Tax season means saving for retirement

And tax season provides more reasons to make retirement savings a priority. Here are a few.

calculator and tax forms

Employer sponsored retirement plans
If you have the opportunity to or are currently contributing to your employer’s retirement plan, your contributions can reduce your taxable income. Contributions made on a pre-tax basis reduce your current taxable income. Since your taxable income is reduced, you’ll pay less in taxes overall, and you won’t be taxed on your retirement plan contributions until they are withdrawn. Your employer’s plan may also allow Roth contributions. These contributions are made on an after-tax basis and do not reduce current taxable income but provide an opportunity for the earnings on the Roth contributions to be tax-free if you are over age 59½ and have had the account for five years.

Your traditional IRA contributions may be tax deductible
If your income is below IRS limits, or you don’t have a retirement plan at work, your contributions to a traditional IRA can be tax deductible, potentially reducing your overall tax liability. And you may be able contribute now (before the April filing date) to reduce your taxes for the previous year.

There are tax credits for some retirement savers
The Retirement Savings Contributions Credit (Saver’s Credit) can lower your income tax bill when you are contributing to a retirement account and if you meet income limits.

Roth IRA withdrawals can be tax free
If you have started a Roth IRA or are thinking about it, you should know that while contributions are made on an after tax basis, the earnings in a Roth IRA can be tax-free if you have the Roth IRA account for five years and are over age 59½.

Each of these opportunities has tax rules regarding eligibility, contribution amounts, and taxation of distributions. As with all tax information, you should consult with a tax advisor regarding any tax-favored retirement products and your specific situation.

And now you know that saving for your retirement could also help you save on income taxes now and perhaps in the future. If you haven’t gotten started, what are you waiting for?

LP-000090 (Mar. 19)

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