Save on your taxes while you save for retirement
We’d all like to keep more of our hard-earned money, right? There’s a way you can do that—by keeping taxes in mind as you save for retirement.
Increase deferrals into your employer’s retirement plan.
In 2021, you can contribute up to $19,500.1 Get a quick overview of the 2021 contribution limits.
You won’t pay taxes on that money until you eventually withdraw it at retirement, so you’ll lower your taxable income for the year—which means you’ll pay less in taxes today. (Some retirement plans have a lower limit, so make sure you look into the plan’s details.)
Don’t worry if you’re nowhere near being able to contribute the full limit. Even a small increase lowers your taxable income (and potentially your tax bill) and boosts your savings.
Have a retirement account sitting with a past job? You can’t contribute more to it, but you have other options—such as moving that money to a current employer-sponsored plan or rolling it over to an IRA.
Contribute to an IRA.
Contributions to a traditional IRA are also made on a pre-tax basis (for those eligible to deduct their contribution) and therefore lower your taxable income, similar to 401(k) contributions. (Roth IRAs work a little differently.) In 2021, you can contribute up to $6,000 to an IRA1. Learn more about IRAs.
Make catch-up contributions.
If you’re age 50 or older and still working, you can contribute an additional $6,000 to a 401(k) plan or 403(b) plan or $1,000 to an IRA beyond those standard limits.1 This not only lowers your taxable income (noticing a theme?), but also helps you fill in the possible savings gap if you got a late start saving for retirement. Here’s how catch-up contributions work.
See if you’re eligible for the Saver’s Tax Credit.
If you fall within certain income ranges, aren’t claimed as a dependent on someone else’s taxes, and contribute to an employer-sponsored retirement plan or an IRA, you may be eligible for the Saver’s Tax Credit. The specific amount depends on your income, but could be up to $2,000 for single filers or $4,000 for joint filers. Check out the details at the IRS website.
Ready to get started?
- Consider increasing your contributions to a retirement savings account.
- Talk to your tax advisor about strategies for your retirement savings.
1 IRS annual limits for 2021.
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