Retirement Contributions That Reduce Taxes

Saving for retirement doesn’t just build your future—it can reduce your tax bill today. Whether you’re a W-2 employee, self-employed, or own a small business, the IRS offers several retirement plans that provide tax-deductible contributions or tax-deferred growth, depending on the type of account.

Here’s a breakdown of popular IRS-approved retirement contributions that can help lower your current-year tax liability:

1. Traditional IRA

For: Individuals with earned income

• Contribution limit (2025): $7,000 ($8,000 if age 50+)

• May be tax-deductible, depending on income and participation in an employer plan

• Earnings grow tax-deferred until withdrawn

• Deduction phases out if you're covered by a workplace plan and income exceeds certain limits

  
  

2. Roth IRA

For: Individuals under income thresholds

• Contributions are not tax-deductible

• Earnings may be tax-free if distribution rules are met

• Same contribution limits as Traditional IRA

Note: Roth IRAs do not provide a current-year tax deduction, but may be relevant for long-term tax strategy.

3. SEP IRA (Simplified Employee Pension)

For: Self-employed individuals and small business owners

• Contribution limit (2025): 25% of net self-employment income, up to $69,000

• Contributions are tax-deductible as a business expense

• Can contribute up to the filing deadline, including extensions

• No annual filing requirement for the plan

  
  

4. Solo 401(k)

For: Sole proprietors and business owners with no employees

• Employee contribution limit (2025): Up to $23,000 ($30,500 if 50 or older)

• Employer profit-sharing limit: Up to 25% of net income

• Combined max: $69,000 ($76,500 with catch-up)

• Contributions reduce taxable income

• Filing of Form 5500-EZ required if plan assets exceed $250,000

  
  

5. SIMPLE IRA

For: Employers with fewer than 100 employees

• Employee deferral limit (2025): $16,000 ($19,500 if 50 or older)

• Employer must match up to 3% or make a 2% nonelective contribution

• Employer contributions are deductible as a business expense

• Employees reduce taxable income with their elective deferrals

  
  

Tax Planning Tip

You can still make contributions to many of these accounts after the year ends and apply them to the prior tax year—as long as it’s done by the tax filing deadline, including extensions.

We don’t offer investment advice—but we’ll make sure your tax planning is optimized. If you’re unsure how to report contributions or which plan aligns with your situation, we can help. Contact us at info@mkhstaxgroup.com to schedule your retirement tax review.