Tax Planning for the 11th Hour

Quick Take

 You have until April 15th to make 2024 contributions to IRAs, HSAs, and SEP IRAs—potentially reducing your taxable income before you file.

Traditional IRAs, SEP IRAs, and HSAs offer immediate tax benefits, while Roth IRAs and Backdoor Roths help build long-term, tax-free retirement income

Contribution limits, deductibility, and conversion rules can be tricky, so consult your advisor or tax preparer to avoid costly mistakes.

If you are just now thinking about ways to reduce your 2024 tax bill, you’re not alone. Many taxpayers wait until they experience the sticker shock of their impending tax bill to take action. Fortunately, there are still a few smart, IRS-approved strategies that can help reduce your taxable income. 

One of the most effective last-minute moves? Making contributions to retirement accounts. Whether you are employed, self-employed, or earning income on the side, you may still have time to make a contribution that benefits both your current and future tax situation. 

Traditional IRA Contributions

You can contribute up to $7,000 for 2024 (or $8,000 if you’re age 50 or older), and the deadline to make a contribution is April 15th. If you’re eligible, your contribution may be fully or partially deductible, depending on your income and whether you—or your spouse—are covered by an employer-sponsored retirement plan.

» A fully deductible contribution can reduce your taxable income on a dollar-for-dollar basis

SEP IRA Contributions

If you are self-employed, a SEP IRA can be a powerful planning tool. Similar to traditional IRAs, contributions to SEP IRAs are made on a pre-tax basis; however, the contribution limits are unique to your self-employment income. For 2024, you can contribute the lesser of: 

» $69,000 

» S-Corps: 25% of compensation 

» Other: 20% of net self-employment income

» To avoid contribution errors, we recommend obtaining your contribution amount directly from your tax preparer

Health Savings Account Contributions

If you were enrolled in a high-deductible health plan in 2024, you can still contribute to an HSA up to the annual limit:

» $4,150 for self-only coverage

» $8,300 for family coverage

» An additional $1,000 if you’re age 55 or older

Roth IRA Contributions

Contributions made to Roth IRAs won’t reduce your tax bill this year; however, they do offer valuable long-term benefits by way of tax-free growth and withdrawals. For 2024, you can contribute up to $7,000 ($8,000 if you’re age 50 or older). Keep in mind that the following income limits apply for 2024: 

» Eligibility starts to phase out at $146,000 (Single) and $230,000 (Married Filing Jointly)

» Contributions are fully phased out at $161,000 (Single) and $240,000 (Married Filing Jointly)

If you fall within the income limits, contributing to a Roth IRA is a strong option for building your future tax-free retirement income.

Backdoor Roth IRA Contributions 

If your income is too high for a direct Roth IRA contribution, there’s still a potential workaround: the backdoor Roth IRA. This strategy involves making a non-deductible contribution to a traditional IRA and then converting that amount to a Roth IRA. This strategy can be a great way for high earners to build their tax-free retirement savings bucket; however, it’s important to understand the pro rata rule.

If you have other traditional IRA balances (including SEP or SIMPLE IRAs), the IRS will consider all of your IRA assets when calculating the taxable portion of your conversion. This can lead to an unexpected tax bill if not executed carefully – so be sure to consult with your advisor or tax preparer before moving forward.

Final Thoughts 

If you're looking to trim your 2024 tax bill before the deadline, retirement account contributions remain one of the most effective and accessible strategies available. Whether you're optimizing deductions, building long-term tax-free income, or both, these moves can make a meaningful difference—not just at tax time, but for your future financial health. As always, timing and accuracy matter, so be sure to coordinate with your financial advisor or tax preparer to ensure your contributions are properly executed and aligned with your overall plan.

Contact us at 865-584-1850 or info@proffittgoodson.com

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