Making it to the half-century milestone should come with certain perks, and the Internal Revenue Service is ready to give them out.
When you reach the age of 50, you become eligible for tax breaks that younger taxpayers do not have, such as the ability to contribute more to retirement funds.
According to the AARP, some of the tax incentives extend back 20 years, when they were added in the Economic Growth and Tax Relief Reconciliation Act of 2002.
The provisions were enacted in response to concerns among lawmakers that baby boomers were not saving enough for retirement. The Tax Cuts and Jobs Act of 2017 included further tax-saving provisions.
Here’s a rundown of some of the tax breaks available to you once you reach the age of 50:
Contribution limits for retirement accounts have been raised to $20,500 in 2022 from $19,500 in 2021 for most employees with 401(k), 403(b), most 457 retirement savings plans, and the federal government’s Thrift Savings Plan. Employees 50 and older, on the other hand, are eligible for an additional $6,500, bringing the total to $27,000.
Contribution limitations for Health Savings Accounts increased:
Most taxpayers can contribute up to $3,650 to a health savings account if they have individual coverage, or up to $7,300 if they have family coverage.
If you turn 55 during the year, you’ll get an extra $1,000. Keep in mind that whatever money your employer contributed that has been deducted from your salary reduces your contribution maximum.
At 65, the standard deduction is increased:
A standard deduction is given to taxpayers, which decreases their taxable income and lowers their tax payment. Most married couples will receive a standard deduction of $25,100 in 2022. The standard deduction for single taxpayers and married individuals filing separately is $12,550.
However, if you are 65 or older and file as a single taxpayer, you will receive an additional $1,700 standard deduction in 2021 and $1,750 in 2022. If only one individual in a married couple filing jointly is 65 or older, the increased standard deduction is $1,350.
The additional standard deduction is $2,700 if both spouses are 65 or older. The extra deduction is doubled for taxpayers who are both 65 and blind.
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Another advantage is that if you’re 65 or older and don’t have a difficult tax return, you can utilize the new simplified Form 1040-SR for seniors. If you still file paper returns, the form has a larger typeface.
