As the federal tax deadline approaches, individuals still have opportunities to reduce their tax bill or increase their refund. One option is to make a pretax contribution to an individual retirement account (IRA). This contribution can help lower adjusted gross income, especially for those who have not maximized their contributions to workplace retirement plans. With a maximum contribution of $6,500 for 2023, individuals over 50 can contribute an additional $1,000. This contribution provides an immediate deduction, regardless of whether or not the individual itemizes tax breaks.
For those in the 10% or 12% tax bracket, a Roth IRA may be a more favorable option. While it does not offer an upfront tax break, contributions to a Roth IRA grow tax-free. Additionally, married couples filing jointly can benefit from a spousal IRA, which allows nonworking spouses to contribute to a separate Roth or traditional IRA. These options are often overlooked but can provide valuable benefits for retirement planning.
Another last-minute tax-saving strategy is to make a contribution to a health savings account (HSA) by the tax deadline. This option is available to individuals with a high-deductible health insurance plan and offers several tax benefits, including an upfront deduction for contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Those age 55 and older can save an additional $1,000 in an HSA, making it a valuable tool for healthcare expenses in retirement.
Overall, individuals should carefully consider their short- and long-term financial goals before making any last-minute contributions. By taking advantage of these tax-saving strategies, individuals can maximize their savings and better prepare for future financial needs.
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