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Tax breaks for people 50 and over

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If you’re like many employees, you regularly set aside a portion of your paycheck to help build your retirement savings for the future. And if you’ve chosen a pre-tax retirement account, you likely haven’t had to pay taxes on your contributions yet or the interest earned in the account. If retirement is within reach, you may soon be able to take advantage of your diligent saving habits and turn those hard-earned assets into regular income. 

But there’s even better news: As you get closer to retirement, there are several helpful tax breaks. If you’re in your 50s or beyond, you may have entered a period where you’re earning the most in your career and have disposable income. During these peak earning years, you may have the freedom to explore investment and saving opportunities. Because of this, people age 50 and older may qualify for several tax incentives that can help them save more money for the future.

401(k) catch-up contributions

Oftentimes, you can put more money toward your company retirement plan each year, whether it’s a 401(k) or 403(b). For 2023, employees can contribute up to $22,500 annually. But people 50 and over can tack on an additional $7,500 catch-up contribution, making for a $30,000 cap.

Traditional and Roth IRA catch-up contributions

Annual contribution limits for 2023 for traditional and Roth IRAs are $6,500. People age 50 and over can make an extra catch-up contribution of $1,000 to their traditional or Roth IRA account for a total of $7,500.

HSA catch-up contributions

With health care costs on the rise, it may be beneficial to put more money toward your health savings accounts (HSAs), plus these contributions are tax deductible and be used tax free for qualified health care expenses. For 2023, health savings account (HSA) contribution limits are $3,850 for singles and $7,750 for families. Each person age 55 and over can contribute an extra $1,000 catch-up contribution to their HSA. 

Penalty-free withdrawals from 401(k) accounts

Any withdrawals taken from your 401(k) before age 59 ½ may incur a 10 percent penalty when you file your tax return, but once you reach that age, you can take out money without incurring a penalty. The IRS policy, the rule of 55, allows you take penalty-free withdrawals from your 401(k) if you leave or lose your job if you’re 55 or older. Keep in mind there may be tax consequences for withdrawing funds, even if there are no tax penalties.

Once you turn 50, taking advantage of tax breaks and catch-up contributions can help provide a valuable opportunity to boost your retirement savings and make up for any years you perhaps didn't put enough toward savings. Plus, the deduction you claim on these contributions can help you save on your annual tax bill. Contact your tax advisor if you need further guidance on tax planning and deductions.

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.