Improve Your Tax Savings by Contributing to Retirement Accounts
As the end of the year approaches, it’s a good time to consider making additional contributions to your retirement accounts. Not only are you investing in your future, but you could also lower your tax bill for the current year. Whether you're self-employed or own a business, there are a variety of tax-advantaged retirement accounts to explore.
Why Contributing to Retirement Accounts Matters Retirement contributions are a win-win. You secure your future while reducing your taxable income. Contributions made to accounts like Traditional IRAs, 401(k)s, or SEP IRAs are often tax-deductible, meaning they lower your current-year tax liability. This is especially important for self-employed individuals and small business owners who often overlook this opportunity.
What Accounts Should You Consider?
Traditional IRA: Contributions to a Traditional IRA may be fully or partially deductible, depending on your income and whether you're covered by a workplace retirement plan. For 2024, the contribution limit is $6,500 (or $7,500 if you're 50 or older).
Solo 401(k): Self-employed individuals can contribute up to $22,500 ($30,000 if age 50 or older) in salary deferrals to a Solo 401(k). You can also contribute 25% of your net earnings, up to a combined total of $66,000.
SEP IRA: Small business owners can contribute up to 25% of their compensation to a SEP IRA, with a maximum of $66,000 for 2024. It’s a great option if you want a simple, flexible retirement plan.
Tax Benefits of Contributions Retirement contributions reduce your taxable income dollar for dollar. For example, if you contribute $5,000 to your SEP IRA or Solo 401(k), you lower your taxable income by the same amount, which could save you hundreds or even thousands in taxes, depending on your tax bracket.
Deadline and Final Thoughts The contribution deadline for IRAs and Solo 401(k)s is typically April 15th, but for 401(k) salary deferrals and SEP IRA contributions, the deadline aligns with your tax filing date, including extensions. Making contributions before year-end can give you peace of mind and set you up for financial success.
Don’t miss the chance to boost your retirement savings while reducing your tax liability. Contact Tax Pros HQ for personalized guidance and make sure you’re taking full advantage of all the retirement options available to you.
