What retirement income is tax deductible

Just because you stopped working doesn't mean you stopped paying taxes. Most of the income you receive after retirement, even if it is not direct income from work, may still be taxable. But not all of this is subject to federal taxes, especially if you play your cards right. MSN.

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You may or may not be able to avoid paying federal income tax on the following types of retirement income.

1. Stimulus payments

The first two rounds of coronavirus payments authorized by federal laws passed in 2020, and the third round of payments authorized in March 2021, are not taxable income for the purposes of the IRS.

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2. Social security benefits

If what the Social Security Administration describes as your "total income" is below a certain amount, you will generally not be taxed on Social Security retirement benefits.

The exact amount depends on whether you are filing a tax return as an unmarried individual, together with your spouse, or separately from your spouse. The Social Security Administration puts the details on its website.

3. Allocation of a medical savings account

Medical savings accounts are popular precisely because of their tax advantages.

In short, your HSA contributions are tax deductible, they increase, tax deductible, and withdrawals are tax deductible as long as they are used to pay qualifying medical expenses.

Therefore, you will never pay federal taxes on the money you put into an HSA, as long as you follow the IRS rules for that type of account.

4. Reverse mortgage payments

IRS directly says:

"Reverse mortgage payments are not taxed."

The federal agency considers them borrowed funds, not income.

Whether you receive these payments as a lump sum, a monthly advance, a line of credit, or all three, you will not pay federal income tax on the funds.

5. Roth IRA distributions

The Roth IRA is an Individual Retirement Account (IRA) that allows qualified tax-free withdrawals subject to certain conditions.

One of the ways Roth IRA deposits differ from traditional IRA deposits is that you pay federal income tax on them for the tax year you made the money, not the year you withdraw money for.

This often makes Roth reports attractive to people who want to avoid taxation at retirement and to those who expect to be in a higher tax bracket during retirement than during their working years.

6. Life insurance income

According to IRS, income from a life insurance policy that you receive in connection with the death of an insured person is usually not considered taxable income. You don't even have to report income on federal tax returns. But any interest is taxable.

7. Interest on municipal bonds

Municipal bonds are essentially loans to state or local governments, and it would be horribly rude for the federal government to tax you on any interest you earn on such loans. The IRS even calls them "tax-free government bonds."

This does not mean that municipal bond interest is completely tax-free. You may end up paying in other ways.

For example, your municipal bond interest income may increase your total income so much that you will have to pay federal taxes on your Social Security benefits.

8. Profit from the sale of your home

Capital gains from the sale of your primary home may not be subject to federal income tax, depending on how much you earn.

"You may qualify for an exemption of up to $250 of these profits from your income or up to $000 of these profits if you file a joint return with your spouse," the statement said. IRS.

Qualifying for this tax credit includes owning a property and using it as a primary home for at least two of the five years prior to the sale of the home.

9. Veterans Benefits

A wide range of benefits paid through the US Department of Veterans Affairs (VA) do not count as income.

These benefits outlined in the publication IRS 525 include:

• Disability compensation and disability pensions, which are paid to veterans or their families.
• Veterans insurance benefits and dividends paid to veterans or their beneficiaries.
• Interest on insurance dividends left on deposit in VA.

10. Reimbursements and Volunteer Costs

Certain types of funds you receive in connection with federal volunteer work are not subject to federal taxes.

You may be interested in: top New York news, stories of our immigrants, and helpful tips about life in the Big Apple - read it all on ForumDaily New York.

As stated in IRS Publication 525, these include various compensations to volunteers in:

• The Service Corps of Retired Executives (SCORE).
• National Senior Service Corps programs
• Senior Tax Counseling Program

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