Retirement and Tax Bills?

Planning for retirement is important, so investing your money and saving should be imperative when planning for long-term financial security. The question is, how can you save for retirement while also lowering your annual taxes owed (or refund)? Well luckily for the savvy investor and saver, there are a number of ways you can lower your due taxes.

The first way is to boost your 401(k) savings rate. Many people have their 401(k) contributions automatically subtracted from their paycheck before they ever get a chance to see the money. The trick is to check with your 401(k) and see if they will allow you to increase the amount withheld (many will allow this). In turn, this may qualify you for a larger tax break.

Another way to lower your taxes owed is to contribute to an IRA. The IRS regulations allow workers to defer paying income tax on up to $5,500 that they save in a traditional IRA. The number increases to $6,500 at age 50 or older. This would allow a 40-year-old worker in the 24 percent tax to reduce their tax bill by $1,320 if they invest $5,500 in a traditional IRA.

One of the final ways to save is to claim the saver’s tax credit. Some people have smaller salaries, but still manage to find a way to save some sums for retirement. Those who qualify may be able to claim the saver’s credit in 2018 which can add up to $1,000 in credit for individuals to their year-end taxes.

As always, if you have questions about taxes or financial issues, contact us at the Center for Financial, Legal & Tax, Inc.