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One of the best things one can do is save money in deductible or nondeductible retirement plans which have several benefits for the tax. Here are some tips to get the most from tax-advantaged retirement plans.
- Contribution limits- It is always advisable to not contribute beyond the limit otherwise one has to pay double the taxes. For an Individual Retirement Arrangement (IRA), the contribution limits for 2021 and 2022 are $6,000 ($7,000 for any taxpayer aged 50 or older at the end of the tax year). If you are married and filing jointly, each of you can contribute up to that amount in your retirement accounts. If you contribute more than the limit to your IRA account, all excess contributions are taxed at 6 percent per year as long as the extra amounts remain in the account. To avoid the tax, consider withdrawing the amount over the limit or taking out any income earned on the excess contribution. The maximum contribution to 401(k), 403(b), and 457 plans for 2021 is $19,500 (increasing to $20,500 for 2022 contributions).
- Deadlines- Contribution to IRA can be made until the due date of your 2021 tax return, which is April 18, 2022. However, contributions to a 401(k) or similar plan are different. All pre-tax contributions are deposited directly from your paycheck throughout the year. Therefore, you can’t add outside money to boost your tax break. However, some employers allow employees to contribute year-end bonus money to their 401(k).
- Make contributions automatic- 401(k) deductions can be done automatically which decreases the tension of making contributions each month. However, with an IRA, it can be postponed and done at your convenience. But, it can be made automatic by having a portion of each paycheck deposited into a separate account or with an automatic transfer from checking to a special savings account every month.
- Money movement- Money for IRA contributions can be done in the form of cash or can be transferred from a brokerage or savings account to your checking. Other assets, like stocks, are not considered regular contributions.
- Make payments periodically- With an employer retirement account, an individual is already making monthly periodic payments. So, if you have an IRA, make small contributions to your brokerage or other institution in order to avoid making all payments at once. Quarterly or even monthly payments are also considered a good way to slowly add money throughout the year.
- Keep check of all financial gains- Always put the extra earnings in your IRA account as this ensures you’re covered for tax time. Keep all bonuses, federal or state tax refunds, proceeds from selling assets, and so on in your retirement account to save yourself from tax.
NSKT Global is a consulting firm that helps in providing consultation regarding the ways you can help you maximize your contributions in the retirement account or 401(k). The NSKT Global team of certified public accountants helps you save huge tax with the help of retirement accounts as well as with consultation of business Tax.
