Poor Senior Tax Planning

Today TaxMama brings up her own concern about the way seniors and those who care for them are not taking care of their tax issues. These are the three issues – deducting medical care and knowing what is deductible; drawing your retirement funds; and having a living trust.

1)If you are paying for medical care, especially in-home care, or an assisted living facility, your deductible medical expenses may exceed $50,000 per year. Be sure that you use those deductions on your tax return. They will offset any income you have.

2)If you are a senior with funds sitting in a retirement plan of any kind, be sure to start planning your withdrawals. Especially if you have high medical deductions. You might find that you can draw $30,000 – $50,000 per year with little or no tax. Even if you don’t need the money, draw it out of the IRA or pension plan so your heirs don’t pay tax on it. You may leave it in savings or investments – or you could just do something special for yourself!

3)Make sure that you have a will and a living trust. And please remember to transfer title to ALL your assets to the trust. It’s really a crying shame when your estate is relatively small, but your children have to squander your legacy paying for probate costs.

And a note to the heirs – don’t just blithely draw the IRA or retirement account funds without discussing it with your tax professional. You’re better off rolling those funds over into your own IRA. True, you don’t have to pay penalties for drawing the money. But draw those funds, and you will be shocked by the huge tax bill you didn’t expect. It happens EVERY time someone doesn’t consult their tax pro before taking the funds. Oh and be sure to have information about the kind of account it is – pension, 401(k), IRA, annuity, etc. so your Pro can give you informed advice.

Why? You expect that when the money comes from a settled estate it’s not taxable to the recipient. Usually, that’s true. But when it comes from a retirement account, it was not taxed to the deceased – so you pay the freight. So, do some good planning and ask the right questions.

Remember, you’ll find answers to questions about senior tax planning and all kinds of tax issues, free. Where? Where else? At TaxMama.com

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