Reduce your 2024 tax bill: Make an IRA contribution now

By Mark Yatros 

It’s almost that time again. Tax time!

Trust me, I get that most Americans aren’t excited about paying taxes. But you might feel more enthusiastic about paying less tax than you expected. One way to pay less tax for 2024 is to contribute to your traditional IRA before April 15, 2025 (and you’re saving for your future, too!).

For your 2024 taxes, contributing to a traditional IRA may lower your taxable income by up to $7,000 or up to $8,000 if you’re 50 or older. Now, let’s look at the benefits of IRAs and the details you need to keep in mind.

Understanding your IRA options: What’s best for you?

Let’s look at your two main options: Traditional and Roth IRAs.

Traditional IRAs

When you contribute to a traditional IRA, whether you can deduct it from your taxes depends on two main factors: your income and whether you (or your spouse) have a retirement plan at work. 

If you don’t have a retirement plan at work:

• Single or head of household: You can deduct your full contribution, no matter how much you make.

• Married filing jointly: If neither you nor your spouse has a workplace retirement plan, you can deduct the full amount of your contribution. 

If you do have a retirement plan at work – like a 401(k) – here are the 2024 rules:

For single filers:

• You can deduct your full contribution if you make less than $77,000.

• You get a partial deduction if you make between $77,000 and $87,000

• You don’t get a deduction if you make more than $87,000.

For married filing jointly:

• You qualify for the full deduction if your income is below $123,000.

• You get a partial deduction if you make between $123,000 and $143,000.

• If your income exceeds $143,000, no deduction is allowed.

Pro tip: Even if you can’t deduct your contribution, you can still contribute to a traditional IRA. The money will still grow tax-deferred until you take it out in retirement.

Roth IRAs

Roth IRAs work differently than traditional IRAs. You pay taxes on the money now, but here’s the good part – when you withdraw your money in retirement, you won’t owe any taxes on it. None. Zero. Zilch. And you never have to take the money out if you don’t want to. This can be a fantastic option if you expect to be in a higher tax bracket when you retire.

However, not everyone can contribute to a Roth IRA because the government has specific income limits. Here's how it works for 2024:

If you’re single:

• You can contribute the full amount if you make less than $138,000.

• Between $138,000 and $153,000, you can contribute a reduced amount.

• If you make over $153,000, you are not eligible to contribute to a Roth IRA.

If you’re married, filing jointly:

• You can make the full contribution if your combined income is less than $218,000.

• You can make a reduced contribution if you earn between $218,000 and $228,000.

• You are not eligible to contribute to a Roth IRA if your income exceeds $228,000.

Let’s say you’re single and make $142,000. You’re in what we call the “phase-out range.” You can still contribute to a Roth IRA, but not the full $7,000. There’s a calculation to determine exactly how much you can put in. If this is your situation, we can help you determine your contribution limit. Contact us here or call (269) 218-2100.

Pro tip: Even if you make too much for a Roth IRA, you might be able to use a “backdoor Roth.” This involves first contributing to a traditional IRA and then converting it to a Roth. There are some important rules to follow, so let us know if you’d like help with this strategy.

Smart strategies to maximize your IRA’s tax benefits

Do you want your IRA to work harder for you? Here are some strategies that can boost your tax savings and retirement nest egg.

• Time is money when it comes to IRA contributions. Instead of waiting until next year's tax season, consider making your 2025 contribution as early as possible in January.
  This way, you’ll gain an additional year of growth, potentially resulting in hundreds more dollars in your account due to compound interest.

• If you receive a tax refund, think about putting that money to good use by investing it. Instead of spending your refund on something that loses value, like a new TV, invest it in your IRA. It’s like turning one tax benefit into another!

• Here’s a tip many people might not know: If you’re married and one partner doesn’t earn an income, you can open a Spousal IRA for the non-employed spouse. This could potentially double your tax advantages and retirement savings. My colleagues and I at Allegiant Wealth Strategies would be happy to assist you with this. Contact us here or call (269) 218-2100.

Pro tip: Setting up automatic monthly contributions to your IRA is like putting your retirement savings on autopilot. You’ll avoid the stress of coming up with a large sum at tax time and benefit from investing all year.

How to make an IRA contribution before the deadline

Making an IRA contribution is easier than you might think. You have several options:

• Via your financial advisor

• Through your local bank

• With an online brokerage account

• Using your investment company’s website or app

Many providers now offer easy online contributions, allowing you to transfer money from your checking account in just a few clicks.

Here’s the most important thing to remember: If you contribute in early 2025, you must inform your provider that it’s for the 2024 tax year. Otherwise, they’ll count it for 2025, and you’ll miss out on the tax benefit for 2024.

Pro tip: Don’t wait until April 15 to make your contribution. Some providers need extra processing time, especially for new accounts. Give yourself at least a week’s cushion to avoid missing the deadline.

Use IRAs to your tax advantage before time runs out

The clock is ticking toward Tax Day. Whether you can contribute $7,000 or $700, you’re taking control of your financial future while potentially reducing your tax bill.

If you’re unsure how much to contribute, start with what you can afford now. You can always increase your contributions later. Remember, even small amounts add up over time. 

Ready to take the next step? We’re here to help you make the most of your IRA contribution before tax day. Let’s talk about your options. Contact us here or call (269) 218-2100.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. 

Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.