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Owe Taxes? Do This Before You File and Save Thumbnail

Owe Taxes? Do This Before You File and Save

Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer

It's that time of year again - tax season. For many Americans, doing their taxes often means owing money to the IRS. If you find yourself in this situation, you may be scrambling to figure out how to pay your tax bill before the filing deadline on April 15th. But before you whip out your checkbook, there is one smart financial move you should consider first: making a qualified retirement plan contribution. 

As a financial advisor, I always recommend maximizing your retirement contributions, if possible. But this strategy is especially prudent if you owe taxes.  

What Are Qualified Retirement Plan Contributions? 

It's a contribution to certain tax-advantaged accounts like 401(k)s, 403(b)s, and Traditional IRAs. The key benefit is that contributions are made pre-tax, which reduces your taxable income for the year, or in the case of a Traditional IRA, potentially receiving a tax deduction. For example, if you make a $5,000 Traditional IRA contribution, your taxable income may be lowered by $5,000. At a 24% tax rate, that saves you $1,200 in taxes owed ($5,000 x 24%). 

This strategy, takes advantage of pre-tax contributions to reduce your tax bill. The money gets redirected into your retirement savings, allowing you to get a jumpstart on funding your nest egg while also decreasing taxes due. It's a win-win. 

Who Benefits Most From This Retirement Contribution Strategy? 

People who expect to owe taxes due to extra income or underpaying estimated quarterly taxes are prime candidates. Self-employed individuals and small business owners also tend to have fluctuating incomes year-to-year, so they frequently utilize these strategies. 

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Important Tips for Making Pre-Tax Retirement Contributions 

  • Make sure you're eligible - you must have enough earned income to contribute to an IRA or have access to an employer retirement plan like a 401(k) to make pre-tax contributions.
  • Mind the deadlines - IRA contributions can typically be made up until the tax filing deadline in April, while 401(k) contributions must be done by December 31st.
  • Don't overdo it - contribute as much as you can but be aware of the annual limits, as excess contributions can incur penalties.  
  • Consider other retirement accounts - Health Savings Accounts (HSAs) and SEP IRAs allow larger pre-tax contributions than traditional IRAs. 

The Key Takeaway 

Owing taxes is never fun. But strategic retirement planning can make April 15th a little less scary. Consult with a financial advisor or tax professional to run the numbers and see if maximizing your qualified plan contributions makes sense as part of your overall tax planning approach. With the right moves, you can take the sting out of tax season this year. 

You can get started by using the resources, tips, and tools in our online Tax Resource Center.

Use the tax calculator there to come up with an estimate of what you’re likely to owe in taxes this year, and then adjust the figures to see what would happen if you contributed more to your retirement instead. There are a wealth of other resources in the Tax Center to help you as well. 

Our team of advisors at Weiss, Hale & Zahansky Strategic Wealth Advisors is also always available to help you develop a customized strategy to maximize your retirement contributions, reduce your tax bill, and help you reach your big financial goals, through our Plan Well, Invest Well, Live Well™ process. Schedule a complimentary consultation or call us at (860) 928-2341.  


Presented by Principal/Managing Partner Laurence Hale AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.  

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