Assess Your Retirement Contributions Before Year-End

Now is an ideal time to assess your retirement contributions and ensure you’re making the most of any tax-saving opportunities. Reviewing your retirement contributions before year-end allows you to confirm that you’re on track with your savings goals and taking full advantage of IRS limits. This review isn’t just about hitting contribution targets; it’s about making adjustments that can maximize tax benefits and set you up for a more rewarding future. This article is a more detailed look at why an annual review is so important and some actionable steps to make the most of your retirement contributions.

Why Year-End Timing Matters

At the end of each tax year, you have a limited window to maximize your retirement contributions within the IRS-set limits for various retirement accounts, like 401(k)s, IRAs, and SEP (Simplified Employee Pension) -IRAs. For many taxpayers, especially those with traditional 401(k) or IRA accounts, contributions made by December 31 can directly reduce taxable income for the year, potentially lowering your tax bill. Not only that, but if you’re in a higher tax bracket this year, additional contributions can make a more significant difference to your current tax savings. Evaluating your retirement strategies now also helps you identify missed opportunities and confirm if your current contributions align with your long-term goals.

Review Your Contributions Against IRS Limits

Each retirement account type has its own IRS-imposed contribution limits. For example, the 401(k) employee contribution limit for 2024 is $23,000, with an additional $7,500 catch-up contribution allowed for those aged 50 and above. IRAs, on the other hand, have a $7,000 limit, with a $1,000 catch-up option. The limits change periodically, so it’s critical to verify how much you’ve contributed so far this year, especially if you’re aiming to maximize your contributions. Overlooking a shortfall in contributions now could mean losing out on tax-saving opportunities.

Check Eligibility for Tax-Deductible Contributions

Tax-deductible contributions are a key advantage of traditional retirement accounts. However, there are income thresholds that affect deduction eligibility, especially for those covered by an employer’s retirement plan. For example, in 2024, if you’re married filing jointly and have a modified adjusted gross income (MAGI) above $136,000, your traditional IRA deduction might be limited or unavailable if you or your spouse are covered by a workplace plan. By reviewing your MAGI now, you can assess your eligibility for deductions and consider strategies for managing your income or adjusting contributions.

Consider Roth vs. Traditional Accounts

If you have access to both traditional and Roth accounts, it’s a good time to reassess which type aligns best with your financial outlook. Roth IRAs and Roth 401(k)s don’t provide upfront tax deductions, but they offer tax-free growth and withdrawals in retirement. For those in lower tax brackets this year, contributing to a Roth may be advantageous, while higher earners might still favor traditional accounts to get immediate tax benefits. Evaluating the best mix of Roth and traditional contributions can optimize both short- and long-term tax impacts.

Employer Matching Contributions: Don’t Leave Money on the Table

If your employer offers a 401(k) match, confirm you’re contributing enough to receive the full match. Many employers match contributions up to a specific percentage of your salary, and failing to contribute enough means missing out on free money for your retirement. If you’re unsure, review your most recent payroll deductions or reach out to your employer’s HR department to confirm your matching status.

Additional Year-End Steps: SEP (Simplified Employee Pension) IRAs and Solo 401(k)s for Self-Employed

For the self-employed, SEP IRAs and solo 401(k)s offer generous contribution limits and flexibility, with deadlines extending into the next year. Still, the end of the year is an ideal time to estimate your net earnings and assess how much to contribute. Both account types allow contributions up to 25% of compensation, capped at $66,000 for 2024, giving self-employed individuals a chance to make substantial retirement contributions.

Year-end is a powerful checkpoint to fine-tune your retirement strategy and ensure you’re maximizing every benefit available to you. Whether it’s increasing contributions to take advantage of tax savings or confirming eligibility for a tax deduction, taking these steps can set you up for a more financially secure retirement. If you’re uncertain about your current retirement plan, consulting with a both your financial advisor and tax professional so they can help you navigate these options and tailor a strategy that aligns with your financial goals. If you need any tax assistance, you can reach us at info@mkhstaxgroup.com.