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Below, we break down exactly how 401(k)s, IRAs, and SEP IRAs work in 2025—and how to use each one strategically to minimize your tax bill. Lets get into.
If you’re looking for one of the most effective (and IRS-approved) ways to lower your taxable income, retirement accounts should be at the top of your strategy list. Whether you’re a W-2 employee, a freelancer, or a business owner, contributing to tax-advantaged retirement plans can significantly reduce the amount of income the IRS taxes—while building long-term wealth for your future.
Below, we break down exactly how 401(k)s, IRAs, and SEP IRAs work in 2025—and how to use each one strategically to minimize your tax bill.
For employees and self-employed individuals with a Solo 401(k), retirement contributions offer some of the biggest tax savings.
When you contribute to a traditional 401(k), your contributions are made before taxes. That means:
Even bumping your contribution by a few percent before December can deliver immediate tax savings.
If you’re a freelancer or business owner with no employees, you can contribute as both:
For high-earning freelancers or small business owners, this is one of the most powerful tax-reduction tools available.
Individual Retirement Accounts (IRAs) are an easy, flexible way to reduce taxable income—especially if you don’t have access to a workplace 401(k) or want to supplement your savings.
Contributions may be tax-deductible depending on your income and whether you're covered by another retirement plan.
Even if you're covered by a 401(k), you may still qualify for a partial or full deduction, depending on your modified adjusted gross income (MAGI).
Roth contributions don’t reduce taxable income now—but they grow tax-free and withdrawals in retirement are tax-free as well.
A SEP IRA (Simplified Employee Pension) is perfect for freelancers, contractors, and small business owners who want to maximize deductions without the paperwork of a 401(k).
Contributions are made by the business, and every dollar you contribute is a tax-deductible business expense.
It’s simple to set up, requires almost no maintenance, and can dramatically reduce taxable income for profitable solo businesses.
Depending on your situation, you may be able to:
Many self-employed earners contribute to both a Solo 401(k) and an IRA to maximize deductions and long-term saving.
Some accounts—like 401(k)s and SEP IRAs—are tied to the calendar year. Increasing contributions before December 31st can:
IRAs, however, give you more time—you can contribute up to the tax filing deadline (typically mid-April), but the earlier you fund them, the greater your investment growth potential.
Using retirement accounts strategically is one of the smartest ways to reduce your taxable income while building long-term financial security. Whether you're contributing to a 401(k), maximizing an IRA, or leveraging the high limits of a SEP IRA, these accounts allow you to lower taxes today while preparing for a more comfortable future.
If you want help choosing the right retirement and tax strategy for your situation—or want personalized guidance before the year ends—reach out! I can help you map out the best approach to keep more money in your pocket while strengthening your financial future.
For business tax planning articles, our tax resources provides valuable insights into how you can reduce your tax liability now, and in the future.
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