A: If you were 65 or older at the end of 2013, you’re eligible for a larger standard deduction. If both spouses are 65 or older, they can claim a standard deduction of $14,600 on a 2013 return — or an extra $2,400 for the standard deduction. Singles who are 65 and up can claim a standard deduction of $7,600 — or $1,500 higher than younger singles.
If you have high mortgage payments, large charitable contributions and other deductions, it still is best to compare itemizing deductions with taking the standard deduction.
Q: What about retirement distributions?
A: Once you hit age 59 1/2, you are able to take out money from your IRA or 401(k) without a penalty. But those distributions are usually taxable.
There are some exceptions to avoid the 10 percent early withdrawal penalty for distributions taken out before age 59 1/2, too.
The 10 percent additional penalty, for example, does not apply to distributions that are made because you are totally and permanently disabled. Or made from a qualified employer-sponsored plan after your separation from service in or after the year you reached age 55. Some other exceptions exist, too. Be careful, though, some exceptions apply only to IRAs or to employer plans, such as a 401(k), said Jackie Perlman, principal tax research analyst from the Tax Institute at H&R Block.
Q: When do older seniors need to withdraw money from retirement savings?
A: When you hit age 70 1/2, you need to take care of required minimum distributions each year.
You can delay required distributions from your employer’s plan until you retire from that employer — but IRA distributions must start at 70 1/2 no matter what.
“When you reach age 70 1/2, you are required to take a minimum distribution from your account every year,” said Perlman, from the Tax Institute at H&R Block.
If you did not take the required minimum amount in your 70 1/2 year, then you must receive distributions by April 1 of the following year.
The required minimum distribution for any year after you turn 70 1/2 must be made by Dec. 31 of that year. And there’s a complex set of calculations to figure out that required distribution based on age and amount of savings.
Taking your required minimum distribution in time is necessary because there is a rather large penalty for failing to take out that required amount each year.
If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50 percent excise tax on the amount not distributed as required.
Roth IRAs are treated differently from traditional IRAs for both contribution and withdrawal rules. Minimum distributions are not required for Roths.
Taxpayers do not want to get confused after hearing some discussions regarding potential changes in the rules.
Mark Luscombe, CCH principal federal tax analyst, said President Barack Obama’s 2015 budget calls for eliminating required minimum distributions after age 70 1/2 on traditional IRAs and retirement plan accumulations that do not exceed $100,000 in the aggregate.
The budget has a second proposal that would apply the same revised required minimum distribution rules to Roth IRAs as well. So if the rules were changed in the future, in accordance with this proposal, mandatory withdrawals would be added for Roth IRAs, but only if aggregate retirement accounts exceed $100,000.
Again, no such rules apply now. Luscombe added that it is very unlikely that the proposed IRA distribution changes would be taken up for consideration by the U.S. House this year.
ABOUT THE WRITER
Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at email@example.com
©2014 Detroit Free Press
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