Worried you missed your chance to reduce your income taxes for 2023? Fortunately, you still have a variety of ways to knock down your tax bill before you file your taxes for last year. Here are four strategies to consider:
- Traditional or Roth IRA. You can fund up to $6,500, or $7,500 if over 50, to a traditional IRA until 4/15/24 or until you file your taxes, whichever is sooner. Traditional IRA contributions are tax deductible, subject to IRS limitations, while Roth IRA contributions grow tax-free. If your income was too high to contribute to a Roth IRA, consider a backdoor Roth IRA.
- Health Savings Account (HSA). If you have a qualifying health insurance plan, you can make tax-deductible contributions up to $4,150 as an individual or $8,300 as a family to an HSA. For more, learn 3 Ways to Maximize your HSA.
- SEP IRA or Solo 401(k). If you own a small business, you can make tax deductible contributions up to $66,000 to a SEP IRA or Solo 401(k). The SECURE Act 2.0 extended set up deadlines for new Solo 401(k) plans, so both plans can be set up and funded after year end, but before your tax filing deadline, including extensions.
- Cash Balance Plan. If you’re maxing out your IRA and 401(k), a Cash Balance Plan can provide much higher tax deductions. In some cases, we’ve seen nearly $500,000 in tax-deductible contributions available to a cash balances plan. See our Cash Balance Plan article for more, including real world examples. These plans can generally be set up and funded up to your tax filing deadline, including extensions.
As with any tax strategy, you’ll be best served by your tax and financial professionals working together to help evaluate and recommend the best mix of strategies for your situation. Wondering where to start? A conversation with our team is a great first step to see if we’re a fit. We also have a wide range of tax professionals in our network to recommend to our clients!
Ryan Colis
CFA, CFP®
Partner, Financial Advisor
About the Author
Ryan is a problem solver. He has a distinct ability to create a simple solution for very complex puzzles. So, naturally, he’s an integral part of our team. His favorite part of his role at Alterra is the analysis – whether analyzing a financial plan or reviewing an investment portfolio. However, the profession allows him to share that passion with clients by helping them navigate financial complexities as they collaborate on achieving their personal and financial goals.
After completing his undergraduate degree in Business Management, Ryan and Grant met by chance, developed a rapport and have been working together ever since. Ryan has continued his formal training in finance by earning his CFP and CFA designations.
The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.