Taxpayers have until April 15 to file their 2024 tax returns, but there are still opportunities to lower their tax bill or increase the refund they receive from the IRS. One way to achieve this is by making last-minute contributions to their traditional Individual Retirement Account (IRA). Traditional IRA accounts are tax-deferred, meaning that money in the accounts can grow tax-free throughout one’s working life, and is only taxed when withdrawn in retirement. Contributions to these accounts are tax-deductible, which can help reduce taxable income and potentially push taxpayers into a lower tax bracket if they contribute enough. The maximum amount Americans can contribute to a traditional IRA is $7,000, or $8,000 for those over 50. For example, if a taxpayer has a 22% tax rate for 2024 and contributes the maximum amount, they would pay approximately $1,540 less in federal income tax, according to calculations by Money.com. However, there are some exceptions that can limit the amount of the deduction. For instance, if a taxpayer has income over a certain level and they and their spouse have a workplace 401(k) retirement plan, they may not be able to claim the full deduction. Additionally, many taxpayers do not know that they can contribute earned income to their non-working spouse’s IRA account if they file a joint tax return. One of the benefits of contributing to a traditional IRA is that it allows taxpayers to reduce pre-tax income, which can increase their retirement savings. For example, if a couple files a joint tax return, the stay-at-home parent can contribute to their non-working spouse’s IRA, effectively doubling their retirement savings. According to Tom Wheelwright, a certified public accountant, this can increase retirement savings by $14,000, rather than the standard $7,000. The IRS has specific rules regarding who can take advantage of this opportunity. For instance, a working spouse must earn at least as much as they contribute to both of their IRAs. The IRS has also issued a warning to millions of Americans that nearly $1 billion in unclaimed tax refunds from 2021 are still up for grabs. Around 1.1 million Americans have yet to file their 2021 Form 1040 Federal Income Tax Return, leaving substantial refunds on the table. The deadline to claim these refunds is April 15. The IRS states that taxpayers usually have three years to file and claim their tax refunds, but if they don’t, the money becomes the property of the US Treasury. Here are some key points to consider:
- Contribute to a traditional IRA to reduce taxable income and potentially push into a lower tax bracket.
- Couple’s contribution to a traditional IRA can effectively double retirement savings.
- The maximum contribution to a traditional IRA is $7,000 for 2024, or $8,000 for those over 50.
- Exceptions may apply to deductions, such as income level or workplace 401(k) plan.
- A working spouse can contribute to their non-working spouse’s IRA account if filing a joint tax return.
Contributing to a traditional IRA can have several benefits, including reducing pre-tax income and increasing retirement savings. However, it is essential to consider the specific rules and exceptions that may apply to your individual situation. To maximize your tax refund, consider the following:
- File your 2021 tax return as soon as possible to claim any unclaimed refunds.
- Contribute to your traditional IRA before the Tax Day deadline to reduce your taxable income.
- Take advantage of couple’s contribution to a traditional IRA to effectively double your retirement savings.
By making last-minute contributions to your traditional IRA and filing your 2021 tax return, you can potentially lower your tax bill or increase your refund. The IRS has issued a warning that millions of Americans are missing out on substantial refunds, and with the deadline to claim these refunds being April 15, it is essential to act quickly. Here are the key points to consider when making contributions to a traditional IRA:
| Contribution Limit | $7,000 (2024) | $8,000 (50+ years old) |
| Deduction Limitations | Income level, workplace 401(k) plan, etc. | |
| Couple’s Contribution | Effective doubling of retirement savings |
The IRS has emphasized that it is crucial to file your 2021 tax return as soon as possible to claim any unclaimed refunds. With the deadline to claim these refunds being April 15, it is essential to act quickly. The following are some key quotes from Tom Wheelwright, a certified public accountant:
“Contribution to a traditional IRA allows taxpayers to reduce pre-tax income, which can increase their retirement savings. This can be particularly beneficial for couples, where the stay-at-home parent can contribute to their non-working spouse’s IRA, effectively doubling their retirement savings.”
— Tom Wheelwright, Certified Public Accountant
By understanding the benefits of contributing to a traditional IRA and the specific rules that apply, taxpayers can potentially maximize their tax refund and increase their retirement savings.