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READ MORE: IRS changes spark fears for refund delays and long call wait times
The tax submission deadline for this season is fast approaching, yet there’s still ample opportunity to lessen your liability with some final adjustments.
Most taxpayers have until April 15, 2024, to file their tax returns.
However, you can still reduce your tax liability or boost the refund you receive from the IRS by making contributions to your retirement savings account.
If you own a conventional individual retirement account (IRA), you have the option to contribute funds to it for the prior year all the way until the deadline for tax filings.
Conventional retirement accounts offer tax deferral, allowing funds within them to accumulate without taxes during your employment years, with taxation occurring solely upon withdrawal in retirement.
Contributions to Roth accounts, on the other hand, are funds that have already been taxed.
Investing funds into a conventional account may reduce your taxable income, and might possibly move you into a lower tax bracket if your contributions reach a sufficient amount.
During this tax season, individuals in America can contribute up to $7,000 to a traditional IRA—or those aged 50 and older have the option to contribute as much as $8,000.
For instance, if your tax rate is 22% for 2024 and you max out at $7,000, you could save approximately $1,540 on federal income taxes, as per calculations by
Money.com
.
To roughly calculate your savings from traditional IRA contributions, simply multiply your marginal tax rate by the total amount you contribute to the account.
However, taxpayers should be aware that certain exceptions may restrict the amount they can deduct, according to the report.
If your earnings exceed a specific threshold and both you and your spouse participate in a workplace 401(k) retirement plan, you won’t qualify for the complete tax deduction.
However, numerous Americans are unaware that they can allocate earned income to their lower-earning or non-working spouse’s Individual Retirement Account (IRA) when filing jointly as a married couple.
Ultimately, a parent who stays at home, for instance, doesn’t have the option to participate in a workplace 401(k) plan.
This operates similarly to depositing funds into your personal traditional IRA by decreasing pre-tax earnings, according to certified public accountant Tom Wheelwright.
It could potentially double your retirement savings over the course of a year.
Instead of saving $7,000, you could save up to $14,000. Additionally, if both you and your spouse are over 50 years old, each of you can contribute an extra $8,000, bringing the total savings to $16,000.
The IRS has particular regulations regarding who can utilize this benefit—specifically, a working spouse must earn an income that is at least equal to their contribution towards each of the couple’s IRAs.
This follows when the IRS has delivered a severe warning to countless Americans indicating that almost
A whopping $1 billion in unretrieved tax refunds from 2021 remains available.
.
Approximately 1.1 million Americans haven’t submitted their 2021 Form 1040 Federal Income Tax Return, potentially missing out on significant refund amounts.
Although the majority of taxpayers filed their returns in 2022, individuals who haven’t done so yet might be foregoing an average refund amounting to $781.
The cutoff date for claiming the funds is April 15.
The IRS stated in a press release, “According to the legislation, taxpayers generally have a three-year window to submit their tax refund claims.”
‘If not filed within three years, the funds revert to the US Treasury.’
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