A tax-deductible contribution is one of the few remaining ways to reduce taxable income if you don’t itemize.
If your tax refund this year was disappointing, you may be able to do something about it: Contribute more to a retirement fund.
Student loan interest is still deductible if you don’t itemize, as are certain self-employment expenses. If you don’t have a workplace plan such as a 401, you can make tax-deductible contributions to an IRA as long as you’re under 70½ and have earned income, typically from salary, wages or self-employment income, that’s at least equal to your contribution. People can put up to $6,000 into an IRA in 2019, or $7,000 if they’re 50 or older.
Lower-income taxpayers may receive an additional benefit: a tax credit of up to $2,000 for single people or $4,000 for married couples filing jointly that can further reduce the cost of contributions. Tax credits are even more valuable than deductions, and it’s rare to get both at the same time. If that’s not the case, though, you could put a chunk of this year’s refund into a retirement account. You can do that directly, by opening or contributing to an IRA. Or you can boost your 401 contribution and use the refund to help replace money deducted from your paycheck.
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