How Tax Reform Effects Your Retirement Nest Egg
Wondering how the new tax laws will affect your retirement account? Some Americans will greatly benefit from the new tax laws, including those who see a reduction in their tax brackets. One group for whom the new tax laws are a mix of good and bad news is retirees.
Here are some of the ways the new tax laws will affect retirees and those saving for retirement.
The new law doubles it for individuals and married couples who file joint returns. The increase could be enough for taxpayers who have itemized in the past to switch to the standard deduction option. For retirees, the incentive is even more. For a married couple both over 65, the amount is $26,500, some $2,500 more than a married couple under 65 gets.
Starting this year, in 2018, older people can add a $6,000 catch-up contribution to their 401(k)s, bringing their annual contribution to $24,500.
The new tax law states that you can deduct $10,000 for state and local income, sales and property taxes for any given year. If you've got a second home or homes, your property taxes were fully deductible. Not so anymore. If you've been thinking about getting rid of your expensive home with high property taxes, it might be time to think about downsizing.
No more conversions
Now, it's more of a risk to convert your IRA to a Roth. Under the old system, people saving for retirement could reverse that conversion and eliminate the tax bill for it. Now that's eliminated.
No more deductions for investment management fees
Before the new law took effect, you could deduct costs of investment management fees. Now, if you're paying a firm to manage your IRAs, you should pay it from that account in order to be able to do it pre-tax.
People over the age of 70 can make contributions to charities from their IRAs, giving them a tax benefit for charitable giving.
The average retired couple spends about $16,000 a year on healthcare costs. Under the new law, you can deduct medical expenses that exceed 7.5 percent of your adjusted gross income. That could make for a hefty deduction, so much so that you may want to itemize. Ask your tax professional about this one.
People saving for their grandchildren in custodial accounts need to know that the income will be taxed at the rates that apply to trusts rather than by their parents' tax bracket.
This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances.