Now that the tax filing deadline is just days away, you may think it’s too late to reduce what you owe on your 2023 federal income tax return.
But there’s still time to reduce your taxes or even increase your refund while contributing to your retirement savings. If you have a traditional individual retirement account, or IRA, you can put money into it for the previous year up until Tax Day (which this year is April 15 in most states).
In addition to potentially reducing your taxable income, there are some benefits to adding to your IRA now. Read on to find out what you need to know about last-minute IRA contributions.
How can I lower my 2023 taxes with IRA contributions?
Each year, the IRS sets maximum limits for how much you can contribute to your retirement accounts. The most you can invest in an IRA in 2023, whether traditional or Roth, is $6,500. If you’re 50 or older by the end of this year, you’ll be able to make an additional $1,000 in catch-up contributions.
Only traditional IRAs can reduce your taxable income because Roth IRAs are tax-free. You contribute after-tax money to them, so they are not tax deductible.
Traditional IRA contributions reduce your taxable income dollar for dollar and, if you contribute enough, could put you in a lower tax bracket. This can reduce your 2023 tax bill and get you more money in your tax refund.
How do you know how much you’ll save from traditional IRA contributions? To generate a rough estimate as you prepare your tax return, multiply your marginal tax rate by the amount you put into your IRA. For example, if you have a 24% tax rate for 2023 and contribute up to $6,500, you’ll save about $1,560.
Keep in mind, however, that some exceptions may limit the amount you can deduct. If your income exceeds a certain level and you and your spouse have a workplace retirement plan, for example, you won’t be able to get the full deduction.
On the other hand, you may be able to deduct all of your IRA contributions up to the limit if you do so Not have a work plan.
Tax Deductions for 2023 IRA Contributions
Let’s say you or your spouse are enrolled in an employer retirement plan such as a 401(k). The table below will show you how much the IRS will allow you to deduct based on your modified adjusted gross income (MAGI). If you file separately and did not live with your spouse in 2023, the IRS considers you single.
Modified adjusted gross income
Single or head of family
Full deduction up to the amount of the contribution limit
Single or head of family
More than $73,000 but less than $83,000
Single or head of family
Declaration of joint marriage or qualified widow(ers).
Full deduction up to the amount of the contribution limit
Married filing jointly or qualifying widow(er)
More than $116,000 but less than $136,000
Married filing jointly or qualifying widow(er)
Documentation married separately
Documentation married separately
The table below shows the 2023 IRA deduction limits if you and/or your spouse are not covered by a workplace retirement plan.
Modified adjusted gross income
Single, head of household or qualifying window(s)
Full deduction up to the amount of the contribution limit
Filing for marriage jointly or separately with a spouse who is not covered by a workplace retirement plan
Full deduction up to the amount of the contribution limit
Filing for marriage jointly with a spouse covered by a workplace pension plan
Full deduction up to the amount of the contribution limit
Filing for marriage jointly with a spouse covered by a workplace pension plan
More than $218,000 but less than $228,000
Filing for marriage jointly with a spouse covered by a workplace pension plan
Filing separately with a spouse covered by a workplace pension plan
Marriage declaration with a spouse covered by a workplace pension plan
Opening an IRA typically takes a few minutes and can be done online or through a brick-and-mortar institution. Once you open an account, you can transfer money directly from your bank account up to your contribution limit until your tax return is due. You can also fund your IRA with cash or checks, or roll over a 401(k) or IRA from another provider.
You don’t have to fund your IRA all at once — you can set up a contribution schedule so you regularly contribute a set amount throughout the year. When you file your tax return, you can then claim a deduction and potentially reduce your taxable income.
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