How saving for retirement can make tax season a little easier

1-minute read

Tax season is here. It’s the perfect time to review how your retirement account might lower your tax bill.

Here’s how

The pretax contributions you make to your account come out of your paycheck before your taxes are calculated and deducted. In other words, they can reduce what the Internal Revenue Service (IRS) sees as your taxable income.

Your contributions are exempt from federal income tax during the year you make them, reducing your income tax burden for the year.

Note about Roth plans: If your plan allows Roth contributions, you can make contributions after your taxes are deducted, but your qualified withdrawals in retirement will be tax-free.

Another way contributing to your account can improve your tax situation is through the saver’s credit. People who contribute to their employer-sponsored retirement accounts and meet the income requirements can earn a credit that may reduce the taxes they owe for the year. In coming years, the SECURE 2.0 Act will expand the existing saver’s credit and pay it as a federal match to a retirement plan account or an individual retirement account (IRA) for eligible employees.

The bottom line

Contributing to your retirement account doesn’t just help you save for the tomorrow you want—it can also help lower your tax bill today.