How to Reduce AGI With a Retirement Fund
Contributions to retirement plans will generally reduce adjusted gross income (AGI) on your income tax return. If your employer sponsors a retirement plan, you can reduce the taxable income reported to you on Form W-2 for the year by maximizing your contributions to the plan (an added benefit is that employers often match all or part of your contributions). Another method of reducing AGI is to contribute to an IRA account.
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Instructions
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Review the retirement plan possibilities that your employer offers. There could be a regular pension plan or a section 401(k) plan or both.
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Determine the amount you can contribute to a plan if you cannot maximize the allowable amounts. Remember, the tax benefits of your contribution will reduce the net cost.
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Set up a traditional IRA if you do not have an employee plan or if you are self-employed. The amount that you can contribute is higher if you are age 50 or older.
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Contribute to your IRA by the tax return filing deadline. If you are making contributions between January 1 and April 15, tell the plan sponsor that the amount is for the prior year. Contributions cannot be made starting the year you reach age 70 1/2.
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Deduct contributions to your IRA to the extent allowable on your tax return. Contributions to a spousal IRA can also be deducted up to the spousal limit.
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