The costs of health care coverage in early retirement often comes with sticker-shock. Following is a post that I wrote a while back, but I am doing a re-run because this information might be new to someone here and could help to deal with some of those costs.
So just in case......
Staying out of tax deferred accounts such as a 401(k) or 403(b) or IRA's for as long as possible continues to avoid that tax hit, as we all know. Nobody knows what taxes will be in the future, but for now…..
If your retirement philosophy is to stay out of tax-deferred investments by spending your taxable income first, you might find that you are sort of pleasantly surprised at tax time.
As you know, net worth and income can be two very different pieces of the retirement puzzle. If you can keep your income down in retirement, for a while anyway, you might be surprised at how the write-offs can kick in and give you more money in your pocket than you thought you might have.
Health care costs can take a significant chunk of retirement income for many. One thing that might be new though is that for the first time, you just might find that you can write off a part of your medical expenses, including dental, vision, and insurance premiums because your income is lower in retirement. And if you have tax-deferred money available, staying out of it might give you more of a return than you thought, at least for now.
I think the current number for medical deductions is the amount that exceeds 7.5% of AGI. I know that’s a lot, but with your income lower and your health insurance premiums possibly higher and maybe some LTC insurance premiums in there somewhere, and maybe needing glasses and/or contacts and some dental work, you might find that it can be worth adding up every scrap of paper associated with medical expenses – even if you have never been able to use the deduction before.
Now, please promise me that you will not take tax advice from some woman named Boomer on the internet who is not a CPA or a CFP and could even be an English major for all you know.
So anyway, if this post gets your attention, you might want to have a look at IRS Publication 502, and you should consult a tax accountant. Don’t take tax advice from me. I will not bail you out of jail. Of course, your CPA probably would not bail you out either, but at least he might go along to keep you company. Oh well....I digress.
Back to medical deductions. Here is an IRS pub, from 2010, on the subject. Who knows if there will be any changes for 2011, but this publication can get you started if you are interested in learning more.
http://www.irs.gov/publications/p502...link1000178852
And please oh please be aware of my disclaimer, highlighted in red, above.
Boomer