Bolster your retirement security while reducing your 2023 tax bill
For the most part, the IRS operates on a calendar-year basis. But here are some exceptions that, along with reducing your 2023 tax bill, could improve your retirement security.
If you’re not enrolled in a workplace retirement plan, you can deduct a contribution to an IRA of up to $6,500, or $7,500 if you were 50 or older, for 2023. You have until April 15, 2024, to make your 2023 contribution.
Contributions to a traditional IRA will reduce your adjusted gross income on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your AGI.
Workers who have a company retirement plan but earn less than a certain amount may qualify to deduct all or part of their
IRA contributions. For 2023, this deduction phases out for single taxpayers with
AGI of between $73,000 and $83,000 and for married couples who file jointly with AGI of between $116,000 and $136,000. If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution, as long as the couple’s joint AGI doesn’t exceed $218,000.
A partial deduction is available if the couple’s AGI is between $218,000 and $228,000.
If you worked for yourself in 2023 or had a side gig, you may be able to sock away even more money — and significantly lower your tax bill. You have until April 15 — or Oct. 15 if you file for an extension — to set up and contribute to a SEP IRA, a retirement plan designed for self-employed workers, small businesses and sole proprietors. For 2023, you can deduct contributions of up to 20% of net self-employment income, up to a maximum $66,000.
You also have until April 15 to contribute to a Roth IRA for 2023. Contributions to a
Roth are after-tax, so they won’t lower your tax bill. But if you’re 59½ or older and have owned your Roth for at least five years, withdrawals are tax-free. Contributing to a Roth will also protect your savings from future tax hikes.
Here, too, there are income limits. For 2023, single taxpayers with modified adjusted gross income of $138,000 or less can contribute the full amount; those with income of between $138,000 and $153,000 can make a partial contribution. Married couples who file jointly can make the full contribution if their MAGI is $218,000 or less; those with MAGI between $218,000 and $228,000 can make a partial contribution.
In the past, you could make only pretax contributions to a SEP, but legislation enacted in late 2022 allows SEP providers to offer a Roth option. However, because this change is relatively new, you may have a hard time finding a provider who has started to offer a Roth SEP.