Here's One Move You Can Make Today to Snag a Higher Tax Refund in 2024

Many people dislike the IRS for one key reason -- it's the agency that takes away some of their money in the form of taxes. But like 'em or hate 'em (and yes, you probably fall into the "hate" category), taxes are a part of life. And it's pretty hard to get out of paying them entirely. 

That said, there are definitely things you can do to pay less tax. Shrinking your 2023 tax bill could result in a larger refund in 2024. 

One move in particular that might help you eke out a larger 2024 tax refund is maxing out your retirement plan contribution for 2023. But whether that's really feasible might hinge on the type of tax-advantaged savings plan you have access to.

When you're able to shield some earnings from taxes

The benefit of maxing out a traditional IRA or 401(k), or even just contributing to one of these plans, is that you can shield some of your income from taxes. Let's say you put $2,000 into a traditional 401(k) this year and fall into the 22% tax bracket based on your income. This means that not paying taxes on $2,000 of income results in a savings of $440 for you. 

Now, the IRS isn't going to send you a $440 check this year for putting $2,000 into your retirement plan. Rather, that savings will come to you by not being taxed on that income, which could increase your tax refund.

Is maxing out a retirement plan feasible?

If you earn a pretty average salary, then maxing out a 401(k) plan may not be doable. That's because 401(k) plans max out this year at $22,500 for workers under age 50 and $30,000 for those 50 and over. 

Forbes reports that the average salary nationwide is $59,428. If you're 51 and were to contribute $30,000 to your 401(k) this year, you'd be socking away half of your salary. That's certainly impressive, but it's probably not a reasonable goal to set. After all, you can only live so frugally. 

Even if you're younger and can only sock away up to $22,500 this year in a 401(k), doing so would mean parting with close to 40% of your earnings if your annual salary is somewhere in the ballpark of $59,428. That, too, is frankly a lot of money to allocate to retirement, and it doesn't leave you with a lot to pay bills with.

But maxing out an IRA may be more doable. This year, the limit is $6,500 if you're under 50 and $7,500 if you're 50 or over. On a salary of $59,428, the former would mean saving about 11% of your income, while the latter would mean saving closer to 13%.

Even these aren't easy thresholds to meet. But they're more reasonable than maxing out a 401(k) on a typical wage.

But remember, if your goal is to pay the IRS less and enjoy more tax savings, maxing out an IRA or 401(k) isn't your only option. Any amount of money you contribute to one of these plans guards some of your income from taxes and has the potential to lead to a higher refund the following year.

So if contributing $6,500 to your IRA isn't in the cards this year but you can swing $1,000, do that. You can always ramp up in the future if your income rises or if other circumstances change that give you more leeway with your money (for example, finding a cheaper home to rent or moving in with a significant other so you can split expenses and free up more cash). 

Taxes are clearly not a favorite of most people. So you might as well do what you can to minimize yours.