When you retire, one of your biggest concerns is often how much of your income will be lost to taxes. While it’s true that retirement doesn’t free you from the IRS, there are some specific tax breaks designed to help older Americans keep more of what they’ve saved. Unfortunately, many retirees don’t know about them—or don’t take full advantage.
Let’s take a closer look at some of the most common tax breaks available in retirement, and how they can fit into your broader financial plan.
The Higher Standard Deduction After Age 65
One of the simplest but most valuable breaks is the additional standard deduction that applies once you reach 65. This reduces the amount of your income that’s taxable.
For 2025, the standard deduction is:
- Single filer: $15,750, plus an extra $2,000 if you’re 65 or older.
- Married filing jointly: $31,500, plus $1,600 for each spouse who is 65 or older.
That means a retired couple in their late 60s could claim a standard deduction of $34,700 without itemizing a single expense. This higher deduction often makes itemizing unnecessary, simplifying your return while lowering your tax bill.
But, there’s an also now an additional standard deduction provided by the “One Big Beautiful Bill”. This is in addition to the deduction mentioned above, and you can claim it whether you itemize or take the standard deduction. This one is only available for tax years 2025-2028. Each spouse who is at least 65 can claim an additional $6,000 deduction if under MAGI limits bringing the total deduction to $46,700.
Medical Expense Deductions
Healthcare costs typically rise in retirement, and the IRS allows you to deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).
These expenses can include:
- Medicare premiums
- Long-term care insurance premiums (up to certain limits)
- Prescription drugs
- Dental and vision expenses
- Out-of-pocket costs not covered by insurance
For retirees with significant healthcare spending, this deduction can be meaningful—though it’s only available if you itemize.
Retirement Account Contributions
After you retire you may not keep saving in tax-advantaged accounts, but that isn’t true for everyone. If you still have earned income—for example, from part-time work—you may be able to contribute to an IRA.
- Traditional IRA contributions may be deductible, lowering your taxable income.
- Roth IRA contributions don’t reduce your taxable income today, but they create tax-free income later. They also shield your capital gains, dividends, and interest from taxation.
While contribution limits apply, these accounts can still play a role in reducing your lifetime tax bill even after you’ve stepped away from full-time work.
Qualified Charitable Distributions (QCDs)
If you’re charitably inclined, QCDs are one of the most efficient ways to give in retirement. Once you turn 70½, you can donate up to $100,000 per year directly from your IRA to a qualified charity.
Here’s the benefit: the amount donated counts toward your Required Minimum Distribution (RMD), but it doesn’t count as taxable income. That can help you avoid higher brackets, reduce the taxation of your Social Security benefits, and lower your Medicare premiums.
Even if you don’t itemize deductions, QCDs allow you to receive a tax benefit for charitable giving.
QCD Example
Let’s say a married couple, both age 68, files jointly with $70,000 in total income. They also donate $10,000 directly from their IRA to their church through a QCD. That $10,000 counts toward their RMD but doesn’t raise their taxable income. They take the higher standard deduction of $34,700 and qualify for the additional $12,000 bringing their total deduction to $46,700. This reduces their taxable income to $13,300.
By doing this, they’ve significantly lowered their tax bill compared to simply withdrawing from accounts and paying tax on the full amount.
No Social Security Tax in Some States
At the federal level, Social Security may be taxable depending on your income. But at the state level, things vary. Many states don’t tax Social Security at all, while others apply exemptions or credits that reduce the tax burden.
Texas, where I’m based, doesn’t have a state income tax. That means Social Security and other retirement income isn’t taxed at the state level in Texas. If you’re considering relocating in retirement, differences in state tax policy can be a big factor in your decision.
Other Age-Based Credits and Exemptions
Some retirees also qualify for smaller, age-based tax breaks, such as:
- Credit for the Elderly or Disabled: Available to retirees 65 or older (or permanently disabled) with limited income. The credit is relatively small but can help.
- Property tax exemptions: Many states and counties offer reduced property taxes for homeowners over a certain age. Others may also freeze your property tax once you reach a certain age so that it won’t increase. While not part of your federal return, these can significantly lower your overall tax burden.
Minimizing Taxes in Retirement
Retirement doesn’t mean the end of taxes, but if you plan ahead you may be able to minimize the impact of taxes on your income. From the higher standard deduction and medical expense deductions to QCDs and the Saver’s Credit, retirees have several tools to lower their taxable income. The key is knowing which breaks apply to your situation and how to integrate them into your retirement income plan. With careful planning, you can reduce your tax burden and stretch your savings further giving you more freedom to spend retirement the way you want.
If you’d like to talk to talk abut making a plan to reduce your taxes and make sure you are able to retire comfortably, email me at [email protected] or call 903-471-0624 and we will get started.
