With the country officially in a recession and the possibility the economy could get worse as novel coronavirus cases spike, it's more important now than ever to make smart financial decisions. And one of those choices could be taking advantage of tax breaks for retirement savings.
The good news is, thanks to the fact the IRS delayed tax day until July 15, 2020, you have more time to score generous tax savings to help invest for your future. But the bad news is, you have less than one week to act to do that, so you better get moving if you haven't already.
You still have a little time to take advantage of these tax breaks for 2019
For the 2019 tax year, most people were eligible to make combined contributions of up to $6,000 to a traditional or Roth IRA (provided your income wasn't too high). Those who are 50 or over could also make an additional $1,000 catch-up contribution. Both traditional and Roth IRAs are a great way to save for your later years. Traditional IRAs allow you to claim a deduction in the year you contribute and pay taxes on a future withdrawal, while Roth IRAs take nondeductible contributions with after-tax money but allow tax-free withdrawals in your later years.
Americans with qualifying high-deductible health plans could also contribute up to $3,500 to a health savings account if they had self-only coverage (an individual plan) or up to $7,000 for family coverage. HSA contributions can be deducted in the year they're made. Those who are 55 and over can also make an additional $1,000 in catch-up contributions.
With an HSA, if you withdraw the money any time for qualifying medical expenses, you won't owe taxes on it. You can also opt to leave your money invested to grow and, once you've reached the age of 65, you have the option to take the money out penalty-free for any reason (although you'd owe ordinary income tax on your withdrawal if you aren't using it for medical expenses).
Deductible contributions to a traditional IRA or HSA can be made up until tax day for each tax year. And since this year's tax day was delayed until July 15, you now have until that deadline to take advantage of the opportunity to put your money into these accounts and score tax savings for 2019. That means you still have about a week left to invest, file your tax return, and get the money back ASAP.
The tax breaks can be generous, with those who are eligible for catch-up contributions who max out both accounts able to contribute up to $15,000 if they have family health coverage. A $15,000 deductible contribution could save you as much as $3,300 if you're in the 22% tax bracket -- or more if your tax rate is higher.
Don't pass up the chance to save on your taxes while setting yourself up for a more secure retirement
If you haven't already contributed to an IRA and HSA for 2019 and you're eligible to do so, consider making a move now before your time runs out. Or if it's too late for you for 2019's taxes, start working on your 2020 contributions now. You can't afford to pass up these generous tax breaks that will help set you up for a more secure retirement, so start putting away as much as you can each month. A lower tax bill and more money in retirement are worth the effort.