Although many tax regulations fluctuate based on the taxpayer’s adjusted gross income, some tax provisions are instead based on the taxpayer’s age. Knowing when an individual will enjoy certain tax benefits can help to guide tax planning. While younger taxpayers may have student loans and, thus, enjoy the benefit of writing off a portion of their annual loan interest (among other tax breaks), older taxpayers may have more benefits overall at both the federal and state level.
North Carolina taxpayers aged 50 and older enjoy several tax advantages:
- Catch-up IRA payments. Generally taxpayers may only contribute up to $5,500 annually to most retirement plans. However, at age 50 account owners can contribute an additional $3,000 to SIMPLE-IRA plans, plus up to $6,000 annually to most 401(k)s, Section 457 plans, and Section 403(b) tax-deferred annuities.
- Zero-penalty retirement withdrawals. Individuals younger than 59 ½ must pay a 10 percent penalty for early withdrawals from retirement accounts. After this age, the penalty is avoided for qualifying plans. Some folks may be able to avoid the penalty by age 55 if they withdraw from a former employer’s qualified plan and have permanently left the employer. Of course, Required Minimum Distribution (RMD) requirements are age-dependent, and will differ for individuals who inherit retirement accounts.
- Increased standard deduction. As of the 2016 tax year, the standard deduction for taxpayers aged 65 and greater is $1,550 more than what regulations provide for younger taxpayers, or $1,250 per spouse if both over age 65. Calculate your standard deduction with the IRS’ Interactive Tax Assistant, a five-minute tax tool. Another bonus for the same age group: North Carolina also offers an income-dependent $25,000 property tax homestead exemption for certain qualified homeowners (or 50 percent of the appraised value of the permanent residence).
North Carolina also provides three tax relief programs for veterans and non-veterans. One program for veterans imposes no age or income restrictions and simply requires that the veteran hold an honorable discharge. Two other programs require no military service yet impose qualifications based on age, income, and disability. Some programs completely avoid certain taxes while others simply defer.
Have a traditional IRA? Learn about three penalty-free withdrawals possible before retirement.