There are advantages to working after age 65 for people who love their jobs. Others might work out of necessity, but there may be certain tax drawbacks. Considering these tax disadvantages of working after 65 will come in handy when planning retirement.
People who continue to work and also draw Social Security benefits may find themselves in a higher tax bracket and paying more in taxes, U.S. News and World Report said
. Delaying Social Security retirement benefits until age 70 will provide the maximum amount possible, 132 percent of the full retirement age benefit. Not drawing after turning 70 will realize no additional benefit.
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Depending on a person’s residence, it may cost more in state and local taxes, as well as living expenses. Relocation may bring advantages. A number of states do not have income taxes and are considered retirement havens. Also, a relocation to a lower cost-of-living state may make a big difference in expenses and could offset the need to continue to work past retirement.
One tax advantage people can take is to enroll in Medicare when turning 65
. Payroll taxes have been paying for it the entire time a person has been working. Not enrolling would be a significant tax drawback when working after 65. Medicare and a Medicare supplement plan are almost certainly going to be less expensive than private or employer-sponsored health insurance coverage. Remaining enrolled in private or employer-sponsored health coverage will make Medicare coverage secondary, losing most of the benefit of it even though you’ve already paid for it.
Assuming income remains at the same level or grows while working after 65, it could cost a person the opportunity to convert pre-tax retirement plans to after-tax instruments, such as Roth IRAs, U.S. News said. Withdrawing funds from pre-tax investments costs people more in taxes if they withdraw the money at a higher tax rate while still working.
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