A last-minute way to reduce your 2021 taxes right up until Tax Day | Smart Change: Personal Finance

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Last year may be history. But there may still be one thing you can do this week to reduce your 2021 tax bill (or bolster your refund), all while fattening your retirement savings.

You have until Monday, April 18 — the official federal tax-filing deadline — to make a 2021 IRA contribution of up to $6,000 ($7,000 if you’re 50 or older).

If you put that money into a traditional IRA, your contribution may be fully or partially deductible, regardless of whether you itemize deductions on your federal tax return.

A deduction for IRA contributions reduces your adjustable gross income, and therefore reduces your tax bill. If your AGI is $50,000, for example, a $5,000 deductible IRA contribution reduces it to $45,000.

Limits on how much of a deduction you may take







You have until Monday, April 18 — the official federal tax-filing deadline — to make a 2021 IRA contribution of up to $6,000 ($7,000 if you’re 50 or older)


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You can take a deduction for your full contribution if neither you nor your spouse are covered by a tax-advantaged retirement plan at work.

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But if your employer does provide a 401(k), for example, the amount of your IRA contribution that you are allowed to deduct will depend on your income.

To be eligible for the full deduction your modified adjusted gross income must be $66,000 or less (or $105,000 or less if married filing jointly).

You will only get a partial deduction, however, if your modified AGI was over $66,000 but below $76,000 (or over $105,000 but below $125,000 for married joint filers).

Above those income levels, you may not deduct any of your traditional IRA contributions.

By contrast, contributions to a Roth IRA are never deductible under any circumstances, but can be withdrawn in retirement tax-free.

If your adjusted gross income is less than $66,000 and you make an IRA contribution — either to a traditional IRA or to a Roth IRA, you also may be eligible for a Saver’s Credit. That credit would reduce your tax bill or increase your refund dollar for dollar.

Tax break or not, however, if you didn’t save much for retirement during the calendar year, and are financially able to do so now, it’s worth making that move by April 18.

If you do make an IRA contribution of any kind, make sure to tell the financial institution where your account is housed to designate it as a 2021 contribution. That institution will send both you and the IRS Form 5498 confirming your contribution by the end of May. So be sure to keep that document with your other 2021 tax records, said Misty Erickson, tax content specialist at the National Association of Tax Professionals.

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