Ten Must-Know Tax Tips for Seniors That Can Save You Thousands

 1. Don’t take Social Security until age 70 if you can help it

Technically, you can start taking Social Security at age 62—or even earlier if you have certain medical conditions such as end-stage renal disease or Lou Gehrig’s disease.

But for most people in decent health, you should try to put off taking Social Security until age 70 to maximize your benefits over your lifetime.

This is because the longer you wait, the greater your monthly benefit: each year you can put off taking Social Security, you add about 8% to the amount you receive each month.

This is the best inflation protection going. For most seniors, waiting until age 70 is the optimal strategy. 

The benefit of waiting stops at age 70, though. So it doesn’t make sense to put it off longer than that!

Also, if your health is not so great, and you don’t expect to live much longer than 80, for whatever reason, you may be better off taking the benefit early and enjoying life a little.

2. Self-employed? Deduct Your Medicare Premiums

Seniors who are self-employed and not covered by an employer’s plan can deduct Medicare premiums, including Part B and Part D premiums, as an adjustment to income on Schedule 1 of Form 1040.

This deduction is available regardless of whether or not you itemize your deductions.

 3. Maximize Use of your Health Savings Account.

When you turn 65, any assets you have accumulated in your Health Savings Account (HSA) over the years become available for any purpose—penalty free. 

That is, the usual 20% penalty for non-medical expenses goes away, and you can use the money for anything you like, penalty free. You just need to pay the income taxes on the amount you withdraw if it is not for a medical expense..

But it may be a good idea not to tap that money until you need it for medical expenses, if you can. That’s because even in retirement, you can still use the money in your HSA to pay medical expenses tax-free!

That’s much more efficient than spending the money, and then using non-HSA money for medical expenses, because you would then have to spend after tax dollars.

You can also use HSA money to pay certain long-term care insurance premiums, tax free. 

 4. Take the Elderly and Disabled Tax Credit

The Credit for the Elderly or the Disabled (Schedule R, Form 1040) provides a tax credit for individuals aged 65 and older.

You can also claim this credit if you are under 65 but retired on permanent and total disability. 

This credit is worth between $3,750 and $7,500.

To learn more, see IRS Publication 524.

 5. Don’t Forget to Take Required Minimum Distributions RMDs

If you have a Traditional IRA, a SEP IRA, or a tax-deferred employer-sponsored retirement plan like a 401(k), 403(b), or SIMPLE IRA, you must start taking required minimum distributions (RMDs) starting in the year in which you turn 73.

Failure to take RMDs can result in substantial penalties, as high as 25% of the amount you should have taken as a required distribution. Refer to IRS Publication 590-B for details on RMD rules.

6. Deduct Qualified Long-Term Care Insurance Premiums

You can deduct the cost of qualified long-term care insurance premiums as medical expenses, subject to certain limits based on age. 

IRS Publication 502 – Medical and Dental Expenses provides information on what long-term care expenses are deductible.

 7. Give to Charity

Thanks to the recently-passed SECURE Act 2.0 law, starting in 2023, you can make a one-time, $50,000 qualified charitable distribution to a charitable remainder trust or charitable gift annuity.

When you do this, your IRA assets go directly to charity. You never receive the money as income, and so you never owe any taxes on the amount donated, even if you don’t itemize deductions. 

Refer to IRS Publication 590-B for details on QCDs.

 8. Go Back To School

Learning never stops.

If you go back to school and enroll in a qualified degree program you may be eligible to claim the Lifetime Learning Credit, which is worth up to $2,000 per taxpayer per year.

 9. Reduce Exposure to High Out-Of-Pocket Medical Costs

If you’re in a Medicare Advantage program, your maximum out-of-pocket limit for any medical bills you have can be as high as $8,850 per year. 

That can put a major crimp on your finances if you have any kind of significant health problems during the year.

Many people find it’s better to switch to a Medigap Plan G, plan which limits your out of pocket cost exposure for Medicare A and B-covered services to just $240 per year.

Premiums will likely be higher. But most people find it’s more than worth it when they consider the extra protection and reduced risk of high Medicare out of pocket costs. 

You’ll probably want to buy a stand-alone Part D plan to help you pay for prescription drugs.

Alternatively, you can purchase a Medi-Share 65+ health sharing plan. This is a competitive non-insurance alternative to Medigap Plan G with a very similar set of benefits. With this plan, your total out of pocket costs are limited to $500 per household, rather than $240 per individual, as with Medigap.

Unlike Medicare Advantage plans, both Medigap plans and Medi-Share 65+ health sharing plans let you choose your own doctors. They don’t restrict you to narrow care networks. You can use your plans with any willing provider.

10. Get Help With Tax Preparation

Finally, don’t go it alone.

Seniors can take advantage of free tax help through the TCE program, which provides assistance from IRS-certified volunteers. 

Locate a nearby TCE site by visiting the IRS website or calling 1-800-906-9887.

Finally, don’t let the tax tail wag the dog. Make sure that each of these measures still make sense within your overall budget and financial plan. 

In Closing

If you have questions about switching your MAPD, Medigap,  or Medi-Share 65+ plan, or purchasing long-term care insurance, we can certainly help!

The best thing to do is to contact your Personal Benefits Manager who sent you this email and make an appointment for a personalized consultation and recommendation.

They can help you design your plan, and make sure any solutions you purchase are suitable for your individual circumstances.

Here’s to your health and wealth,

Wiley P. Long, III
President – MediGap Advisors

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