As the calendar turns to a new year, many people assume their opportunities to reduce last year’s tax liability have expired. However, if you are in your late career or early retirement, there are still strategic moves you can make to potentially lower your tax bill before filing your taxes for the prior year. Let’s explore a few options tailored to your financial situation.
Contribute to an IRA
If you meet the eligibility requirements, you can still make contributions to a traditional IRA for the previous tax year up until the tax filing deadline (typically April 15th). For 2024, you can contribute up to $7,000, or $8,000 if you are 50 or older, as part of the catch-up provision. Contributions to a traditional IRA may be tax-deductible, depending on your income and whether you are covered by a workplace retirement plan. These deductions can reduce your taxable income for the prior year, providing a valuable opportunity for last-minute savings.
Contribute to a SEP IRA for Self-Employed Workers
If you are self-employed or own a small business, a SEP IRA (Simplified Employee Pension Individual Retirement Account) provides an excellent way to lower your tax liability. Contributions for 2024 can be made up to the tax filing deadline, including extensions. The contribution limit is the lesser of 25% of your compensation or $66,000. Contributions to a SEP IRA are tax-deductible and can be a powerful tool for reducing taxable income while bolstering retirement savings.
Fund a Health Savings Account (HSA)
If you are enrolled in a high-deductible health plan (HDHP), you may still contribute to a Health Savings Account for the prior year. The 2024 contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution if you are 55 or older. HSA contributions are tax-deductible and grow tax-free when used for qualified medical expenses—a powerful tool for both tax savings and future healthcare planning.
Review Itemized Deductions
Take time to review potential deductions that may not have been fully accounted for, such as unreimbursed medical expenses exceeding 7.5% of your adjusted gross income, state and local taxes, and mortgage interest. If you are close to the standard deduction threshold, consider whether bundling expenses or charitable contributions in the current year could maximize your itemized deductions for the following tax year.
Work with a Professional
For individuals approaching or enjoying retirement, taxes become more complex due to shifting income sources, like Social Security, pensions, and required minimum distributions. Consulting with an Enrolled Agent or financial advisor can help you navigate these strategies and ensure you are taking advantage of all opportunities to reduce your tax burden. Even small adjustments can lead to meaningful savings over time.
With careful planning and a proactive approach, you can still take steps to optimize your tax situation after the year has ended. We can help you use these strategies to ensure your hard-earned retirement dollars are working as efficiently as possible for you.
