As 2023 comes to a close, now could be a good time to assess your retirement savings strategy and ensure you're maximizing your potential tax advantages and savings options. While you may consistently contribute to a 401(k), other retirement accounts like IRAs can offer additional tax benefits and fit well into your retirement plan.

The two main types of IRAs are Roth and traditional. Unlike a 401(k) that's tied to an employer, IRAs are typically opened on your own through the financial institution of your choice.

A traditional IRA offers its tax break on the front end, allowing you to deduct your contributions from your taxable income in the tax year that you make them. With a handful of weeks left in the year, now could be a good time to contribute to a traditional IRA to lower your tax burden when you file in early 2024.

Don't spend the beginning of 2024 playing catch-up

The most you can contribute to an IRA for the 2023 tax year (Roth and traditional combined) is $6,500. If you're 50 or older, you can add an additional $1,000 catch-up contribution.

You have until Tax Day of the following year to make IRA contributions for a given year, so you have until April 15, 2024, to make contributions for your 2023 IRA. However, I think it's best to contribute as much as possible before the new year so you can focus on your 2024 contributions in 2024.

IRA contribution limits increase to $7,000 and $8,000 in 2024, so giving yourself more time to possibly max out your contributions can ease the process.

Not everyone is eligible for the deduction

Unfortunately, not everyone is eligible to deduct their traditional IRA contributions. It depends on your filing status, income, and if you or your spouse was covered by a retirement plan at work, like a 401(k). There's a phase-out range, where the amount of your contribution that's deductible phases out until none is deductible.

Here are the phase-out ranges for 2023 and 2024:

Data source: Social Security Administration.

Regardless of whether your contributions are eligible for deduction, contributing to a traditional IRA offers benefits. It allows for tax-deferred earnings growth within the IRA, so any dividends or capital gains accumulate without being taxed until you withdraw them. This can help with more compound growth over time.

Use the flexibility of traditional IRAs to your advantage

One of the best parts of a traditional IRA is its flexibility, especially in investment choices. In a 401(k), investment options are provided for you. If you want to invest in a large-cap fund like the S&P 500, you're in luck. If you want to buy non-company stocks or more than 99% of ETFs, you likely can't.

Traditional IRAs are different. You can invest in essentially any stock you could through a regular brokerage account. Whether it's Coca-Cola or an AI-based ETF, there's more than likely an option for what you're looking for. That said, now could be a good time to check out your stock portfolio allocation to double-check that it aligns with your goals, risk tolerance, and time horizon.

If you find yourself over-concentrated or lacking in some areas, you could use your remaining traditional IRA contributions to address it. For example, if your portfolio doesn't contain as many financial stocks as you'd like, you could purchase shares of a fund like the Vanguard Financials ETF. If you only have large-cap stocks, you could invest in the iShares Core S&P Small-Cap ETF.

Whatever the case, using a traditional IRA as a complement to a 401(k) can make a world of difference in retirement. The more sources of retirement income, the better.

Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends iShares Trust - iShares Core S&P Small-Cap ETF. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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