Saving for retirement is a smart move. But did you know that some accounts can also reduce your taxes? Making smart contributions now means more money in your future and extra money this year. If you know where to invest your money, it's a win-win!

Some retirement plans allow pre-tax contributions. This means you can deposit funds before taxes are deducted from your paycheck. This allows you to save and invest more of your income.

This article looks at 6 popular retirement plans with huge tax benefits. We'll discuss important details such as eligibility, contribution limits, and tips for maximizing your benefits.

With a few simple strategic steps, you can balance future-proofing your needs with immediate cost savings. Read on to discover accounts that can help you reduce taxes while preparing for your dream retirement—whether you're an employee, self-employed, or somewhere in between!

Reduce taxes while building future savings

The core concept is simple: pre-tax super contributions allow you to save and invest before your funds reach taxable income.

By lowering your taxable income, you pay less tax and get the most out of your hard-earned money. It's a win-win situation that balances retirement preparation with smart money management.

While all retirement plans offer earnings tax deferred, the following six vehicles allow pre-tax contributions, making them especially tax-efficient.

Use these options within qualification guidelines and limits to achieve tax savings while generating future returns.

1. 401(k)s – Workplace Power Source

The 401(k) remains a component of US retirement plans, allowing for pre-tax salary contributions in 2023 up to $20,500, or $27,000 if it exceeds $50.

By transferring a portion of each paycheck into your 401(k) account before taxes, you can significantly reduce your annual taxable income. Assuming a 22% marginal tax rate, a $10,000 annual 401(k) contribution could reduce the federal tax owed by more than $2,000.

Join your employer's 401(k) plan and aim to contribute at least enough to get the maximum company match. Select a pre-tax contribution percentage for each pay period.

2. Traditional IRA – Personal Tax Deduction

Even without a workplace plan, a traditional IRA allows tax-free contributions, lowering your taxable income to the annual limit, which is $6,000 in 2023 or $7,000 if you are over age 50. Qualified distributions are then taxed when withdrawn in retirement. Income restrictions apply.

Open a traditional IRA at a reputable institution and schedule automatic contributions. Follow guidelines for tax deductions based on income and workplace plans.

3. SEP and Solo 401(k)s – Rewarding Self-Employment

Self-employed individuals can enjoy huge tax benefits from retirement plans like SEPs and Solo 401(k)s, which allow higher tax-free contributions than IRAs.

SEPs allow nearly 25% of pretax net operating income, up to a maximum of $63,000 in 2023. For those under 50, a solo 401(k) deferral can be up to $66,000!

Choose the right retirement plan for your business structure and open/enroll as soon as possible to maximize tax and savings benefits.

4. SIMPLE IRA—a friend of startups

Young small businesses with fewer than 100 employees can benefit from SIMPLE IRA plans, which allow employees to defer up to $15,500 in pre-tax and employer contributions in 2023. This reduces participants’ taxable income as they build retirement assets.

Review program policies and coordinate account opening for all employees to maximize participation and tax benefits.

5. HSA – Triple Healthcare Tax Savings

For those enrolled in a qualified high-deductible health plan, health savings accounts offer a rare triple tax benefit: tax deductions on contributions, tax-free growth and tax-free withdrawals for medical expenses.

HSA contribution limits for 2023 are $3,850 for individuals and $750 for families. Once you're enrolled in a qualifying health insurance plan, you can open an HSA. Contribute regularly to lower taxable income. Be sure to keep your withdrawal receipts.

6. 457(b) Plan – Essential for Civil Servants

People who work for the government or nonprofits can get what's called a 457(b) plan. The plan allows them to set aside a large portion of each paycheck before paying taxes. This helps them save and reduce their annual tax liability.

By 2023, they can invest up to $22,500 without paying taxes. Those over 50 can qualify for a higher tax exemption limit, up to $30,000! The entire amount can then grow over time without interest.

Once the employee retires in the future, he or she will withdraw funds from the 457(b) and pay income taxes. So now there are no more taxes, so the money grows faster. Depending on retirement age, the tax rate may be lower.

The sooner government and nonprofit employees start putting money into one of these 457(b) plans, the better. This does have an impact later, with more savings now and less taxes consuming wages.

Saving smart now and for the future

Balancing retirement planning with tax minimization is a smart strategy when you're faced with a variety of financial goals amid rising costs.

Discuss integrating some of these accounts with your trusted financial advisor and tax professional to develop a customized plan of action to get the most from your pre-tax savings.

The peace of mind, extra savings, and power you gain are priceless rewards for taking control of your current and future financial future. Small steps today will pay huge dividends over decades.

We look forward to realizing substantial savings today and securing an even bigger retirement fund tomorrow!