Several tax-advantaged retirement savings strategies can help reduce your current-year tax liability. Here are some examples:
Contributing to a 401(k) (or similar employer-sponsored retirement plan):
You can make contributions to your 401(k) up to the annual limit set by the IRS. These contributions are pre-tax, meaning they come out of your paycheck before taxes are deducted. This reduces your taxable income for the year and can lower your tax liability.
Contributing to a Traditional IRA:
Similar to a 401(k), contributions made to a Traditional IRA are tax-deductible up to the annual limit set by the IRS. The money in your Traditional IRA grows tax-deferred until you withdraw it in retirement.
Contributing to a Health Savings Account (HSA):
If you have a high-deductible health plan (HDHP), you can contribute to an HSA. The money in this account grows tax-free. You can use the money in this account to pay for qualified medical expenses tax-free.
Investing in a Roth IRA:
Contributions to a Roth IRA are made after-tax, but the money grows tax-free and “qualified” withdrawals are tax-free. Roth IRA contributions are subject to income limits, so be sure to check if you’re eligible or reach out to us to check for you.
Maximizing your employer match:
If your employer offers a matching contribution to your 401(k) or other retirement plans, be sure to contribute enough to get the entire match. This is free money and can help reduce your current-year tax liability while increasing your retirement savings.
It’s important to remember that tax laws can change, and everyone’s situation is unique. Consider consulting us at KB Tax Deviser CPAs to determine the best retirement savings strategies for your specific circumstances.