How to Lower Your 2024 Taxes with IRA Contributions

Tax season is upon us, with the filing deadline for 2024 federal income taxes fast approaching on April 15. If you’re looking to reduce what you owe or even increase your refund, there’s still time to make a difference by contributing to your retirement savings, specifically to your traditional individual retirement account (IRA).

Making last-minute IRA contributions can have a significant impact on your tax bill for the previous year. By contributing to your IRA right up to Tax Day, you can potentially lower your taxable income and even drop into a lower tax bracket. This can result in a lower tax bill for 2024 and potentially lead to a larger tax refund.

It’s essential to understand the rules and limits surrounding IRA contributions. The IRS sets maximums each year for how much you can contribute to your retirement accounts. In 2025, the maximum contribution for both traditional and Roth IRAs is $7,000, with an additional $1,000 allowed for individuals aged 50 or older.

When it comes to lowering your taxable income, only traditional IRAs have that benefit. Roth IRAs, on the other hand, involve contributing after-tax dollars and do not provide a deduction. Traditional IRA contributions directly reduce your taxable income, and the more you contribute, the greater the potential tax savings.

Calculating the potential tax savings from traditional IRA contributions is relatively straightforward. Multiply your marginal tax rate by the amount you contribute to your IRA to estimate your savings. For example, if you have a 22% tax rate for 2024 and contribute the maximum $7,000, you could save around $1,540.

However, there are exceptions that may limit your deduction amount. If you and your spouse have a workplace retirement plan and earn above a certain level, you may not qualify for the full deduction. Conversely, if you do not have a workplace plan, you may be able to deduct all your contributions up to the limit.

To help you navigate the deduction limits based on your modified adjusted gross income (MAGI), the IRS provides tables for different filing statuses. These tables outline the deductions allowed for various income ranges, depending on your filing status and whether you or your spouse are covered by a workplace retirement plan.

Setting up an IRA is a simple process that can be done online or through a financial institution. Once you’ve opened an account, you can fund it up to the contribution limit before the tax filing deadline. You can transfer money directly from your bank account, contribute cash or checks, or roll over funds from another retirement account.

Remember, you don’t have to fund your IRA all at once. Setting up a contribution schedule allows you to contribute regularly throughout the year and potentially lower your taxable income when you file your taxes.

As tax season approaches, consider making last-minute IRA contributions to potentially reduce your tax bill and secure a larger refund. It’s never too late to take advantage of this tax-saving opportunity and boost your retirement savings.