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Turning the Big 5-0? Start Planning Now!


Here are six tax planning considerations of interest to those over age 50 from Next Avenue’s recent post, “2016 Tax Planning Ideas for People 50+.”

  1. Continuing to Save for Retirement. As you close in on retirement age, make sure to max out your retirement plan contributions through an employer-sponsored plan like a 401(k) or an IRA. The maximum 401(k) contribution for someone 50 or older in 2016 is $24,000 (the standard $18,000 maximum plus a $6,000 catch-up contribution). The maximum IRA contribution for 2016 (and for 2015) for people 50 or older is $6,500 (the standard $5,500 limit plus a $1,000 catch-up contribution). IRA contributions for 2015 can be made up until April 18, 2016.

  2. Giving a Charity Up to $100,000 from Your IRA. It’s now permanent for those over 70 ½ to make a tax-free “qualified charitable distribution” with a rollover of up to $100,000 per year from an IRA to a qualified charity. Thus, you can avoid paying income tax on an otherwise taxable distribution from an IRA by having the IRA trustee make the distribution directly to a qualified charity.

  3. Using Donor Advised Funds for Charitable Contributions. If you think your income will decline in coming years, consider taking advantage of your current ability to deduct charitable contributions by funding a donor advised fund (DAF) account, which are charities set up primarily by community foundations and financial institutions. Your contribution is held in an account from which you can make charitable contributions by “advising” the fund of your wishes. You get a charitable deduction, and the money can be taken out of the account for charitable causes in a later year.

  4. Saving for a Child’s or Grandchild’s Education. If you can afford to help send your children or grandchildren to college, a 529 plan is a tax-advantaged way of saving. Funds contributed to a 529 for the benefit of a child earn income and appreciate tax free. If the funds are used for college expenses when withdrawn, they’re not subject to federal income taxes.

  5. Making Annual Gifts. The IRS allows every person to give up to $14,000 annually to an unlimited number of recipients without incurring any gift taxes. Annual-exclusion gifts can be used for 529 plans, uniform gift to minors act (UGMA) accounts, or even as a gift to young working family members so that they may use the money for a contribution to their Roth IRA. If you have a few children and grandchildren, it’s a great way to give substantial amounts away every year.

  6. Downsizing Your Home. In many instances, you can avoid owing capital gains taxes on the sale of your home. If you’ve lived in your home for at least two of the five years prior to its sale, you can exclude from income taxes gains of up to $250,000 per individual or $500,000 for a married couple.

To get the best advice for your situation, schedule and appointment with an experienced estate planning attorney. He or she will be able work with you and your other advisors to create the best plan for your needs.

Reference: Next Avenue (February 26, 2016) “2016 Tax Planning Ideas for People 50+”

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