How Retirement Contributions Can Lower Your Taxes

Save for the Future and Reduce Your Tax Bill

Contributing to a retirement account isn't just about preparing for life after work—it's one of the smartest tax-saving strategies available today. Let’s break down how it works.

The Basics: Pre-Tax Contributions

When you contribute to a traditional retirement account like a 401(k), 403(b), or Traditional IRA, the money you contribute is deducted from your taxable income. Here's what that means:

  • If you earn $80,000 and contribute $10,000 to your 401(k), you’ll only be taxed on $70,000.

  • The more you contribute (up to IRS limits), the less income you report—and the lower your tax bill.

💡 Pro Tip: Not only do you save on taxes today, but your contributions grow tax-deferred, meaning you won’t pay taxes on the growth until you withdraw the funds in retirement.

Maximize Your Contributions to Maximize Your Savings

The IRS sets annual contribution limits for retirement accounts. For 2025, these are the key limits:

  • 401(k), 403(b), and Governmental 457 Plans:

    • Under Age 50: Up to $23,500.

    • Ages 50-59: An additional $7,500 in catch-up contributions, totaling $31,000.

    • Ages 60-63: A new "super" catch-up contribution of $11,250, allowing a total of $34,750.

    • Age 64 and Over: The catch-up contribution reverts to $7,500, totaling $31,000.

  • Traditional and Roth IRAs:

    • Under Age 50: Up to $7,000.

    • Age 50 and Over: An additional $1,000 in catch-up contributions, totaling $8,000.

By contributing the maximum allowed, you can significantly lower your taxable income.

Self-Employed? Even Bigger Opportunities!

If you're self-employed, accounts like SEP IRAs and Solo 401(k)s allow for even higher contributions, letting you defer taxes on a larger portion of your income.

For example:

  • With a SEP IRA, you can contribute up to 25% of your net earnings from self-employment, with a maximum limit of $70,000 in 2025.

These contributions are tax-deductible, meaning they directly reduce the income you’re taxed on.

What About Roth Contributions?

Contributing to a Roth IRA or a Roth 401(k) won’t lower your taxes today, but it can save you big in retirement.

  • You pay taxes upfront on your contributions, but all the growth and withdrawals are tax-free in retirement, as long as you meet the IRS rules.

  • This strategy works great if you expect your tax rate to be higher in retirement.

Frequently Asked Questions

1. How much can contributing reduce my taxes?

It depends on your income and tax bracket. For example:

  • If you’re in the 24% tax bracket, contributing $10,000 could save you $2,400 in federal taxes.

2. What’s the deadline to contribute for 2025?

  • For IRAs, you can contribute up until April 15, 2026, when taxes are due.

  • For 401(k)s, contributions must be made by December 31, 2025.

Get Started Today

Meet with your financial advisor to discuss your investment options. Contact us to schedule a meeting to see how these options apply to your tax situation.