Retirement Tax Moves You Probably Are Missing

Posted on January 20, 2017 at 2:00 AM PST by

It’s January, the beginning of tax season. Time to gather up your pay stubs and deductions and figure out if you owe money or can expect some back from Uncle Sam.

As the paper chase begins, it’s a good time to review and renew your tax strategies around saving for retirement. Putting money in a tax-deferred retirement account, for instance, is the most direct and automatic way to reduce your taxes.


Yet it can be confusing, so here’s a quick guide to your options when it comes to retirement planning.

Use your 401(k). Many people who have access to a workplace retirement plan either underfund it or ignore it. If that’s you, go to your company’s HR department and fix that now. You might have a 403(b) or 457 plan instead, but it’s the same thing: A chance to lower your taxable income dramatically and invest for retirement.

The 401(k) limits for 2017 will be $18,000 per year. If you are paid biweekly, that’s $692 per check you can set side and invest while avoiding taxes this year on the saved amount.

Open an IRA. Maybe you don’t have a 401(k), or you don’t like the investment options in your plan. Fund an individual retirement arrangement (IRA) instead. The limits here are lower, just $5,500, but if you’re young and just starting out saving, it’s a solid start.

The limits are adjusted to account for inflation, so be sure to check them each year about this time and consider upping it accordingly.

Open a Roth IRA. If you’re more concerned about the taxes you’ll pay in retirement, a Roth IRA is a powerful savings tool. Money you contribute to a Roth is taxed this year as income but the growth and future withdrawals are tax-free.

The limits are the same as with a traditional IRA and there are rules about income, but most Americans qualify for a Roth.

Consider a spousal IRA. If you have a 401(k) at work and your spouse does not, you can contribute up to the IRA limit in his or her name in addition to your own savings plans. It does not matter if your spouse had no income.

Use an HSA. Sometimes called “the other IRA,” health savings accounts (HSAs) are tax-deferred just like an IRA. You have to have a high deductible health insurance plan to open an HSA, but the limits are fairly high — up to $6,750 for a family — all of which comes out pre-tax.

Consider a “solo” 401(k). If you operate a business with only yourself or a spouse as members, you can open a personal 401(k) with the same limits as a regular 401(k) plus the ability to set aside 25% of net income on top of those already high limits.

Check on catch-up limits. Both IRAs and HSA plans allow people above certain ages to contribute more in order to catch up on retirement saving. For 2017, that’s $6,000 more on top of the 401(k) limit and $1,000 extra in your IRA.

The other two steps you should take are to automate your savings plans for the coming year and to check your withholding amount. If you increase your tax-deferred savings, that will affect your taxable income.

That’s a good thing; your tax bill will go down. However, if you leave your withholding where it is, you might end up with a tax refund next year. Better to have less taxes taken out and invest or save that money instead.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.