Hurry! You can still lower your 2023 taxes and boost your IRA

By Mark Yatros

What would you rather do: get a root canal or pay taxes? For many of us, it's a toss-up.

But what if I told you there's a way for you to decrease your 2023 taxes, even though we're now into 2024? If you have an IRA (individual retirement arrangement) and haven't fully funded it for 2023, it's possible. But you must act quickly because the deadline to add money to your IRA is April 15.

What does it mean to be "fully funded"? For 2023, for those under age 50, the IRA funding limit is $6,500. However, if you're 50 and older, you can make a "catch-up" contribution of up to $7,500. If funding to the limit isn't possible for you, remember that every dollar you can contribute to your traditional IRA or simplified employee pension (SEP) by April 15 will lower your 2023 taxes. (For more information on the types of IRAs, please read this blog.)

Before we go into how to make a last-minute contribution to your IRA, let's cover why maximizing your contribution is essential. 

Why you should max out your IRA

Future savings

When you put money into your IRA, it doesn't just sit there. It should grow, thanks to compound interest. This means the interest you earn also earns interest, which should cause your money to multiply faster over time.

As already mentioned, if you didn't fully fund your IRA to the limit in 2023, there's still time. But, so you aren’t playing catch up this time next year, consider making changes now. Throughout 2024, contribute money at regular intervals. This way, you spread the cost out, and your savings will start working for you sooner.

A note about 2024 contributions: the IRA contribution limit has increased to $7,000 for those under age 50 and $8,000 for those 50 and older.

Deadline impact

The deadline for IRA contributions usually falls on April 15 of the following year. Missing this date means you can't count your contributions towards last year's taxes. So, it's a good idea to mark it on your calendar. Better yet, set up automatic transfers to your IRA to keep you on track without having to think about it.

Financial discipline

Maxing out your IRA each year is a great habit. It's like setting up a strict savings plan that you commit to every month. To make this easier on your budget, review your spending and see where you can cut back a bit to boost your retirement fund. Every dollar you invest brings you closer to a more secure future.

How to Make a Last-Minute Contribution

Take a look at your finances

If you want to make a last-minute contribution to your IRA, you should evaluate your budget and bank accounts first. How much money can you comfortably move into your IRA without affecting your daily needs? While it would be best to contribute the limit, it's ok if you can't because every little bit helps.

Pro tip: If money's tight, consider cutting back on extras to free up cash for your 2023 IRA contribution. It's just for a short time to give your retirement savings a last-minute boost. If you'd like assistance evaluating your budget, my team and I are happy to meet with you. Please get in touch with us here or call (269) 218-2100.

Contribution process

First, get online and log into your retirement account. You'll want to make sure you're putting your money into the correct year – there's usually an option for this year or last year. Follow the steps to add to your IRA, and double-check everything before you hit "submit." If you have difficulty logging in, please don't hesitate to contact your plan administrator for help.

Pro tip: A smart move is to get to know how your bank or investment site works before you're in a time crunch.

Keep your verification and all documentation

Once you've made your contribution, make sure you get a confirmation that it's for the right year. Print it, email it to yourself, or save it in a place you'll remember. Having the documentation is critical for your taxes, so you want to know where the proof is. 

Pro tip: A good habit to get into is keeping a paper or digital folder for all your tax documents throughout the year. That way, you can quickly put your hands on whatever you need.

Tax Benefits and Potential Growth of Making a Full Contribution

Immediate tax benefits

If you're putting money into a traditional IRA or SEP, you can deduct that amount from your 2023 income taxes. Plus, you only pay taxes on the interest you make once you take the money out. But everyone's tax situation is different, so it's a wise idea to talk to a professional who can give you details on your potential savings. 

My team and I are happy to help. Contact us here [link to landing page] or call (269) 218-2100.

Long-term growth

What difference does it make if you max out your IRA every chance you get versus putting in just a little? The difference in how much you'll have in retirement could be huge. Experiment with this IRA calculator to see what your savings could look like. Punch in the numbers and watch the future value of your contributions – it's a real eye-opener!

A final thought about funding your IRA

I realize that contributing up to the allowed amount can be difficult. But a fully funded IRA can be one of the best retirement savings vehicles available. It provides tax relief now and the magic of compound interest for terrific savings growth. 

If you'd like assistance with budgeting for retirement savings or determining how to invest your money, my team and I are happy to help. 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.