5 Great Ways to Cut Taxes in Retirement

They say that with age comes wisdom. But with age also come a few perks that can cut your taxes in retirement.

Once your birthday cake has 50 candles on it, the IRS starts to lighten up a bit. And when you hit 65, the IRS has a few more small presents for you — if you know where to look.

Here are five tax deductions and credits you don’t want to miss after you’ve blown out all those candles.

If you take the standard deduction instead of itemizing, you'll be able to deduct the amounts in the table below. Importantly, the standard deduction is higher for people 65 and older or blind. It's even higher if you're also unmarried and not a surviving spouse.

For the 2024 tax year, you can add an additional $1,550 to your standard deduction if you're 65 and older or blind; if you're also unmarried and not a surviving spouse, you can add $1,950. For the 2025 tax year, the amount you can add rises to $1,600 and $2,000, respectively.

» MORE: How to choose between the standard deduction or itemizing on your taxes

Because contributions to a 401(k) are tax-advantaged, the IRS limits how much you can contribute each year. For folks under 50, that limit is $23,000 in 2024 and $23,500 in 2025. People 50 and older, though, can put in $30,500 in 2024 and $31,000 in 2025.

Due to changes to the Secure 2.0 Act, starting in 2025, people ages 60 to 63 get a special catch-up contribution limit of $11,250.

But alas, that assumes that you’re still working and that your employer offers a 401(k) plan. If you’re no longer working, you may still be able to contribute an extra $1,000 a year to a traditional IRA or a Roth IRA (if you qualify for a Roth). That’s thanks to the IRS' catch-up provision for people 50 and older.

» MORE: Learn how an IRA works and the different types

If you itemize, you may be able to deduct unreimbursed medical expenses — but only the amount that exceeds 7.5% of your adjusted gross income. For example, if your adjusted gross income is $40,000, the threshold is $3,000, meaning that if you rang up $10,000 in unreimbursed medical bills, you might be able to deduct $7,000 of it from your taxes in retirement.

And if you’ve recently purchased long-term care insurance, you may be able to add in $470 to $5,880 in 2024 ($480 to $6,020 in 2025), depending on your age. The older you are, the more you can deduct from your taxes in retirement.

» MORE: How to claim the medical expenses deduction

This tax deduction is available to everyone regardless of age, but it’s especially useful if you're itching to sell your house and downsize in retirement. The IRS lets you exclude from your income up to $250,000 of capital gains on the sale of your house. That’s if you’re single; the exclusion rises to $500,000 if you’re married.

So, if you bought that four-bedroom ranch house back in 1984 for $100,000 and sold it for $350,000 today, you likely won’t have to share any of that gain with Uncle Sam. There are a few conditions, though:

• The house has to have been your primary residence.

• You must have owned it for at least two years.

• You have to have lived in the house for two of the five years before the sale, although the period of occupancy doesn’t have to be consecutive. (People who are disabled, and people in the military, Foreign Service or intelligence community can get a break on this, though. See IRS Publication 523 for details.)

• You haven’t excluded a capital gain from a home sale in the past two years.

• You didn't buy the house through a like-kind exchange (basically swapping one investment property for another, also known as a 1031 exchange) in the past five years.

• You aren't subject to expatriate tax.

» Ready to work with a wealth advisor? See which advisors can help with tax and estate planning.

You may qualify for a $3,750 to $7,500 tax credit, depending on your filing status, if you or your spouse retired on permanent and total disability. IRS Publication 524 has all the details.