Common Retirement Tax Breaks

Imagine evenings spent on a sandy beach, weekends filled with family gatherings and afternoons engaged in hobbies. This could be your retirement life. However, if you’re not properly prepared for taxes, they may end up taking more than you planned for your fixed income. Luckily, the federal tax code comes to your aid with an array of tax breaks. They are tailored to retirees to lessen their tax burdens and boost their post-retirement income. These are eight common retirement tax breaks from which retirees can benefit.

Create an individualized tax planning strategy by working with a financial advisor.

1. Larger Standard Deduction

Everyone can claim the standard deduction, and it increases once you reach age 65. In 2026, the standard deduction amounts are adjusted for inflation.

Taxpayers age 65 or older continue to qualify for an additional standard deduction. This age-based increase is a fixed add-on for single filers and applies to each qualifying spouse for married couples filing jointly, thereby reducing the portion of income subject to federal tax.

2. No More Withdrawal Penalties

Typically, you can attract penalties when you make early withdrawals from retirement accounts, such as 401(k)s or IRAs, before the age of 59 ½. However, these end once you reach that age.

This gives early retirees, in particular, more financial flexibility. Putting this in perspective, a retiree could make a $20,000 withdrawal from their retirement account without the usual 10% early withdrawal penalty, effectively saving $2,000.

3. Larger HSA Limit

For those aged 55 and older, the contribution limit to health savings accounts, tax-advantaged accounts for health-related expenses, is $4,400.

This adjustment enables retirees to set aside more for healthcare costs. Healthcare costs often rise during retirement, so the larger HSA limit provides a substantial opportunity for retirees to adequately save for these expenses. This insight underlines the importance of healthcare savings, especially during retirement.

4. Higher Tax-Filing Threshold

The tax-filing threshold is the level of gross income at which an individual must file a federal tax return.

In 2026, this threshold remains higher for taxpayers age 65 or older due to the additional standard deduction available to seniors. As a result, older filers generally have higher income levels before a filing requirement applies than taxpayers under age 65.

5. Catch-Up Contributions

A senior couple meeting with a financial advisor to optimize their retirement plan for tax breaks.

Catch-up contributions allow individuals age 50 or older to contribute more than the standard limits to retirement accounts.

For 2026, the 401(k) catch-up contribution limit remains $8,000 for those ages 50 to 59 and 64 and older. Individuals ages 60 to 63 may continue to make a higher super catch-up contribution of $11,250, as introduced under the SECURE 2.0 Act.

6. Senior Deduction

Elderly taxpayers aged 65 or older are eligible for the senior deduction, a tax break that can reduce the amount of tax owed up to $12,000 for joint filers.

To qualify for this credit, individuals with no dependents must have gross incomebelow $75,000. If you’re married and filing jointly with both spouses over age 65, your gross income must be less than $150,000.

7. Additional IRA Deduction

Taxpayers who contribute to an IRA can take advantage of an IRA deduction.

Depending on your filing status and your adjusted gross income, the IRS may allow you to take a full deduction up to the amount of your contribution limit. For contributors aged 50 or older, this deduction can go up by an extra $1,100 as they are allowed to make catch-up contribution for that amount.

This means that a retiree in the 22% tax bracket can save an extra $242 on their tax bill.

8. Qualified Charitable Distributions

Qualified charitable distributions refer to distributions from an IRA paid directly to a charitable organization. These distributions can be tax-free, reducing a retiree’s taxable income.

For example, a $5,000 distribution made by a retiree to a charity could potentially reduce their taxable income, saving up to $1,200 in taxes for someone in the 24% tax bracket.

9. Partial Tax Exemption of Social Security Benefits

Social Security benefits are not fully taxable for many retirees, as federal rules tax benefits based on combined income rather than the benefit amount alone.

Depending on income, up to 50% or 85% of benefits may be taxable. This means a portion can remain tax-free, with some retirees owing no federal income tax on Social Security at all.

How to Properly Plan for Taxes in Retirement

Planning for retirement taxes is crucial for effectively managing your finances. These four steps can help you properly plan for taxes during retirement.

Understand Retirement Income Streams and Taxes

Identify income sources. Determine the various retirement income streams you expect, such as Social Security benefits, pensions, IRA/401(k) withdrawals and investment income.
Know tax treatment. Understand how each income source is taxed. For instance, Social Security benefits might be partially taxable, depending on your provisional income, while withdrawals from traditional IRAs and 401(k)s are typically taxed as ordinary income.
Anticipate required minimum distributions (RMDs). Plan for required minimum distributions (RMDs) from retirement accounts like traditional IRAs or 401(k)s after the age of 73. Be sure to consider their impact on your taxable income.

Create a Tax-Efficient Withdrawal Strategy

Consider tax diversification. Maintain a mix of taxable, tax-deferred and tax-free accounts, such as Roth IRAs, to provide flexibility in retirement income planning.
Plan withdrawals strategically. Assess which accounts to draw from first and how much to withdraw to minimize tax implications. This strategy may involve tapping into taxable accounts or Roth accounts first to delay taxable distributions from traditional retirement accounts.
Manage tax brackets. Aim to stay within certain tax brackets to optimize tax efficiency. Sometimes, spreading withdrawals over multiple years can help minimize the impact of higher tax rates.

Explore Tax-Saving Investments and Strategies

Utilize tax-efficient investments. Consider investments that generate minimal taxable income, such as municipal bonds or certain index funds with lower turnover and tax consequences.
Use tax-loss harvesting. If you have taxable investment accounts, consider selling losing positions to offset gains and reduce your overall tax liability.
Explore health savings accounts (HSAs). If eligible, maximize contributions to HSAs, as they offer triple tax benefits: tax-deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses.

Continuously Review and Adjust Your Plan

Keep up with tax laws. Be aware of any changes in tax laws that may affect your retirement planning strategy. Tax laws can evolve, and adjustments might be necessary to optimize your tax situation.
Re-evaluate and adjust regularly. Your financial situation and goals may change over time. Periodically review your retirement plan to ensure it aligns with your current circumstances, adjusting strategies as needed to optimize tax efficiency.

Bottom Line

A senior couple reviewing tax breaks to reduce their tax liability.

Keeping these retirement tax breaks in mind can help lower your tax liability. By staying informed and being proactive in your retirement tax planning, you can optimize your nest egg to maintain a more comfortable lifestyle in the future.

Tips for Tax Planning

Taxes are vitally important to plan for, especially during retirement when you have a fixed income. A financial advisor can help prepare your finances to limit your tax liability, take advantage of retirement tax breaks and protect you from the unexpected. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Before you get to retirement, you might want to consider knowing how much you’ll need when you get there. You can use a retirement calculator to help you estimate whether you’re saving enough for retirement.