For the most part, the Internal Revenue Service (IRS) operates on a calendar-year basis. But here are some exceptions that, along with reducing your 2023 tax bill, could improve your retirement security.
If you’re not enrolled in a workplace retirement plan, you can deduct a contribution to an individual retirement account (IRA) of up to $6,500, or $7,500 if you were 50 or older, for 2023. You have until April 15, 2024, to make your 2023 contribution. Contributions to a traditional IRA will reduce your adjusted gross income on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your adjusted gross income (AGI).
Workers who have a company retirement plan but earn less than a certain amount may qualify to deduct all or part of their IRA contributions. For 2023, this deduction phases out for single taxpayers with AGI of between $73,000 and $83,000 and for married couples who file jointly with AGI of between $116,000 and $136,000. If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution, as long as the couple’s joint AGI doesn’t exceed $218,000. A partial deduction is available if the couple’s AGI is between $218,000 and $228,000.
If you worked for yourself in 2023 or had a side gig, you may be able to sock away even more money—and significantly lower your tax bill. You have until April 15—or Oct. 15 if you file for an extension—to set up and contribute to a Simplified Employee Pension (SEP) IRA, a retirement plan designed for self-employed workers, small businesses and sole proprietors. For 2023, you can deduct contributions of up to 20 percent of net self-employment income, up to a maximum $66,000.
You also have until April 15 to contribute to a Roth IRA for 2023. Contributions to a Roth are after-tax, so they won’t lower your tax bill. But if you’re 59½ or older and have owned your Roth for at least five years, withdrawals are tax-free. Contributing to a Roth will also protect your savings from future tax hikes.
Here, too, there are income limits. For 2023, single taxpayers with modified adjusted gross income of $138,000 or less can contribute the full amount; those with income of between $138,000 and $153,000 can make a partial contribution. Married couples who file jointly can make the full contribution if their modified adjusted gross income (MAGI) is $218,000 or less; those with MAGI between $218,000 and $228,000 can make a partial contribution.
In the past, you could make only pretax contributions to a SEP, but legislation enacted in late 2022 allows SEP providers to offer a Roth option. However, because this change is relatively new, you may have a hard time finding a provider who has started to offer a Roth SEP.
