Consider These Year-end Tax-Smart Financial Moves
With the holiday season upon us, you may be getting pretty busy. But once the holidays are over, you’ll enter into a new season – tax season. The filing deadline for the 2017 tax year is April 17, 2018, but until that date – and especially before the end of the calendar year – you may want to explore some tax-smart financial moves.
Here are a few to consider:
Boost your 401(k) contributions. If you’re like most people, you probably don’t usually contribute the maximum amount to your 401(k), which, in 2017, is $18,000, or $24,000 if you’re 50 or older. Unless you have a Roth 401(k), your contributions are made with pre-tax dollars, so the more you put in, the lower your taxable income. Ask your employer if you can increase your 401(k) contributions in 2017. Also, if you receive a bonus before the year ends, you may be able to put that toward your 401(k) too, thus deferring the taxes you’d have to pay on this extra income.
Add to your IRA. You have until the April 17 deadline to contribute to your IRA for the 2017 tax year, but the more you can put in now, the less you’ll have to come up with at the filing deadline. Contributions to a traditional IRA are generally deductible, but the deductibility is phased out if your income rises above certain levels. For 2017, you can put up to $5,500 into your IRA, or $6,500 if you’re 50 or older. (Roth IRA contributions are never deductible.)
Contribute to a 529 plan. When you contribute to a 529 college savings plan, your earnings can grow tax-free, provided the money is used for qualified higher education expenses. (However, 529 plan distributions not used for these qualified expenses may be subject to income tax and a 10 percent IRS penalty.) Furthermore, your 529 plan contributions may be deductible from your state taxes.
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