Last-Minute Tax Tips to Maximize Your Savings | American Funds

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Investing Fundamentals

Last-Minute Tax Tips to Help Maximize Your Savings

Have you done everything you can to save on your taxes while investing in your future?

There’s still time to invest in retirement, health and college plans — and take the tax deductions for the 2016 calendar year. Here’s how.

Maximize Your IRA Contributions

You have until April 18, 2017 (the IRS deadline), to max out your IRA contributions for accounts opened in 2016. For those age 50 and over, the contribution limit is $6,500; for those under 50 it’s $5,500.

If you are not covered by a retirement plan at work, the full amount of your contribution to a traditional IRA is deductible. With a traditional IRA your earnings grow tax-deferred until withdrawn. However, with a Roth IRA your contributions are made with after-tax money; as such, withdrawals from your contribution (basis) amount are always tax-free.

If your employer does offer a plan, the deductible amount is determined by your income. Remember that contributions to Roth IRAs are not deductible.

If your IRA contribution exceeds the limit, you have until April 18 to withdraw it, otherwise the excess amount is taxed at 6% per year as long as it remains in the account.

Did You Know?

33% of Americans invest in an IRA.

Get a Healthy Deduction for Your HSA Contributions

If you have a health savings account (HSA) you might want to consider adding to it before April 18. Like contributions made to an IRA, money you invest in an HSA isn’t taxed. If the money you contribute to your HSA is deducted from a 401(k) with your employer, the deduction is made pre-tax.

Before opening an HSA, however, check to see if you are eligible. There are several criteria: First, you must have a high-deductible health plan (HDHP). For 2016 the minimum deductibles were $1,300 for self-coverage and $2,600 for family coverage. Before you open an HSA, however, you must determine if you can afford the HDHP. In 2016 the maximum out-of-pocket expenses that could be incurred with an HDHP were $6,450 for self-coverage and $12,900 for family.

Deadline for Enrollees

Note that contributions to your HSA can be made through April 18, but only if you were enrolled in the program prior to December 1, 2016.

Check Your State’s Deadline for 529 Contributions

Here’s where those last-minute tax deductions can get a little tricky. In most states, contributions to 529 college savings accounts must be made by December 31 of the tax year.

But in some states — Georgia, Mississippi, Oklahoma, Oregon and Wisconsin — plan participants can make 2016 contributions up until April 15, 2017. South Carolina’s 529 plan extends the deadline until April 18, and Iowa’s plan permits participants to make contributions to accounts opened in 2016 through April 30, 2017.

Payment limits vary among these states, so be sure to check with your tax advisor about how much of your contribution is deductible.

Reminder: 529 Plan Contribution Limits

You can contribute up to $14,000 ($28,000 for married couples) annually without gift-tax consequences. Under a special election, you can invest up to $70,000 ($140,000 for married couples) at one time by accelerating five years’ worth of investments.

Get an Early Start

Even though you can make these contributions to help your 2016 tax returns, it’s not too early to begin planning for 2017. Ask your financial advisor to help you map out next year’s contributions.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.