Retirement Savings Can be the Key to Tax Savings

Getting a hefty tax bill at the end of the year does not feel good. Fortunately, though, there are some legal and very smart ways to go about reducing that tax bill.

For example, if you make a concentrated effort to save for retirement and you do so in the right way, you could end up owing less in taxes come tax time.  

The 401K Hack

To begin with, consider opening a 401K if you haven’t already. Once you have this plan established, then go ahead and max it out each year, meaning contribute the maximum amount allowed.

Your payments to your 401K will reduce your taxable income, and you’ll be saving for retirement in the process. In some cases, you could even reduce your taxable income so much via this method that you end up bumping into a lower tax bracket.

Try Opening a SEP IRA

Another option you may want to try, if you qualify, is to open a SEP IRA. These accounts are open to those who are self-employed and/or who own their own small businesses. And, when you contribute money to this type of account, you can lower your tax liability up to a certain amount.

If you do go this route, just make sure you are aware of the contribution limits that apply and that you stay within them.

These are just two of many ways that you can save for retirement and, at the same time, reduce your taxes. To learn about more options that might be available to you, speak with a tax professional. Not only can you get great tips on reducing taxes, but you can also ensure your retirement savings plan is up to par and on track to help you in the future.