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Tax options for the person who wants to keep on working after 65

Continuing to work after 65 is one way many would-be retirees are coping with inflation. There is a choice -- retire early or at 65 and spread one's available resources over 12, 15 or more years or work for another five to 10 years and spend one's accumulated assets at a higher level over fewer remaining years. But, continued income brings with it continued income taxes. Deferring taxes on some of the income earned after 65 would permit a higher standard of living later or an earlier retirement. Some options are:

* Simplest is the added income tasx exemption permitted persons over 65. Currently the exemption is $1,000.

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* Although not strictly a tax shelter, one's social security when taken will be increased by 3 percent for each year after one attains 65 and no benefits are taken. This provision becomes effective after 1981.

* IRA and Keogh accounts are available up to age 70 1/2. Individual retirement accounts (IRA) are open to persons who may continue to work for the same company in some cases. When an employer offers a pension or profit-sharing plan and the employee participates, he is not eligible for an IRA. But if the pension or profit-sharing plan stops when he attains age 65 and he continues to work, he can start an IRA. He must wait until a new calendcar year after he reaches 65 because contributions to the pension or profit-sharing plan will have been made during the early part of the year in which he reaches 65. He must begin to withdraw funds from the IRA sometime before the end of the year in which he reaches 70 1/2. Funds must be withdrawn on a schedule that will remove all funds during his life expectancy. Funds contributed to an IRA plus all earnings are taxed when withdrawn at ordinary rates.

Keogh funds are open to persons over 65 earning self-employment income. Many of the same rules applicable to IRAs apply to Keogh. However, Keogh funds provide one additional feature of particular interest. All of the income earned up to $750 can be deferred in a Keogh fund if one's total earned income does not exceed $15,000 for the year. After $750, no more additional income can be sheltered in a Keogh fund until earned income exceeds $5,000. Then, the 15 percent limit applies on additional earned income.

* Deferred annuities permit tax-free compounding of interest and the principal amount can be withdrawn tax free at any time -- but watch redemption fees for early withdrawal. However, only after-tax dollars are set aside in a deferred annuity program in contrast to the sheltering of before-tax do llars in a Keogh or IRA.