Max Out Retirement Accounts

Maxing out your retirement account(s) is the first step to limiting your tax liability. Contributions made to 401(k) accounts come out of an employee’s paycheck before taxes are taken out, lowering their taxable income. Similarly traditional IRA contributions are tax deductible and lower a person’s tax liability.

In 2022, the IRS allows employees to contribute up to $20,500 to their 401(k)s, plus an extra $6,500 for employees who are 50 and older. In total, the IRS permits employee contributions and employer matches to reach up to $61,000 ($67,500 for people 50 and older).

Additionally, you may contribute another $6,000 to an IRA, plus an extra $1,000 catch-up contribution is you’re 50 or older. But beware: the IRS does not let you deduct these contributions if your modified adjusted gross income (MAGI) is $78,000 or more, you’re single and are covered by a retirement plan at work. The IRA tax deduction similarly phases out for married couples who file jointly and have a combined MAGI of $129,000 in 2022.