NEWS & RESOURCES

Authored by: Cindy Ulrich, CPA

Maximizing Your Retirement and Health Savings Contributions

As we near the end of the 2024 tax year, it’s important to remember that you still have opportunities to optimize your financial plan and potentially reduce your tax burden by contributing to Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs). Here’s what you need to know about these contributions and how they can benefit your financial health.

IRA Contributions: Building a Strong Retirement Foundation

You have until April 15, 2025, to make contributions to an IRA for the 2024 tax year. Here are the key details:

• Contribution Limits:
  • $7,000 per individual.
  • An additional $1,000 “catch-up” contribution for taxpayers aged 50 or older.
• Eligibility: You must have earned income to contribute. Contributions are limited to your earned income or the maximum limit, whichever is lower.

Types of IRAs

1. Roth IRA:
   • Tax Treatment: Contributions are made with after-tax dollars, meaning no deduction is available upfront. However, the account grows tax-free, and distributions in retirement are also tax-free.
   • Retirement Benefits: Roth IRAs are ideal for individuals who anticipate being in a higher tax bracket during retirement.
2. Traditional IRA:
   • Tax Treatment: Contributions may be tax-deductible, and the account grows tax-free. However, distributions in retirement are taxed as ordinary income.
   • Retirement Benefits: Traditional IRAs are often advantageous for those in higher tax brackets today who expect to be in a lower tax bracket during retirement.

Having both types of IRAs can provide valuable flexibility in retirement, allowing you to manage taxable income and maintain steady cash flow. Speak with your advisor to determine the best way to allocate your contributions based on your current financial situation and long-term goals.

Health Savings Account (HSA) Contributions: A Triple-Tax-Advantaged Tool

If you are covered by a high-deductible health plan (HDHP), you may be eligible to contribute to an HSA. Contributions for the 2024 tax year can also be made until April 15, 2025.

• Contribution Limits:
  • $4,150 for individuals.
  • $8,300 for families.
  • Additional $1,000 “catch-up” contribution for individuals aged 55 or older.
• Coordination with Employer Contributions: Contribution limits are reduced by any amounts contributed by your employer or through salary reduction.

HSA Tax Advantages:

1. Tax Deduction: Contributions are deductible in the year they are made.
2. Tax-Free Growth: Investment earnings in the account grow tax-free.
3. Tax-Free Distributions: Withdrawals are tax-free when used for qualified medical expenses.

An HSA is not just a healthcare savings tool; it can also serve as a supplemental retirement account. Funds unused for medical expenses can be invested and used later for any purpose after age 65 (though non-medical distributions are taxable).

The Strategic Advantage of Last-Minute Contributions

Before you finalize your 2024 tax return, consider whether contributing to an IRA or HSA can help reduce your taxable income or bolster your savings. This can be particularly beneficial for:

• Maximizing deductions to lower your tax liability.
• Taking full advantage of catch-up contributions if you’re eligible.

Plan Ahead for a Secure Future

While IRA and HSA contributions offer immediate tax benefits, their real value lies in the long-term financial flexibility they provide. Consult with your financial advisor to:

• Evaluate whether a Roth or Traditional IRA best suits your needs.
• Determine the optimal HSA contribution strategy based on your current and future healthcare expenses.

By acting now, you not only make the most of the 2024 tax rules but also set the stage for a more secure and flexible financial future. Don’t leave these powerful tools underutilized—invest in yourself today! Contact us at cnccpa.com or call (509) 663-1661. We're here to provide you with a complete financial team in your corner.