One of the most common tax planning strategies is to max out your contributions to your retirement plans to reduce your taxable income.
For IRAs, you have until the tax filing deadline (April 15) to do this, but for 401K, 403B and other employer sponsored retirement plans, you have to do this by the end of the calendar year.
The maximum amount you can contribute to 401K, 403B and 457 plans is $15,500 in 2008 (in 2009 you’ll get to contribute an extra $1,000 as the limit is increasing to $16,500).
You may be wondering if you should contribute more to your retirement plan given the stock market this year. Actually, since stock and mutual fund prices are off by an average of 40% this year, you should be contributing to your retirement accounts. Remember ‘buy low, sell high’? Well now is a great time to buy low.
So not only can maxing out your retirement plan be a great tax planning strategy, for this year, it’s also a great investing strategy.