It is not too late to reduce your taxable income for this year. Catching up on your retirement contributions will allow you to increase your nest egg for when you retire and at the same time save on taxes!

Generally, there are 2 ways to build wealth:  (1) through home ownership and (2) through retirement savings. Retirement savings in
tax deferred accounts give you an added bonus: they will exempt your return on investment (dividends, interest, capital gains) from tax as the dollars that accumulate in these accounts are not taxable.

Which account is the best for you?

There are several types of tax deferred accounts (see
Comparison table below). They fall under 2 categories:

1/ front loaded accounts
(IRA & 401k)

Contributions to these accounts are tax deductible but withdrawals from these accounts are taxed.

These accounts are best suited for individuals whose income during their working years falls under high tax rates and their income during retirement years will fall under lower tax rates – because the contributions to these accounts are deducted against the highly taxed income and the withdrawals are taxed at the lower rates.

2/ back loaded accounts
(Roth IRA)

 Contributions to these accounts are not tax deductible but withdrawals from these accounts are tax free.  

These accounts are best suited for individuals who expect to be in a higher tax bracket in their retirement year - because their withdrawals will be tax free when their tax rate is high. Only individuals with incomes under specified limits are eligible to contribute to Roth IRA (see
Comparison table below).



Traditional Individual Retirement Account


Roth IRA

Simplified Employee Pension plan



Eligible Individuals
Employee & Self-employed with compensation

Employee & Self-employed with compensation

with AGI <$193,000 (MFJ) / $122,000 (S)

Employee & Self Employed with compensation
Individual Maximum Contribution

lesser of $6000 and taxable compensation

lesser of $6000 and taxable compensation

lesser of $56,000  and 25% of Self-employment income

lesser of $19,000 and compensation

Employer Maximum Contribution

lesser of $56,000 and 25% of Self employment income

3% of employee's compensation
Contribution tax deductible

Yes -

if AGI <$196K (MFJ)



Yes  -

contributions excluded from taxable income

Distribution taxable


Required minimum distributions at age 70.5


Begin saving now (during your working years) for the sum you will need to support your retirement lifestyle and to supplement the income you will receive from the Social Security Administration.

For assistance in your maximizing your tax savings through retirement investments, contact
Karine Bauer, EA. As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a tax professional. Karine Bauer, EA is an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced tax professional with more than 20 years of international experience.

Bear in mind the date of this article as tax laws evolve over time.

Updated October 12th, 2019

Save for retirement and save on taxes!