How Will Tax Reform Impact Retirees?

There are many variables that will determine how retirees fare under the new tax laws, including where you live, your retirement income sources, and even your health. That’s because in addition to lowering tax brackets and raising the standard deduction, the Tax Cuts and Jobs Act also capped or eliminated certain key deductions. As a result, retirees who previously itemized their deductions will need to determine if the increase in the standard deduction (from $6,350 to $12,000 for single tax filers, and $12,700 to $24,000 for joint filers) makes up for lost deductions under the new tax laws.

For example, since the SALT (state and local tax) deduction is now capped at $10,000, retirees living in states with high property taxes may not be able to deduct the full amount of property taxes paid. Medical expenses will also factor into the decision to itemize or take the standard deduction. In addition, for tax years 2017 and 2018, you can deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI). For those with high medical expenses, this could make itemizing worthwhile.

One change that most retirees can get on board with is the potential to keep more of their income in their own pockets. Thanks to lower tax brackets, many retirees age 70 ½ or older who are subject to RMDs (required minimum distributions) should lose less of their distributions to taxes than in previous years. Likewise, while short-term capital gains are still taxed as ordinary income, lower tax brackets applied to ordinary income may translate to tax savings for retirees realizing short-term capital gains.

Planning now can make a big difference in what you keep later. To learn more about how recent tax law changes may impact your income and investment strategy in retirement, give us a call at 417.883.1212.


The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.