Uncle Sam is On Sale! Last Minute Tax Ideas
April 18 is around the corner and it’s the make-it-or-break-it time. If you’re looking at your 2017 tax liability with a heavy heart, it may not be too late to make some last minute changes that can affect your circumstance. Take advantage of all that Uncle Sam has to offer you still for the 2017 tax year. Remember! Pay yourself first!
With the following ideas, I am going to suggest that you consider starting to contribute some serious dollars to your retirement investments. Don’t panic. In fact, try shifting your thinking a little bit. By contributing the maximum amount, it’s almost like getting paid twice. The first time you get paid is when you take the tax deduction. The second time you get paid is when it’s time to cash out and live off your savings!* How great is that!?
Ok. So…the brass tacks.
FIRST: Max Out Your IRA If you qualify, you can contribute $5,500 to your IRA for 2017 and also contribute another $5,500 to your IRA in 2018. Women aged 50 and older are eligible to contribute an additional $1000 for a total of $6,500 each year. Want to spread this contribution out over the year? It’s a mere $458 per month if you are 49 or younger or $542 per month for those 50 and older. This is doable! Please note that deductibility of IRA contributions may be limited if you or your spouse are covered my an employer plan, along with certain income level considerations.
THEN: Max Out Your SEP If you are self- employed, consider funding a SEP (Simplified Employee Pension). This is a form of an IRA for the self-employed and contributions are tax deductible. Here’s the best part! You can still contribute for 2017 if you haven’t filed your taxes yet. The maximum contribution is 25% of your compensation or as much as $54,000 – whichever is less.
AND: Max Out Your 401K Ladies, you can contribute up to $18,500 to your 401(k) plan in 2018. To do it right, you will need to save $1,542 per month or $770 out of every paycheck if you are paid twice monthly. A woman in the 25 percent tax bracket who tucks the full amount into a 401(k) plan can save as much as $4,500 on her federal income taxes in 2018.
If you’re a woman who is 50 or older, you can contribute an additional $6,000 to a 401(k) plan in 2018, for a total contribution of $24,500 – that’s $6,000 savings on your federal income taxes, based on the 25% tax rate!
If you’re thinking that this is a lot to chew on, make no mistake. It is. But remember that tax time is always tough – by funding your retirement funds now and throughout the year to come, then you’re still spending the money but the money is being put aside for you. It’s pain with purpose and that may be just the thing that you need to make tax time palatable.
*Withdrawals from qualified plans are subject to income taxes, and if made prior to age 59 1/2, a 10% penalty tax may apply
This information is not intended to be a substitute for specific individualized tax advice. Tax laws and provisions are subject to change. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Examples shown are hypothetical for illustrative purposes, and are not representative of any individual tax situation. Your results will vary.