Saving for retirement can seem like a daunting task at times. How in the world am I going to be able to save enough to live off of when I stop working? There are many ways to help your savings grow as well as avoid tax expenses. Here are the top 10 ways to save on taxes with your retirement money.
Employees defer payment on their income taxes through traditional 401(k)’s up to an amount of $18,000 a year. This money is pre-tax from your paycheck so when you take it out when you are retired, hopefully the tax rate is low, because thats when you’ll pay it.
Another form of tax deferral, up to $5,500 doing so on your own in an individual retirement account. Contributions are not due until April 15, so contributions can be made right up until tax filing to cut your tax output or boost your refund.
The exact same contribution limits as a regular IRA but the taxes are paid before savings. You are essentially making a bet that the tax rate is better now than what it will be when you retire.
Structured parallel to the Roth IRA, you pay taxes during the year but do not get hit with taxes when you remove your money during retirement.
Catch Up Contributions
When you read the age of 50 you can extend your maximum dollar amount of contribution by $6,00 in a 401(k) and $1,000 in an IRA. This offer only lasts 20 and a half years as the catch-up contribution loophole closes at 70 ½ .
Those households or tax filers that meet a certain criteria can be eligible for savers credit on top of tax deduction on retirement accounts. The maximum credit that a single filer can receive is $1,000 and married couples is $2,000.
Steer Clear of Early Withdrawal Penalty
Those who withdrawal money from their 401(k)’s or traditional IRA’s get hit with a 10% penalty absent first time home buying or college payment.
Take out the minimum withdrawal when the time comes.
The IRS calculates the minimum withdrawal from your accounts based on the value and your life expectancy. If you fail to withdrawal what they demand, you will be hit with a 50% tax upon next removal from the fund
Delay 401(k) withdrawals if you are working
If you are employed after 70 ½ and own 4% or less of the company you’re employed by, you can delay your 401(k) withdrawals from that company, but not from previous jobs.
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