When planning for retirement there many things that someone must take into account in order to be prepared. The most important factor is having enough money to live comfortably in retirement. Through the Internal Revenue Service (IRS), employers, and financial institutions there exist many options to effectively plan for one’s retirement. 

Several options include retirement funds like a 401(k) or an individual retirement account. In addition, on may receive tax relief due to provisions in the Internal Revenue Code regarding federal gift taxes and deductions and credits that apply for senior citizens. Each of the options listed below has its benefits and detriments, but they exist to help people save money once they reach full retirement age.

401(k) Plans

A 401(k) plan is a retirement option that is offered through employers to help employees save money for retirement. The name is derived from the section in the Internal Revenue Code that applies to this type of retirement plan. Employees make contributions to these funds through pre-tax dollars deducted from their monthly wages. Employers can also make contributions through matching percentages based on the income of the employee. 

The Internal Revenue Code outlines provisions that affect distributions, or withdrawals, from a 401(k) plan as well as other plans similar to this type of plan that employers can offer. Plans similar to a 401(k) include Roth 401(k) plans and 457 plans. Roth 401(k) plans were only made available through legislation passed in 2006. This type of plan allows both pre-tax and post-tax dollars to be deposited into the retirement fund. A 457 plan is a retirement plan that can be offered by government and non-profit agencies.

Individual Retirement Accounts

Individual retirement accounts, or IRAs, are retirement funds that can be created through a financial institution to allow the account holder to save for retirement. IRAs come in many forms but each one allows income to be deferred until the account holder has reached retirement age. Most IRAs can be invested in certificates of deposit (CODs) or in stocks and mutual funds. This allows the account to grown and gain interest in addition to the contributions made by the account holder.

The types of IRAs that are available traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. Traditional IRAs are the standard form of IRA that was created in 1975 by the Employee Retirement Income Security Act of 1974 (ERISA). Roth IRAs are a modified form of IRA that allow for expanded diversity and tax provisions. SEP IRAs are retirement funds that are available to small businesses and the self-employed to help save money for retirement. SEP IRAs are established through traditional IRAs. SIMPLE IRAs are incentive based retirement plans that require employers to contribute to an employee’s retirement fund annually.

Rollovers

Rollovers are a method of transferring the funds of a retirement plan into another retirement fund. Rollovers tend to occur when someone changes employment or retires. This allows for that person to have their retirement money move with them to be diversified and grow. What makes rollovers different from a direct transfer is that rollovers are reported to the IRS to be monitored and tracked. As such, rollovers come with special stipulations that include time constraints and value tracking.

The most common forms of rollovers are 401(k) rollovers and IRA rollovers. 401(k) rollovers generally occur when a 401(k) plan is converted into an IRA. IRA rollovers occur when the account holder transfers the funds into another IRA or has the IRA converted into a Roth IRA.

Gift Taxes

Gift taxes are federal taxes that apply to any gratuitous transfer of property between a donor and a donee (recipient). A gratuitous gift is one that exceeds monetary limitations which are established by the IRS. These taxes are paid by the donor and are separate from income taxes in most cases. The recipient can opt to pay the gift taxes if they so decide.

Gifts that are taxable are often estates left to beneficiaries from a parent or married couple, gifts given to organizations, and gifts from employers to their employees. These gifts may be taxed through income taxes if the increase the gross income of the recipient. 

Tax Deductions for Seniors

There are tax deductions that senior citizens can make in order to keep money saved for retirement from being paid to the IRS for tax purposes. These tax deductions are listed by the IRS when a taxpayer is filing a tax return for the past tax year. These deductions include expenses for receiving medical care, owning a business, making investments, and making charitable donations. A senior citizen can also receive deductions for selling their home and by filing a standard deduction on their tax return. Doing so will help the elderly person continue to save their money during their retirement.

Tax Credits for the Elderly or the Disabled

In order to apply for this tax credit, the taxpayer must meet eligibility requirements set by the Internal Revenue Code. For a senior citizen, they must be at least 65 years of age and not exceed income limitations established by the IRS. For a person with a disability who is under the age of 65, they must be receiving disability payments and cannot have worked at all in the year prior to applying for the tax credit.

A federal tax credit is an immediate reduction in taxes based upon two stipulations – taxes already deducted or benefits received from a state through the tax system. This makes it different from a federal tax deduction which is applied after filing a tax return and only applies to taxable income. The Internal Revenue Service (IRS) makes federal tax credits available for many people who qualify under guidelines established in the Internal Revenue Code. The purpose of these federal tax credits is to provide tax relief for those that need it. One such federal tax credit is made available to the elderly and the disabled.

In order to receive these federal tax credits there are specific eligibility requirements that must be met. Standard requirements are that the applicant must be a United States citizen or a resident alien living permanently in the United State. For the elderly, they must have reached the age of 65 to apply. The IRS defines any person that has reached the age of 65 as an elderly person. Another eligibility requirement for the elderly person is based on their adjusted gross income (AGI) for that tax year. If the taxpayer’s AGI is above a certain annual amount, they are ineligible for the federal tax credit.

         For a single taxpayer filing a tax return, the limit is $17,500.

         For a married couple filing a joint return, the limit is $20,000 if only one partner is eligible. The limit is $25,000 if both partners are eligible.

         For a married couple filing separate tax returns, the limit is $12,500.

         For the head of the household return, the limit is $17,500.

         For a qualifying widow(er) filing a tax return, the limit is $17,500.

These income limitations also apply to disabled persons applying for this federal tax credit.

If the disabled person apply for the federal tax credit is under the age of 65, he or she must be retired on permanent or total disability. This means the person has had to stop working due to a disability that makes the person incapable of gainful employ. Any work done in the year prior to the application for these federal tax credits may disqualify that person. The disabled person must also have received disability payments that can be taxed during the year in which they are applying for these federal tax credits.

Also, if the disabled person is receiving a disability pension through an employer, he or she must not have reached retirement age at the beginning of the tax year. The Social Security Administration mandates the full retirement age based upon the year in which a person is born. For example, if someone is born in 1960 or later, the full retirement age is 67.

Some forms of long-term care/long-term accommodations are somewhat limited by their scope. For example, going back to group homes once more, the nature of the physical structure of the residence and the relationship between its inhabitants determine to a large extent this classification. Other kinds of group-based, long-term accommodations, meanwhile, are not limited merely to one residential building or center.

On the contrary, they encompass quite a bit of space, and commonly, multiple different forms of long-term care at that. These setups which are familiar to many despite never having set foot/one in one are known as retirement communities. Some notes about what a retirement community is and why seniors might opt for this solution: 

A retirement community, generally speaking, is a separate area (as opposed to a retirement home, which is contained in one edifice) representing multiple apartment/housing complexes and other amenities. Depending on the stated purposes of retirement communities, they may be very different from one another.

Some communities, for example, might really not constitute long-term care as they offer nothing in the way of health services and allow for complete autonomy on the part of their residents; some refer to these as independent living communities. Often, though, a retirement community will feature some bit of close-to-home health care, including facilities expressly designed for skilled nursing

In terms of trends in retirement communities, there certainly are recurring characteristics of these entities. In America, while these communities may pop up virtually anywhere across the country, a considerable number of them tend to be centered in the southern United States, notably in states like Arizona, California, Florida, and Texas undoubtedly because of the warmer climes.

A particular retirement community may boast any number of premium services to the people who reside there, but again, they are not contained within a common area as in a retirement home. These resources may include any combination of the following: art classes, golf courses and clubhouses, hiking/walking trails, shopping, swimming pools and tennis courts.

Of course, retirement communities do not come for cheap. As with entry into a retirement home, rent is potentially anywhere from $600 to $3,000 per month, depending on how luxurious, for lack of a better word, the services are. On top of this, however, an upfront entry fee might make living in a retirement community quite an exclusive engagement, as some communities will charge hundreds of thousands of dollars just to secure a lot within. It likely goes without saying that retirement communities are generally reserved for more affluent individuals and couples who actually have the means to retire and live comfortably.