It’s Not Too Late…Yet

Making self-directed contributions before the tax deadline can be a smart way to reduce your taxable income and potentially lower your tax bill, depending on the type of account you’re contributing to.

Here’s how it works and what to consider:

1. Retirement Accounts (IRA, Solo 401(k))

• Traditional IRA: Contributions to a Traditional IRA may be tax-deductible, depending on your income and whether you (or your spouse) are covered by a retirement plan at work. For the 2024 tax year, the contribution limit is $7,000 ($8,000 if you’re 50 or older).
• Deadline: You can make contributions for the 2024 tax year up until the tax filing deadline (typically April 15, 2025).
• Tax Benefit: Deductible contributions reduce your taxable income for the year, potentially lowering your tax bill.

2. Solo 401(k)

• If you’re self-employed, these accounts allow for higher contribution limits. For example, in 2024, you can contribute up to $23,000 to a Solo 401(k) (plus a $7,500 catch-up if 50 or older) and up to 25% of the net income of the business, not to exceed $46,000.
• Deadline: Solo 401(k) contributions must be made by December 31, 2024, but you can make employer contributions until the tax filing deadline (April 15, 2025).

3. Health Savings Account (HSA)

• If you have a high-deductible health plan (HDHP), you can contribute to an HSA. Contributions are tax-deductible, and withdrawals are tax-free if used for qualified medical expenses.
• 2024 Contribution Limits: $4,150 for individuals, $8,300 for families (plus an extra $1,000 if 55 or older).
• Deadline: Contributions for 2024 can be made up until the tax filing deadline (April 15, 2024)

Key Considerations

• Documentation: Ensure your contributions are properly documented and reported on your tax return.
• Contribution Limits: Be aware of the annual contribution limits for each account type to avoid penalties.
• Tax Bracket: The value of deductions depends on your marginal tax rate. Higher earners benefit more from tax-deductible contributions.
• State Taxes: Some states do not conform to federal tax rules, so check how contributions are treated for state tax purposes.
• By making self-directed contributions before the tax deadline, you can maximize your tax savings and retirement savings for the previous year. Always consult a tax professional or financial advisor to ensure you’re making the best decisions for your specific situation.
• The month of January has flown by; don’t procrastinate!

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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.