Maximizing Retirement Contributions Before Year-End: Lawyers’ Guide to Tax Savings

As the year comes to a close, many attorneys and law firm owners find themselves deep in legal work, trying to wrap up cases and meet deadlines. But there’s something equally important that shouldn’t fall by the wayside—maximizing your retirement contributions before December 31st.

The decisions you make now regarding your retirement accounts can significantly reduce your taxable income for 2024 while helping you secure your financial future. Attorneys are often so focused on their clients’ needs that they overlook one of the most powerful tax-saving tools available to them: tax-deferred retirement contributions.

Here’s your comprehensive guide to maximizing retirement savings and lowering your tax burden before the year ends.

1. Compare SEP IRA, Solo 401(k), and Defined Benefit Plans for Maximum Contributions

Lawyers and law firm owners have several retirement plan options, but knowing which one will provide the most significant tax advantages can be tricky. Each type of account offers unique benefits depending on your income, firm size, and retirement goals.

Here’s a breakdown of the most common options:

• SEP IRA: Ideal for solo practitioners or small firms, a SEP IRA allows you to contribute up to 25% of your net earnings from self-employment, with a maximum contribution of $69,000 in 2024. Contributions are tax-deductible and grow tax-deferred until withdrawal.
• Solo 401(k): This plan is perfect for solo attorneys or small firms with no employees (or just a spouse as an employee). It allows you to contribute as both the employee and the employer, with a combined contribution limit of $69,000 (plus an additional $7,000 catch-up contribution if you’re over 50).
• Defined Benefit Plan: If you’re looking to maximize contributions and tax savings in a short period, a defined benefit plan may be the way to go. These plans allow you to set a specific retirement benefit, and contributions are calculated based on factors like your age, income, and retirement goals. These plans often allow for the highest tax-deferred contributions but come with more complex setup and maintenance.

Pro Tip: Consider meeting with a financial advisor or CPA to determine which plan offers the best combination of tax savings and retirement benefits for your unique situation.

2. Understand Contribution Limits and Catch-Up Contributions for 2024

It’s crucial to know the contribution limits for each retirement account you have. The IRS sets annual limits, which can vary depending on your age and the type of account.

Here are the 2024 limits:

• SEP IRA: The contribution limit is the lesser of 25% of compensation or $66,000.
• Solo 401(k): You can contribute up to $23,000 as an employee. As the employer, you can contribute an additional 25% of net earnings up to a total limit of $69,000. If you’re over 50, you can make an additional $7,000 catch-up contribution, bringing the total to $76,000.
• Traditional or Roth IRA: The contribution limit for 2024 is $7,000, with an additional $1,000 catch-up if you’re over 50.

Catch-up contributions are a powerful tool for attorneys over the age of 50 who are looking to boost their retirement savings. These extra contributions allow you to save more tax-deferred income, potentially bringing you into a lower tax bracket while accelerating your retirement goals.

Pro Tip: Be sure to make your contributions before December 31st to claim the deduction on your 2024 taxes.

3. Review the Potential for Roth Conversions Before Year-End

For many high-income earners like attorneys, a Roth conversion can be a strategic tax move before the year ends. A Roth conversion involves converting a traditional IRA or other tax-deferred account into a Roth IRA, which means you’ll pay taxes on the converted amount now but enjoy tax-free withdrawals in retirement.

When is a Roth conversion beneficial?

• If you expect to be in a higher tax bracket during retirement, converting to a Roth IRA now, while your tax rate is lower, can provide long-term tax savings.
• A Roth conversion also offers the benefit of no required minimum distributions (RMDs), allowing your money to grow tax-free for longer.

Pro Tip: Roth conversions increase your taxable income for the year, so it’s essential to balance the benefits with the immediate tax impact. Consult with your CPA to see if a Roth conversion makes sense for you in 2024.

4. Consider Employer Contributions If Your Law Firm Has Employees

If your law firm has employees, contributing to their retirement plans can provide significant tax benefits. Employer contributions are tax-deductible, helping you lower your firm’s overall taxable income.

Here’s how it works:

• Match employee contributions to a 401(k) or SEP IRA plan. Matching contributions can be deducted from your business income, reducing your tax bill.
• Consider setting up a Safe Harbor 401(k), which allows you to make automatic contributions to employees’ retirement accounts. This plan simplifies compliance and can help you avoid some of the stringent IRS nondiscrimination tests.

Pro Tip: If you contribute to employee retirement plans before the year ends, you’ll get to claim the deduction on your 2024 taxes, all while supporting your team’s financial future.

5. Maximize Tax-Deferred Growth by Contributing to Retirement Accounts Now

Time is of the essence. The sooner you contribute to your retirement accounts, the more time your investments have to grow tax-deferred. Contributions made before the end of the year can help reduce your taxable income and maximize your retirement savings.

By making regular contributions throughout the year—or catching up before the year’s end—you’ll not only reduce your immediate tax liability but also set yourself up for a more secure retirement.

Why Year-End Retirement Contributions Matter for Lawyers

Retirement planning might not seem like a priority in the middle of your legal work, but it’s one of the most effective ways to reduce your tax bill while building long-term financial security. Whether you’re a solo practitioner or a law firm owner, making the most of your retirement contributions before December 31st can significantly impact your 2024 taxes and future retirement.

Don’t let the year slip away without taking action. These strategies can help you maximize tax savings, accelerate your retirement goals, and ensure that you’re financially prepared for the future.

Secure Your Future—Schedule a Tax-Saving Retirement Plan Review Today!

At Prestige Accounting and Consulting, we specialize in helping lawyers and law firms optimize their retirement planning strategies for maximum tax savings. Our team of experts is here to guide you through retirement contributions, Roth conversions, and employer plans so you can secure a prosperous financial future.

Contact us today to schedule a personalized tax-saving retirement plan review before the year ends.