These positive money habits can work overtime to reduce your tax bill and help build long-term retirement savings.
Can you give your money two jobs—to help you save on taxes and build retirement savings? Yes you can: These four ideas can help you get started.
1. Increase deferrals into your retirement plan at work.
How this helps save on taxes: Your 401(k) deferrals—or what you contribute—come from income before it’s taxed, which means you lower your taxable income for the year. (You’ll pay income taxes when you withdraw funds in retirement.) In 2024, you can contribute up to $23,000 in an employer-sponsored plan such as a 401(k).
Tip: If your budget doesn’t allow you to max your contributions right away, aim for small increases over time. Every dollar has the potential to help lower your taxable income and boost your savings.
2. Open up or contribute to an individual retirement account (IRA).
How this helps save on taxes: If you meet eligibility requirements, contributions to a traditional IRA are made on a pre-tax basis and may lower your taxable income. (Roth IRAs are created with post-tax income, so withdrawals on the gross contributions are tax free.) In 2024, you can contribute up to $7,000 to an IRA, or $8,000 if you are age 50 or older.
3. Make catch-up contributions.
How this helps save on taxes: If you’re age 50 or older and still working, you can contribute an additional $7,500 to a 401(k) plan or 403(b) plan or $1,000 to an IRA beyond standard limits.
4. Check your eligibility for the Saver’s Tax Credit.
How this helps save on taxes: 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 could be up to $2,000 for single filers or $4,000 for joint filers. Check out the details at IRS.gov.
What’s next?
Ready to increase your retirement plan contributions (and possibly reduce your taxable income, too)? Log in to your account and adjust your contributions. Don’t have an employer-sponsored retirement account? We can help you set up your own retirement savings with an individual retirement account (IRA).
