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How to tackle taxes in retirement

Ned Ehrbar

Our tax experts are answering Yahoo Finance viewer questions as we hit the homestretch of tax season, and a lot of concerns popping up are specific to retirees. Lydia Vercelli, a CPA and tax managing director with BDO, has some answers.

As a retiree, how will I know if I will do better or worse with the new standard deduction?

The new standard deduction -- which nearly doubled to $12,000 this year after the implementation of the Tax Cuts and Jobs Act -- is on the minds of lots of taxpayers, specifically retirees.

“It is hard to say in general how it will impact you,” Vercelli says, highlighting two factors for filers to keep in mind. “One is how your 2018 standard deduction compares with your prior years. The 2018 limit is $12,000, and you get an extra amount if you’re over age 65.”

That extra bit of money is nothing to sneeze at, either: it’s an additional $1,600 for single filers. If you’re married filing jointly and you’re both over 65, it’s an additional $2,600.

“The second thing to think about is what tax bracket you fall in,” she says. “Because those have shifted as well with tax reform. You have to look at the interplay of the two of those as well as many other factors.”

Do I need to report interest from a Roth IRA on my taxes?

If you’ve earned interest on a Roth IRA, you’re likely in for good news.

“Generally, interest income or any other investment income, for that matter, is not taxable from a Roth IRA,” Vercelli says. “That is one of the benefits of having a Roth IRA, because the investment can grow tax-deferred. However, if you do not meet all the requirements to qualify for a Roth IRA, then you will be taxed on your earnings on it.”

Even if you slip out of that eligibility bracket, there are still benefits to a Roth IRA, and they can last more than a lifetime.

“One of the benefits of the Roth IRA is that you're allowed to leave the money in it indefinitely and choose beneficiaries to inherit the Roth from you,” she says.

If you have tax questions, send them to us at moneyquestions@yahoo.com.

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