As the tax deadline approaches each year, many taxpayers look for smart, legal ways to reduce their tax liability and increase their refund. One of the most effective and widely available methods is contributing to a Traditional Individual Retirement Account (IRA). Unlike many tax-saving strategies that must be completed by December 31, IRA contributions can be made up until the federal tax filing deadline (typically April 15) and still count for the previous tax year. This unique benefit gives last-minute filers a valuable opportunity to boost their refund and build their retirement savings at the same time.
What Is a Traditional IRA?
A Traditional IRA is a tax-deferred retirement savings account that allows individuals to contribute pre-tax income, up to a certain limit, and potentially reduce their current-year taxable income. The earnings grow tax-deferred until retirement withdrawals, at which point they are taxed as ordinary income. For many taxpayers, this means lowering taxable income now while saving for the future.
Unlike Roth IRAs, which offer tax-free withdrawals in retirement, Traditional IRAs offer an immediate tax deduction for qualified contributions, making them ideal for those looking to increase their refund in the short term.
Contribution Limits for Traditional IRAs
The IRS sets annual limits on how much you can contribute to a Traditional IRA:
- For 2024: Up to $7,000 per person ($8,000 if age 50 or older)
- For 2023: Up to $6,500 per person ($7,500 if age 50 or older)
These contributions can be made until the tax filing deadline for that year (April 15 of the following year). For example, you can make a 2023 contribution to your Traditional IRA anytime between January 1, 2023, and April 15, 2024.
Who Is Eligible to Contribute?
To contribute to a Traditional IRA, you must have earned income such as wages, salaries, or self-employment income. There is no longer an age limit for contributions—thanks to changes from the SECURE Act—you can contribute regardless of age as long as you have qualifying income.
However, your ability to deduct Traditional IRA contributions may be limited if:
- You (or your spouse) are covered by a retirement plan at work, and
- Your income exceeds IRS-established thresholds
Deductibility of Traditional IRA Contributions
Whether or not your contribution is fully deductible depends on your Modified Adjusted Gross Income (MAGI) and whether you or your spouse participate in an employer-sponsored retirement plan.
For 2023 (if covered by a workplace plan):
- Single: Full deduction if MAGI ≤ $73,000; phased out up to $83,000
- Married Filing Jointly: Full deduction if MAGI ≤ $116,000; phased out up to $136,000
Even if you’re not eligible to deduct the full amount, you can still make non-deductible contributions and enjoy tax-deferred growth.
How Contributing Increases Your Tax Refund
Contributing to a Traditional IRA can directly reduce your taxable income. This lowers the amount of income subject to federal tax, and in many cases, reduces your tax bracket as well. The result is a lower overall tax liability and, in turn, a potentially larger refund.
For example:
Scenario: John is 35 years old, single, and earned $60,000 in 2023. He’s not covered by a workplace retirement plan. He contributes $6,500 to a Traditional IRA before April 15, 2024.
- His taxable income drops to $53,500
- This could save him over $1,400 in federal income taxes (based on 22% bracket)
- The result is a bigger refund or a smaller tax bill owed
Last-Minute Strategy: Make a Prior-Year Contribution
Even if the calendar year has ended, you can still make a prior-year IRA contribution up to the tax filing deadline. This allows you to evaluate your tax situation after the year closes and still take action to reduce your tax bill.
When making the contribution, ensure your IRA custodian knows it’s for the previous year. Most online brokerage platforms have an option to specify the tax year.
Tax Filing Tip: Use Form 1040 and Schedule 1
To deduct your Traditional IRA contribution on your tax return:
- Enter the deduction on Schedule 1, Line 20
- It then flows through to Form 1040, Line 10 as an “adjustment to income”
This is known as an “above-the-line” deduction, which means it lowers your AGI and can help you qualify for other tax benefits that have income limits.
Bonus: Other Tax Benefits Tied to Lower AGI
Reducing your Adjusted Gross Income (AGI) through a Traditional IRA contribution can unlock other tax advantages, such as:
- Increased eligibility for the Earned Income Tax Credit (EITC)
- Greater Child Tax Credit benefits
- Lower Medicare premiums for retirees (if you’re near the threshold)
- Increased eligibility for education credits
Traditional IRA vs. Roth IRA: Refund Focus
While both IRA types offer tax advantages, only the Traditional IRA provides an immediate tax deduction that can increase your refund. A Roth IRA does not offer upfront tax savings, but it does provide tax-free withdrawals in retirement.
If your goal is to increase your refund in the current year, the Traditional IRA is the better choice, assuming you qualify for the deduction.
Important Considerations
- Contributions must be made in cash (not property or stocks)
- You must designate the year for the contribution (current or prior)
- You can contribute to both a Traditional and Roth IRA, but the combined total cannot exceed the annual limit
- Excess contributions may incur a 6% penalty unless corrected
Steps to Make a Last-Minute IRA Contribution
- Check your eligibility and contribution limit
- Open a Traditional IRA account with a qualified custodian (if you don’t already have one)
- Make your contribution before the tax deadline
- Specify that the contribution is for the previous tax year
- Update your tax return to reflect the deduction
Conclusion
Contributing to a Traditional IRA before Tax Day is one of the most powerful, legal strategies for increasing your IRS refund while simultaneously building your retirement savings. The ability to make prior-year contributions gives you flexibility, and the immediate tax deduction can lower your AGI and unlock other tax credits and benefits. Whether you’re a salaried employee, a freelancer, or someone without access to a 401(k), the Traditional IRA offers a simple and effective way to take control of your financial future while reducing your tax bill today.
