Get Ready

How to lower your taxes as you near retirement

No one likes paying taxes. You’ll like it even less during retirement. Thankfully, there are ways to reduce your tax bill so that you’re not overwhelmed during your golden years. Here are some steps to take.

Up Your Contributions

As USA Today notes, one of the advantages of a 401(k) is that you can contribute pre-tax money, which in turn lowers your taxable income. Just keep in mind that there is a cap on your contributions. For 2022, the limit is $20,500. If you’re 50 or older and nearing retirement, you can kick in an extra $6,500 annually. Do what you can to hit that mark, it will keep your tax bill low and give your savings a nice boost.

Use a HSA

One of the biggest expenses during retirement is medical costs. Save for those costs by using a Health Savings Account (HSA). These accounts let you stash pre-tax money that can then be used for medical bills. Medical expenses are a retirement fact-of-life, so you might as well use a HSA to lower your taxes.

Open a Traditional IRA

If you aren’t covered by a 401(k) at work, consider a traditional IRA. While you do contribute taxed money to a traditional IRA, those funds could be tax deductible depending on your filing status and income. The upside of a Traditional IRA is you get the same tax break as a 401(k). If you’re nearing retirement — at least 50 or older — the maximum contribution for a traditional IRA in 2022 is $7,000.

Chris O'Shea

Powered by: SavvyMoney