Retirement contribution deductions

Overview

Contributing to a retirement account is one of the best ways to reduce your current tax bill while saving for the future. Many types of retirement contributions are tax-deductible, meaning they lower your taxable income for the year.

Traditional IRA

• **Contribution limit:** $7,000 per year ($8,000 if you're 50 or older)
• **Deductibility:** Fully deductible if you (and your spouse) don't have a workplace retirement plan. If you do, deductibility phases out at higher income levels.
• **Deadline:** You can make IRA contributions for the prior tax year up until the tax filing deadline (usually April 15)

401(k) Plans

• **Contribution limit:** $23,500 per year ($31,000 if you're 50 or older)
• **How it works:** Contributions are made through payroll and are **already excluded** from your W-2 Box 1 wages, so you don't need to enter them separately
• **Employer match:** Your employer's matching contributions don't count toward your limit

If you contribute to a Roth 401(k), those contributions are made with after-tax dollars and are not deductible.

SEP-IRA (Self-Employed)

• **Contribution limit:** Up to **25% of net self-employment income**, or $69,000 (whichever is less)
• **Ideal for:** Self-employed individuals and small business owners
• **Deadline:** Can be established and funded up to your tax filing deadline (including extensions)

Solo 401(k)

• **Contribution limit:** Up to $69,000 total (employee + employer contributions)
• **Ideal for:** Self-employed individuals with no employees (other than a spouse)
• **Benefit:** Allows both employee contributions ($23,500) and employer contributions (25% of net income)

How to Enter in FileJoy

1. Click **Deductions & Credits** in the left sidebar
2. Select **Retirement contributions**
3. Choose the account type (Traditional IRA, SEP-IRA, Solo 401k)
4. Enter the contribution amount
5. Save

Note: 401(k) contributions through your employer are already reflected in your W-2 and don't need to be entered separately.

Tips

• If you're self-employed, a SEP-IRA or Solo 401(k) can shelter a significant amount of income
• Traditional IRA contributions for the current tax year can be made up until the filing deadline
• Consider the Saver's Credit (Retirement Savings Contributions Credit) if your income is below certain thresholds—it's an additional tax credit on top of the deduction
• Roth contributions are not deductible but grow tax-free; consider your current vs. future tax situation