Just before Christmas 2017, President Trump signed a new tax law that will change the federal tax code significantly for the first time in three decades.
All U.S. citizens will be affected by the new tax law, including retirees. Knowing what the law changes and how best to take advantage of some of its benefits can help you keep more of your money and be smarter with your investments, your retirement savings and income.
At Seniors Helping Seniors, we’ve put together a few important tips that all retirees and their loved ones should know, as the new tax law could have a big impact on retirement strategies:
- Use your tax savings to tackle debt or build up your investments – One of the biggest and most publicized changes of the new tax code is the reduced tax burden that millions of Americans will face every year. Almost all income brackets are affected, which means most people will get to keep more of their money. And more money means greater opportunities to pay down debts and build up investments. Kiplinger recommends converting your extra cash and savings from a traditional IRA to a Roth IRA, as the conversion will cost less in 2018 than it would have in 2017.
- Increase your charitable donations – The new tax bill raised the standard charitable deduction for married couples to $24,000 per year. That’s a big figure, and most people don’t donate nearly enough to charity in a single year to take advantage of it. CNBC recommends stockpiling charitable donations for a specific year in the future to try and maximize the deduction. In addition, retirees who are over 70 ½ years old can make charitable deductions directly from their IRAs, allowing them to claim standard deductions while benefiting from charitable deductions.
- Move to a tax-friendly state – Although most Americans will see at least moderate savings via the new tax bill, some won’t—especially those who live in high-tax states. If you’ve been considering moving to another state to be closer to family or to enjoy better weather, USA Today says the new tax law could be the impetus you need to make it happen. Low-tax states like Florida, Tennessee, Nevada, and New Mexico make it easier to keep more of your money, and there are often fewer surprises when residents file taxes, making it simpler and more predictable to plan yearly expenditures and investments.
- Make sure your CPA or financial adviser understands the tax law – Many people working in accounting and the financial industry weren’t on the job the last time a major tax law was signed by a U.S. president. That means the new tax bill is a major shakeup of things that have been carved in stone for 30 years. Everyone will be affected by the tax law differently, and Financial Planning says it’s vital that the people you depend on to help you manage your tax burden and manage your investments know the new tax law inside and out, including how it applies to your personal financial situation.
- Be prepared to pay more if you buy an expensive or second home – While moving to a tax-friendly state can help you save money, it’s important to note that the new tax law lowered the maximum mortgage deduction from $1 million to $750,000. That $750,000 represents a hard cap for money used to buy, build, or improve any homes you own. Kiplinger says that the new law will also eliminate write-offs for interest on home equity debt on both old and new loans.
Seniors Helping Seniors: An In-Home Care Resource for Your Loved One
Retirees often need help with more than just tax planning. If your loved one needs assistance with any aspect of his or her day-to-day life, we’re here to help. Call us today at (954) 202-5200 or fill out a free online form to get in touch with us.