I don’t think it’s farfetched to say nobody likes taxes. We like the benefits we get from taxes, but nobody likes seeing their hard-earned money taken away every paycheck. Unfortunately, taxes are a necessary evil, and they’re not going anywhere. As you near retirement, it becomes even more important to hold on to your money and increase your savings. One way to do so is by lowering how much you pay in taxes.
Here are four easy steps you can take to lower your tax bill as you’re nearing retirement, including increasing your catch-up contributions to your IRA and using a health savings account.
1. Boost your catch-up contributions
One of the best parts of a 401(k) plan is that it allows you to contribute pre-tax money, lowering your taxable income and tax bill. To prevent people from putting away too much money and not paying enough taxes on income, Uncle Sam puts a limit on how much you can contribute annually to your 401(k). For 2022, the contribution limit is $20,500, unless you’re 50 or older, in which case you can add an additional $6,500 in annual catch-up contributions.
If you’re 50 or older and retirement isn’t too far off, it may be time to take advantage of the $27,000 you’re allowed to contribute to your 401(k). It results in the win-win of letting you save for retirement and save on taxes right now.
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