You can reap significant tax savings with Retirement Plans . IRS offers a number of tax-advantaged alternatives to help you save on taxes at the year-end.
Traditional IRAs. You may be able to reduce your taxable income by $5,500 ($6,500 if you will be age 50 or older at any time in 2017) by contributing to a traditional IRA. You generally won’t pay tax on deductible contributions or earnings until you withdraw the money in retirement, allowing your money to grow tax deferred. Certain income restrictions limit (or eliminate) the deduction
Roth IRAs. With a Roth IRA, you don’t receive an income tax deduction for your contribution, but your withdrawals are tax-free. Typically a Roth IRA is the best choice if your tax bracket is relatively low. Although contributions are not tax deductible, earnings are tax-deferred and withdrawals are tax-free Note that certain restrictions apply to tax-free withdrawals.
Traditional or Roth which is a better option – lets dig in!
You may prefer a traditional IRA if:
You are in a high tax bracket, qualify for a IRA deduction, and could use the tax deferral on current income.
You anticipate being in a lower tax bracket in retirement.
You (or your spouse) do not contribute to an employer-sponsored retirement plan.
You may prefer a Roth IRA if:
You desire federal tax-free withdrawals in retirement.
You anticipate being in a higher tax bracket in retirement.
You wish to avoid required minimum distributions and bequeath a large portion of your IRA to heirs.
You are still many years away from retirement.
If you are self-employed, own a business, or have access to employer-sponsored retirement plans there are better opportunities available which will cover in next post.
Keep in mind that everyone’s tax situation is different, and tax rules can be complex. These tax tips have been prepared for informational purposes only and should not be relied on for tax, legal or accounting advice.