Saving More for Retirement Can Help You Reduce Your Taxes

New York-based finance professional Benjamin Leitman draws on a decade of experience in the financial services industry to help high-net-worth clients and sports and entertainment people manage their wealth. As a part of his job as a business manager at ML Management Partners, Benjamin Leitman provides his clients with advice on how to manage their taxes.

One way of reducing annual taxes is to save more for retirement. By choosing a type of retirement account that allows you to defer paying income tax on retirement savings, you can reduce your tax bill. Different accounts have different limits on how much you can save each year without paying taxes.

If you have an individual retirement account (IRA), you can make tax-deferred savings of up to $6,000 as of 2020. Income tax on this money will only be paid when it’s withdrawn from the account. With an employer-sponsored plan like the 401(k), the maximum pre-tax contribution in 2020 is of $19,500. People over 50 can also make catch-up contributions which are currently set at an extra $1,000 for an IRA and 6,500 for a 401(k). Spouses even have the option of saving double the tax if they each have an IRA. Even if one of the spouses doesn’t work, the other can still save money in the other’s IRA account with the same maximum limit of $6,000.

By maximizing retirement savings, you have the double advantage of paying fewer taxes each year while at the same time ensuring you will have more money for when you retire.