Rather than scrambling last minute to make your tax deductions, start planning ahead and make the right moves so you’re ready well before the April 18th deadline. There are some ways in which you can help cut down on your taxes in retirement, and help minimize your overall tax burden.
If you’re aged 50 or older, then your 401(k) contribution limit is at $24,000, which is not included in your taxable income for the year. Thus, your tax bill will be lowered and your nest egg for retirement will be larger if you are able to pump more money into your 401(k) benefits. A 529 plan is an education savings plan to help you set aside funds for future college costs, which is similar to a 401(k) plan in that the investments grow tax-free. Also, depending on which state or educational institution operates your plan, you may be eligible to apply for tax credits or deductions based on your contributions made to this plan.
Another account you can contribute tax-free to is a Health Savings Account. As long as your funds are used to pay for qualified medical expenses, the money going in and coming out will be tax-free. Additionally, you can help lower your amount paid to taxes in retirement by making regular charitable donations. Any contributions, whether they be financial or items that are donated to qualified organizations, are all tax deductible. Although, there are limits on deductions related to charitable donations. However, most are fully deductible as long as your contribution doesn’t exceed 50% of your adjusted gross income.
In the end, it is important to remember that you didn’t work your entire life to retire and spend all of your time making investment planning decisions. Don’t get caught up and forget important deadlines relating to your taxes. As you grow older, you learn about what in your life needs to be valued most, and at this stage of the game, securing financial planning advice will allow you to lift the tax burdens off your shoulder and ultimately allow you to focus on what really matters to you. CLICK HERE to contact us and request your no cost, no obligation financial review. Also, be sure to check out our new Tax Planning Tips Guide!