Nearing Retirement? Five Steps to Prepare for Retirement Taxes

Learn tips for retirement tax planning.

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Getting ready to retire? Congratulations! Whether it’s a few years down the road or a few months ahead, retirees should take as much care thinking about the tax implications of retirement as they do planning how they will spend their golden years.

The more time you can spending planning the financial aspects of retirement in your last few working years, the better, but even near-retirees can benefit from a review of how taxes will affect them as they switch from a regular paycheck to Social Security, individual retirement accounts, and—for the lucky few—pensions.

1. Check on Changes

Tax policies can change, so keep an eye on any potential shifts. People nearing retirement have some potential tax benefits unavailable to younger people, such as catch-up contributions for qualified accounts. People over 50 can contribute an extra $1,000 to a traditional IRA. For those contributing to a 401(k), 403(b), and most 457 plans, the catch-up contribution is $6,000 on top of the $18,000 contribution limit, for a total of $24,000 (for the 2017 tax year. For 2018, it goes up $500 to $18,500/$24,500). These savings bumps might add a little extra to your retirement and potentially reduce taxable earnings.

2. Age Is More than a Number

When you turn 65, the Internal Revenue Service classifies you as a “senior,” even if you’re still working. You’ll be eligible for certain credits and deductions, and you'll also be able to take a higher standard deduction. On the flip side, certain credits or deductions will no longer apply.

3. Free Advice Is Available

The IRS offers significant information to help seniors and retirees understand taxes. There are rules about how to collect pensions or annuity income, IRAs, civil service or military benefits, and more that seniors need to know. Tax information can be difficult to understand, and the IRS offers free tax help for filers older than 60 years of age through its Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. When you’re ready to file your taxes, be sure to have ready all the documents you'll need before filing—all sources of income and any deductions you'll be taking. 

4. Talk to the Professionals

Even if you’ve had the same accountant for years, your situation is different now that you’re either near retirement or turning 65. Does your accountant know about the special needs for this life stage? Be sure to talk to him or her about your plans for retirement and any questions you may have.

If you think your new tax status could be complex, it may be worthwhile to seek out an enrolled agent—an IRS-licensed tax professional. If you need a new accountant, check with your state's certified public accountant society, the Accreditation Council for Accountancy and Taxation, or the National Association of Enrolled Agents.

5. Don’t Be a Victim

Scam artists often target the elderly. The IRS only contacts people by letters; they won’t ask you to send money immediately over the phone with a wire transfer or credit card. To be safe, never give out your Social Security number, credit card number, or personal information to anyone who calls you on the phone. Any threats of arrest, deportation, or suspension of a driver's license over the phone are a scam.

TD Ameritrade does not provide tax advice. Clients should consult with a tax advisor with regard to their specific tax circumstances.

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