Although you might not think so, you do have some control over your income tax bracket. This control can be achieved by maximizing your salary deferrals, which helps to reduce your current income tax while boosting your savings in other areas. This is a crucial way to increase your retirement fund, helping you to prepare for your later years.
When it comes to salaries, there are a few ways to increase deferrals into savings. For example, you can increase the amount of money you contribute to IRA and 401(k) plans, not only boosting your retirement investment but also deferring the tax you pay on the amount contributed.
Once you've taken full advantage of any salary deferrals available to you, the next step is to become as tax-efficient as possible. If you are in in a low tax bracket, this means making the most of tax deductions such as those available for job-hunting or for having to move because of employment, as well as any relevant tax credits, like the education credit and child tax credit. People in a higher tax bracket might also like to defer a portion of their salary into health savings accounts.
It is wise to be tax-efficient when it comes to your investment strategies, too. This means that you need to understand the tax treatment of the various investments in your savings portfolio. For example, you can select funds especially for their tax-efficient qualities, such as having a low turnover ratio. Annual tax loss harvesting should also play a role, while municipal bonds that are tax-advantaged should be held in a taxable account.
Planning for retirement can be a complex undertaking, but using a few tax-smart tactics can help to increase your savings. Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.
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