Contributing to your retirement account is one of the best ways to reduce your taxable income and increase your potential tax refund. While some retirement accounts have year-end deadlines for contributions and required distributions, others give you extra time to make deposits that will count toward tax year 2023. Check out these end of year moves that will qualify you for tax savings!
For Those Who Work As An Employee
Make 401(k) contributions
There may be no better investment than tax-deferred retirement accounts. They can grow to a substantial sum because the interest compounds over time, free of taxes. If you’re able, max out your 401(k) contribution before year-end ($22,500 maximum allowed for 2023, $30,000 if you are age 50 or over = the $22,500 regular limit for the tax year plus the $7,500 catch-up limit for 2023), so that you can lower your taxable income and make the most of your retirement.
Use the time for IRA contributions
In addition to your 401(k), consider contributing to an Individual Retirement Account (IRA), as well. You have until April 15, 2024 to make IRA contributions for 2023 and make an impact on your 2023 taxes. However, the sooner you get your money into the account, the sooner it has the potential to start growing.
Making tax-deductible contributions also reduces your taxable income for the 2023 tax year. You can contribute a maximum of $6,500 to an IRA for 2023, plus an extra $1,000 if you are 50 or older.
For Those Who Are Self-Employed
Simplified Employee Pension (SEP) IRA
If you are self-employed, you can contribute to a Simplified Employee Pension (SEP) IRA as much as the lesser of 25% of your net earnings or up to $66,000 for 2023, and your contributions may be tax-deductible as a business expense if you file and extension by April 15 and contribute before the October 16th extension deadline.
For Those Who Work as an Employee or Self-Employed
Qualify for the Saver’s Credit
There’s another plus to contributing to your retirement. You may automatically be eligible for the Saver’s Credit worth up to $1,000 ($2,000 married filing jointly) just for contributing to your retirement account. The Saver’s Credit can be claimed for your contributions to a 401k, 403(b), 457 plan, a Simple IRA or a SEP IRA. Your contributions to a traditional IRA or a Roth IRA are also eligible for the Saver’s Credit.
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