As a senior on Medicare, managing your healthcare costs is important—but so is saving money on taxes. The good news? With a little planning, you can do both. In this blog, we’ll look at some smart tax strategies that can help you reduce your tax bill while getting the most out of your Medicare benefits.
1. Deduct Medical Expenses
If your out-of-pocket medical costs are high, you may be able to deduct them from your taxes. These can include:
- Medicare premiums
- Co-pays and deductibles
- Hearing aids, glasses, or dental work
You can deduct the portion of your medical expenses that is more than 7.5% of your adjusted gross income (AGI). Just remember, you’ll need to itemize your deductions to do this.
2. Use a Health Savings Account (HSA) (Before You Join Medicare)
If you have a high-deductible health plan before enrolling in Medicare, you can contribute to an HSA. The money you put in is tax-free, it grows tax-free, and you can use it tax-free for qualified medical expenses—even in retirement.
Note: You can’t contribute to an HSA after you enroll in Medicare, but you can still use the money that’s already in it.
3. Claim a Higher Standard Deduction
If you’re 65 or older, you get a bigger standard deduction on your taxes. For 2024:
- If you’re single, you get an extra $1,950
- If you’re married, each spouse over 65 gets an extra $1,550
This reduces your taxable income even if you don’t itemize.
4. Watch Out for Medicare IRMAA Charges
Medicare charges more if your income is above a certain level. This is IRMAA (Income-Related Monthly Adjustment Amount). To avoid paying higher premiums:
- Plan when and how much you shall withdraw from retirement accounts
- Spread out large income events, like Roth IRA conversions
- Consider giving to charity directly from your IRA (this lowers your income)
5. Reduce Taxes on Social Security Benefits
Up to 85% of your Social Security income may be taxed if your total income is high. You can lower this by:
- Taking fewer taxable distributions
- Using tax-free income sources like Roth IRAs or HSAs
Conclusion
With the right strategies, you can reduce your tax burden and keep more money in your pocket during retirement. It’s always a good idea to speak with a tax advisor who understands Medicare and retirement planning to make the best decisions for your situation.