This week on the Retirement Quick Tips Podcast, the theme is: your 2021 Year-End Tax Planning Checklist

Today, I’m talking about one of the best ways to reduce your taxable income in 2021, and that is through maximizing your 401k or other retirement plan contributions.

In 2021, you can contribute up to $19,500 into your 401k account. If you’re over 50, you can contribute an additional $6,500 - getting the total contribution amount to $26,000. Assuming you’re making pre-tax (not Roth contributions), that’s a substantial amount of money that is excluded from your income for the year. Now I mentioned Roth contributions, and that’s a topic for another day...but in general, I think it makes sense to contribute at least some of your 401k into a Roth if you can, but since we’re talking about 2021 taxes, any pre-tax contributions you make to your 401k will reduce your income, and it’s a great way to reduce your taxes.

[Discuss people who think they’re maxing out but aren’t]

So check to see if you’re on track to max out based on this year’s limits. If not, you may be able to defer a higher amount in your remaining paychecks, or switch to a specific $ amount contribution for a couple paychecks to max out that contribution.

And importantly, make sure you adjust your contributions for 2022, where the max will increase by $1000. In 2022, you’ll be able to contribute $20,500 if you’re under 50 with the catch up contribution of $6,500 remaining the same, for a total max contribution of $27,000 if you’re over 50.

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance