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Make these 2 tax moves in time to cut your tax bill

Saving for retirement is a good idea, of course, but if you time things right and do your homework, some of your nest egg could also do double duty as a tax shield. Here are two simple savings maneuvers that tax pros say could also lower your tax bill — if you make them in time.


If your employer offers a 401(k) plan and you're not enrolled or not contributing much, you could be paying more than you have to in taxes. Why? The IRS doesn't make you pay income tax now on earnings that go directly from your paycheck to a traditional 401(k) plan (typically you pay the taxes when you withdraw the money). In 2018, the contribution limit for a traditional 401(k) is $18,500 ($24,500 if you're 50 or older), meaning you could potentially shield that much of your pay from income taxes this year.

•When to make your move

Get that money into your 401(k) plan by Dec. 31, says Angela Freyman, a tax preparer at Freyman CPA in St. Johns, Florida. Visit your 401(k) administrator's website, or contact your company's payroll or HR department, to increase your contributions for the end of the year if you can.


Make sure your traditional 401(k) contributions don't exceed that $18,500 limit for 2018 ($24,500 if you're 50 or older), cautions Chad Parks, who runs Ubiquity Retirement & Savings in San Francisco. Your pay stub should indicate what's been withheld to date for the year.


Moving money into a traditional individual retirement account could keep the IRS's hands off of up to another $5,500 of your money this year ($6,500 for people 50 and older). That's because contributions to traditional IRAs can be tax-deductible. The size of your deduction will depend on your filing status, whether you or your spouse is covered by a retirement plan at work and what your adjusted gross income is.

•When to make your move

If you want to turn your savings into a tax break for 2018, make sure your money is in the account no later than April 15, 2019, Freyman says. Opening an IRA shouldn't take long, she adds. "We have people do it in a couple of days, at most," she says.


If you want a tax deduction for 2018 but you're not actually putting the money in your traditional IRA until after Dec. 31, be sure to instruct the IRA administrator to apply your contribution to 2018. And remember to take the tax deduction for 2018.

Another note: A Roth IRA may be a better choice if you're in a lower tax bracket now than you think you'll be in the future. You won't get a tax break now with a Roth IRA, but your withdrawals later should be tax-free.

Freelancers with no employees might think about contributing to what's called a solo 401(k), which could allow them to save for retirement and shield as much as $55,000 from income taxes (with an additional $6,000 catch-up contribution if 50 or older). If you put money into the account by the 2019 filing deadline, you might still get a tax break for 2018. Just be sure the account is open by Dec. 31.

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