Retirement accounts are the most reliable tax planning available to most people, and the one most often left half used.
The reasons are rarely financial. Contributions are never increased after a pay rise, an employer match goes unclaimed, or the choice between paying tax now and paying it later was made once and never revisited.
This covers the ways to get more into these accounts, how to think about the timing of the tax rather than only the amount, what is available to higher earners, and the options open to somebody self-employed who has no employer plan behind them.
Why Retirement Account Contributions Are a Tax Priority
Contributing to a 401(k) or IRA reduces your taxable income today (Traditional) or forever (Roth), while growing your wealth tax-advantaged. These are among the most powerful legal tax reduction tools available to US taxpayers.
The decision people spend least time on is the one that matters most over a working life: which account the money goes into, and therefore when it is taxed. That choice depends on where you expect to sit later, not on which option looks better this year.
Anu Gupta, CA, EA, B.Tech · LinkedInWay 1: Contribute to the Annual Limit
The IRS sets annual contribution limits. Maxing out is the baseline goal:
| Account | 2025 Limit |
|---|---|
| 401(k) / 403(b) / 457(b), employee elective deferral | $23,500 |
| 401(k) catch-up contribution (age 50+) | +$7,500 (total $31,000) |
| SECURE 2.0 super catch-up (age 60-63) | +$11,250 (total $34,750) |
| IRA (Traditional or Roth) | $7,000 |
| IRA catch-up (age 50+) | +$1,000 (total $8,000) |
Pro Tip: Max out your 401(k) first if your employer offers a match. Then fund your IRA. Then return to the 401(k) for after-tax contributions if your plan allows it.
Way 2: Get the Full Employer Match
An employer 401(k) match is an instant 50%-100% return on your contribution. Not capturing the full match is leaving free money on the table.
- Common match: 50% of employee contribution up to 6% of salary = effective 3% employer contribution
- Contribute at least enough to get the full match before funding other accounts
- Check vesting schedule: employer contributions may vest over 1-6 years
- If you change jobs before fully vested, unvested employer contributions are forfeited
Way 3: Automate Contributions
The easiest way to max out is to automate. Set a percentage or fixed dollar amount to be withheld from each paycheck.
- Automatic increases: many plans offer auto-escalation (increase deferral % each year)
- For IRAs: set up a monthly automatic transfer from your bank account
- Treat retirement contributions like a non-negotiable bill
- Front-load early in the year if you can, more time in the market
Way 4: Choose Roth vs. Traditional Strategically
Both are powerful, but the right choice depends on your current vs. expected future tax rates:
| Account Type | Best When... |
|---|---|
| Traditional 401(k) / IRA | You expect to be in a lower tax bracket in retirement than today |
| Roth 401(k) / IRA | You expect to be in a higher or equal tax bracket in retirement |
| Young workers | Generally favor Roth (lower income now; decades for tax-free growth) |
| Peak earners | Often favor Traditional (high bracket now; lower bracket in retirement) |
Pro Tip: Consider contributing to both Traditional and Roth (if your plan offers it) to diversify your tax exposure in retirement.
Way 5: Backdoor Roth IRA (High Earners)
Roth IRA contributions phase out at higher incomes. The Backdoor Roth is a legal workaround:
- Make a non-deductible Traditional IRA contribution (no income limit)
- Convert the Traditional IRA to a Roth IRA shortly after
- Pay tax only on any earnings between contribution and conversion (usually minimal if done promptly)
- Watch for the 'pro-rata rule': if you have other pre-tax IRA funds, conversion is partially taxable
- 2025 Roth IRA phase-out: $150,000-$165,000 single / $236,000-$246,000 MFJ
- Backdoor Roth is most clean when you have no other Traditional IRA balances
- Mega Backdoor Roth: available in some 401(k) plans; after-tax contributions then rolled to Roth, can contribute up to $46,500 additionally
Way 6: Solo 401(k) for the Self-Employed
Self-employed individuals (with no full-time employees other than a spouse) can establish a Solo 401(k) that allows much higher total contributions than an IRA alone.
- Employee deferral: up to $23,500 (same as regular 401(k))
- Employer profit-sharing contribution: up to 25% of net SE income
- Total limit: lesser of $69,000 or 100% of compensation
- Roth Solo 401(k) available: employee deferrals can be designated Roth
- Loan provision: can borrow up to $50,000 or 50% of account value from a Solo 401(k)
- Must have no other full-time employees (other than spouse) to use a Solo 401(k)
Pro Tip: For self-employed people with high net income, a Solo 401(k) combined with a Cash Balance Plan can dramatically reduce taxable income. A Cash Balance Plan is a defined-benefit addition that can allow six-figure annual contributions for high earners.
Bonus: HSA as a Secret Retirement Account
If you have a High-Deductible Health Plan (HDHP), a Health Savings Account (HSA) gives you triple tax benefits: deductible contributions, tax-free growth, and tax-free withdrawals for qualifying medical expenses. After age 65, HSA funds can be withdrawn for any purpose (taxed as ordinary income, same as Traditional IRA).
- 2025 HSA limit: $4,300 self-only / $8,550 family
- Catch-up: additional $1,000 if 55+
- Invest HSA funds (do not spend them now; save receipts for future reimbursements)
- No RMDs, unlike Traditional IRAs and 401(k)s
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Frequently Asked Questions
Can I contribute to both a 401(k) and an IRA in the same year?
Yes. They have separate contribution limits.
Can I contribute to a Roth IRA if I also have a Roth 401(k)?
Yes. They are separate accounts with separate limits.
What happens if I over-contribute?
A 6% excise tax applies annually until the excess is withdrawn. Withdraw excess plus earnings before the tax filing deadline to avoid the penalty.
Can I contribute to an IRA for my spouse even if they don't work?
Yes. A Spousal IRA allows a working spouse to contribute to an IRA for a non-working spouse.
What is the deadline to contribute to an IRA?
April 15 of the following year (same as tax filing deadline). No extension even if you file for a tax extension.
Written by
Anu Gupta, CA, EA, B.Tech
Anu works with US businesses on tax and entity questions at Profitjets, from choosing a structure to the filings that follow it. She writes about the decisions owners make once and then live with for years. Connect on LinkedIn
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