Contributing to your retirement account is one of the best ways to reduce your taxable income and increase your tax refund. While some retirement accounts have year-end deadlines for contributions and required distributions, others give you extra time to make deposits that will count toward tax year 2016. Check out these end of year moves that will qualify you for tax savings!
Make 401(k) contributions. There may be no better investment than tax-deferred retirement accounts. They can grow to a substantial sum because the interest compounds over time, free of taxes. If you’re able, max out your 401(k) contribution before year end ($18,000 maximum allowed for 2016, $24,000 if you are age 50 or over) so that you can lower your tax liability and make the most of your retirement. If you are self-employed, you can stash even more into a Solo 401(K) account. You can contribute both the annual contribution limit (up to $18,000, $24,000 if you are 50 or over) and up to 25% of your net earnings from self-employment. Total contributions cannot exceed $53,000 in 2016.
Use the time for IRA contributions. In addition to your 401(k), consider contributing to an Individual Retirement Account (IRA), as well. You have until April 18, 2017 to make IRA contributions for 2016, but the sooner you get your money into the account, the sooner it has the potential to start to grow. Making tax deductible contributions also reduces your taxable income for the 2016 tax year. You can contribute a maximum of $5,500 to an IRA for 2016, plus an extra $1,000 if you are 50 or older. If you are self-employed, you can contribute to a Simplified Employee Pension (SEP) IRA as much as 25% of your net earnings or up to $53,000 ($54,000 for 2017) and your contributions are deductible as a business expenses.
Qualify for the Saver’s Credit. There’s another plus to contributing to your retirement. You may automatically be eligible for the Saver’s Credit worth up to $1,000 ($2,000 married filing jointly) just for making a contribution to your retirement account. The Savers Credit can be claimed for your contributions to a 401k, 403(b), 457 plan, a Simple IRA or a SEP IRA. (You can’t claim your employer’s contributions to these accounts, however.) Your contributions to a traditional IRA or a Roth IRA are also eligible for the Savers Credit.
Don’t worry about knowing all of these retirement tax tips. TurboTax will ask you simple questions and give you the tax deductions and credits you are eligible for based on your answers.