Retirement benefits are something you should have a look at first because they might be taxable. It is more than likely that they are not taxable though. However, there are some retirees that have other sources of income and who exceed the limits SSA establishes. The taxable amount will depend on your earnings. It could be 50 or 85 percent of your Social Security retirement benefit.
Properties are always a great expense during retirement. Bear in mind that property taxes may increase. This may affect you if you live on a shoestring budget. So, despite the fact that may have workout your retirement expenses, they may increase. Hopefully, a COLA increase will also take place to make up for inflation. But do not rely on it, not all may be as high as this year’s raise.
What about gifting in retirement?
According to the Internal Revenue Service, there is a new exclusion amount for the year 2023. This exclusion goes up to 17,000 dollars from 16,000 dollars in 2022. Not everyone can have that much money in retirement to give away to family or friends though. Nevertheless, if you happen to have a large estate, you could enjoy an “annual exclusion per donee for year of gift”.
If you donate up to 17,000 dollars in 2023, there is no need to pay taxes or file a gift tax return. Estates taxes is something you may want to deal with. It is true that once you pass away, it is not your problem any longer. But some people prefer to sort things out during their retirement. In this way, they can avoid trouble in the future for their heirs.
How big should your estate be to pay taxes?
Your estate should be extremely large to pay taxes. It has to be larger than $12.06 million for singles. Those who are in a couple will have to pay if they have more than $24.12 million. It will start from 18% going up to 40%. Retirement plans are another thing you may want to pay close attention to. Some retirement plans like 401(k) do not have to pay taxes to make contributions.
Nonetheless, you may have to pay taxes when you withdraw money from it. There are other plans like Roth IRA that in most cases you will not have to pay taxes to enjoy distributions. On the other hand, you will have to pay taxes as you make contributions. Those having a pension may have to pay taxes for their distributions too, so be careful of taxes in retirement.