5 Ways to Reduce Your Taxes and Increase Your Retirement Savings
As someone in their early 30s, it can often be difficult to remind myself about the importance of saving for retirement. After all, imagining myself more than double the age I am now seems like an eternity away. But if thoughts of living out my days penniless don’t inspire me to start saving, I’ve found that the promise of a nice tax break now certainly will.
If you hadn’t noticed, the U.S. tax code isn’t simply designed to cover necessary government functions but is also arranged in such a way to promote certain behaviors on our part. Case in point: contributing to a retirement account can often have a positive impact on your tax bill. Heck, in some case, they even let you make contributions up until the last minute to try to entice you further. On that note, let’s take a look at a few different retirement account options and their potential tax time benefits.
Starting with one of the most popular retirement savings options, 401(k)s are typically offered through your employer and your contributions are usually a percentage of your earnings. There are several reasons why these accounts are so popular, starting with the basic fact that employers will ask you to join them. Quite honestly, this push and reminder that you should be preparing for retirement can go a long way — as evidenced by their usage.
Of course, there are many other perks to 401(k)s as well. For example, some employers will actually match at least a portion of your contributions and even offer plan participants some form of profit sharing. Another benefit is that your contributions are tax-sheltered, meaning that those funds will be deducted from your taxable income. Finally, contributing to a 401(k) is easy as the funds will automatically be deducted from the paychecks.
Unfortunately, because 401(k) contributions come via payroll, there’s not a way to make additional contributions in a bid to lower your tax bill in 2018. That said, you can always up your contribution percentage going forward — at least until you hit the limit (currently $18,500 a year). Moreover, even if you do end up hitting that limit, you can still open and contribute to an IRA as well.
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