General Tax-Saving Moves for Retirement Savers Before the Tax Deadline

The tax deadline is quickly approaching, but retirees and retirement savers still have time to take advantage of deductions and tax-saving opportunities. Whether you’re looking to reduce taxable income, maximize savings, or avoid penalties, here are some last-minute tax tips to consider.

Max Out IRA Contributions

If you haven’t already, you can still contribute to a Traditional IRA for the prior tax year until April 15. Contributions may be tax-deductible depending on your income and whether you or your spouse were enrolled in a workplace retirement plan. Maximizing contributions to tax-advantaged retirement accounts can help reduce taxable income and increase savings.

Make a Last-Minute Solo 401(k) or SEP IRA Contribution

Self-employed retirees or those with freelance income may still be able to contribute to a Solo 401(k) or SEP IRA for the prior tax year. Contributions reduce taxable income and allow for significant tax-deferred growth. If you have a tax extension, you may even have more time to contribute.

Taking Advantage of Tax Deductions and Credits Before the Deadline

Deduct Medical Expenses

If your unreimbursed medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the portion that goes over this threshold. Deducting eligible expenses, such as prescriptions, doctor visits, and long-term care costs, can lead to significant savings, but it may require some effort to identify and calculate every eligible expense.

It’s best to keep track of these expenses throughout the year by storing and organizing invoices and bills in a centralized location. A tax preparer can help you add up your medical expenses and ensure you have the documentation needed to justify your deduction.

Use Qualified Charitable Distributions (QCDs) to Reduce Taxable Income

If you’re 70½ or older, you can make a Qualified Charitable Distribution (QCD) directly from your IRA to a charity. QCDs count toward your Required Minimum Distribution (RMD) but aren’t taxed as income, making them a great way to support a cause while lowering your taxable income.

Claim the Saver’s Credit

Retirees who work part time, consult, or freelance can still contribute to a retirement account and may qualify for the Saver’s Credit, which can reduce tax liability by up to $1,000 ($2,000 for married couples filing jointly). This credit is based on income and applies to contributions made to Traditional and Roth IRAs, 401(k)s, and certain other retirement plans.

Avoiding Tax Penalties and Managing Withdrawals

Avoid Penalties for Missing Required Minimum Distributions (RMDs)

If you're 73 or older, you must take Required Minimum Distributions (RMDs) from Traditional IRAs, 401(k)s, and other tax-deferred accounts. Missing an RMD can result in a steep 25% penalty on the amount you should have withdrawn. This penalty may be reduced to 10% if the missed RMD is corrected within two years. If you forgot to take an RMD last year, you may be able to correct it before filing your tax return and request a penalty waiver.

Review Tax Brackets Before Withdrawing from Retirement Accounts

Strategic withdrawals from 401(k)s, IRAs, and taxable investment accounts can help prevent you from unintentionally moving into a higher tax bracket. If you're close to the next tax threshold, consider adjusting withdrawals or delaying income to minimize tax liability.

Check for State-Level Retirement Tax Breaks

Some states offer tax breaks on retirement income, such as exemptions for Social Security, pension income, or IRA withdrawals. Consulting a tax planning and preparation professional about Arizona’s rules before filing can help ensure you’re taking advantage of available benefits.

Tax Considerations for Widows

Watch for the Widow’s Tax Penalty

After losing a spouse, surviving spouses may move into a higher tax bracket due to shifting from married filing jointly to single filing status. This can lead to increased taxes on Social Security benefits, investment income, and required withdrawals from retirement accounts. Planning withdrawals carefully can help minimize tax burdens during this transition.

File as a Qualifying Widow if Eligible

Widows may be eligible to file as a Qualifying Surviving Spouse for up to two years after their spouse’s passing, which allows them to keep the married filing jointly tax brackets temporarily. This can help lower their tax burden compared to filing as single.

Final Steps for Retirees and Retirement Savers Preparing Their Income Taxes

Before submitting your return, double-check deductions, credits, and any remaining contributions you can make. If you're uncertain about tax strategies, consider consulting a financial advisor or tax professional to ensure you’re optimizing your tax situation.

Our team at Fullerton Financial Planning includes tax planning experts and tax preparers who help our clients create tax-efficient retirement strategies while ensuring they maximize available credits and deductions.

You can learn more about our retirement planning and tax services by calling us at (623) 974-0300 to schedule a meeting.