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Contributing to a 457 plan can help reduce your taxable income and increase your retirement savings. Understanding simple strategies to lower taxes through your 457 plan can maximize your benefits and improve your financial planning.
Maximize Your Contributions
Contributing the maximum allowed amount each year can significantly lower your taxable income. For 2023, the contribution limit is $22,500 for most employees, with an additional catch-up contribution of $7,500 if you are age 50 or older. Increasing your contributions up to these limits enhances your tax savings.
Take Advantage of Catch-Up Contributions
If you are nearing retirement age, utilize catch-up contributions to boost your savings. These additional contributions can be made for up to three years before the plan’s normal retirement age, allowing you to save more and reduce your taxable income further.
Coordinate with Other Retirement Accounts
Align your 457 plan contributions with other retirement accounts like a 401(k) or IRA. This coordination can optimize your overall tax benefits and ensure you are maximizing your tax-advantaged savings opportunities across multiple accounts.
Consider Timing of Contributions
Making contributions early in the year allows your investments more time to grow tax-deferred. Additionally, spreading out contributions throughout the year can help manage your cash flow and potentially increase your tax savings.