCI Premium|
|40 and under||$390|
|70 and over||$4,870|
Interested in taking advantage of LTCI deductions in 2017? Shop the market.
LTC Consumer is an independent, free online service to help consumers understand what long term care insurance is, how it works, and how to evaluate coverage options. Our mission is to provide an educational, no-pressure resource for learning about long term care planning, with the opportunity to speak with specialists who can help them.
This article does not constitute legal or tax advice and should not be construed as tax or insurance advice. It was neither written nor intended for use by any taxpayer for the purpose of avoiding penalties, and it cannot be so used. Please speak with your tax advisor or long term care insurance specialist in regards to a particular situation.