Max Tax Savings Strategies for the Middle Class on a Budget

Paul Mauro's Guide to Middle Class Tax Strategies 

Tax-saving strategies vary greatly depending on wealth, income, and goals. For middle-class families—about 54% of Americans—effective, budget-friendly approaches can lead to meaningful savings. Here are actionable tips tailored to you:

1. Maximize Employer-Sponsored Plans

If your company offers a retirement plan (401(k), 403(b), SIMPLE Plan, or 457 Plan), contribute the maximum allowable amount. In 2025, employee contributions can go up to $23,000 annually, with a combined employee-employer cap of $69,000. For those over 50, take advantage of catch-up contributions to boost savings.

2. Open an IRA

If you lack an employer-sponsored plan, set up a pre-tax Individual Retirement Account (IRA). Contributions are capped at $7,000 ($8,000 for those over 50). While not a huge tax saver, it's an effective step for employed individuals without other options.

3. Self-Employed Retirement Plans

Entrepreneurs can benefit from a SEP IRA, Solo 401(k), or UNI-K plan, allowing pre-tax contributions up to $69,000 annually. Setup fees are minimal, and the tax advantages make them worthwhile.

4. Defined Benefit Plans for High Earners

For successful small business owners with higher incomes, a defined benefit plan can be a powerful tool. These plans allow contributions of up to $280,000 annually and are ideal for late savers catching up on retirement savings.

5. Donor-Advised Funds (DAFs)

If you make regular charitable contributions, consider "bunching" deductions through a Donor-Advised Fund. By contributing $100,000 upfront (instead of $10,000 annually over ten years), you take a large, immediate tax deduction and allow the fund to grow tax-free.

6. Charitable Trusts

For significant assets like highly appreciated stocks or real estate, a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT) offers strategic tax advantages:

• CRT: Avoids capital gains tax on appreciated assets, provides lifetime income, and leaves the remainder to charity.
• CLT: Income goes to charities for a set period, with the remainder returning to your family tax-free.

7. Roth Conversions

A Roth conversion can eliminate required minimum distributions (RMDs), reduce taxable income, and lower Medicare premiums. In 2025, certain companies may offer bonuses that offset 50% of conversion tax costs.

8. Leverage Stock Portfolios

Instead of selling stocks, borrow against your portfolio. This "triple play" strategy eliminates taxes on dividends, avoids capital gains from selling, and wipes out capital gains taxes at death under current laws.

9. Early Tax Planning

Start early. Partner with a financial advisor or tax professional to maximize savings. Comprehensive firms can help you develop strategies, reduce taxes, and ensure the fees you pay for advice are also tax-deductible.

Get Smart in 2025

Smart tax planning isn’t just for the ultra-wealthy. Middle-class families can unlock significant savings by adopting these strategies. Connect with a Smart Financial Advisor early in the year to make the most of your opportunities.