Tax season is upon us once again, and while many Americans can look forward to a refund in the coming weeks, that’s not the case for everyone. After completing their tax returns, some will find they didn’t pay enough during 2024. They’ll have to either give the IRS a lump sum, or agree to a payment plan that could last months or even years.

It’s not always possible to avoid this situation, especially since 2024 is now behind us. But there is still one thing you may be able to do to reduce your tax liability and increase your retirement savings at the same time.

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You can still make 2024 IRA contributions

Workplace retirement plans, like 401(k)s, require you to make all your contributions by the end of the year in question. So your last day to make a 2024 401(k) contribution was Dec. 31, 2024. But that’s not the case for IRAs. You have until the tax deadline — April 15, 2025 — to make a 2024 IRA contribution.

You may set aside up to $7,000 in one of these accounts if you were under 50 by Dec. 31, 2024. Those 50 and older by the end of last year can set aside up to $8,000 here. If you use a traditional IRA, these contributions reduce your taxable income for the year, which also reduces your tax liability. Note that this isn’t the case for Roth IRA contributions, since you fund these accounts with after-tax dollars.

Obviously, this requires you to have extra cash on hand, which may rule it out for some people. But if you can pull it off, it’s definitely worth thinking about. You will still have to give up access to some of your savings today, but by making a prior-year IRA contribution, that money will go toward your future instead of into the IRS’s pocket.

If you think a prior-year IRA contribution is right for you, the first step is to figure out how much you want to set aside. Keep the contribution limits in mind, and remember to subtract any IRA contributions you actually made in 2024. If you contributed up to the max last year, a prior-year contribution won’t be an option for you.

Then, reach out to your IRA provider to inquire about how to do a prior-year contribution. There might be a special procedure required to ensure that the contribution gets applied to the 2024 tax year instead of the 2025 tax year.

Health savings accounts (HSAs) allow for prior-year contributions too

Those who cannot make a prior-year IRA contribution because they already maxed out their IRA last year could consider a prior-year health savings account (HSA) contribution instead if they’re eligible. It works pretty much the same way. Your contributions reduce your taxable income for the year, and you can invest that money for retirement rather than giving it to the government. You can also use it tax-free for medical expenses at any age.

However, you can only contribute to an HSA if you have a high-deductible health insurance plan. That was one with a deductible of $1,600 or more for an individual last year or $3,200 or more for a family. The max contribution limits were $4,150 for those with qualifying individual plans or $8,300 for those with qualifying family plans. Adults 55 and older can contribute $1,000 more than the standard limits.

Keep in mind that you have to look at your 2024 health insurance plan to determine your eligibility, not your current plan. And if you made HSA contributions last year, subtract these from the annual contribution limit to find out how much more you can contribute as a prior-year contribution.

If you plan to make a prior-year IRA or HSA contribution, remember to do this before you file your 2024 tax return. If you wait until after, you’ll have to pay to file an amended return showing the contribution.

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