As tax time approaches, most consumers are wondering how they can save on their tax bill, and one smart approach can be opening a traditional IRA.
While there are two kinds of IRAs (traditional and Roth), only the traditional IRA offers a tax benefit when putting funds in upfront. A Roth IRA, by contrast, allows you to take your withdrawals tax-free when you reach retirement age.
Although that can have long-term benefits, to cut your tax bill today you need to contribute to a traditional IRA. Taxpayers must have income—earned from salary, commission, tips or self-employment income, such as from a side job—of at least the amount of their contribution. Workers age 50 and younger can contribute up to $6,000, while those older than 50 can add an additional $1,000 in what’s known as a “catch-up contribution.”
It’s important to note that your deduction can be limited if you or your spouse (if you are filing jointly) have a retirement plan at work. However, if you or your spouse are not covered by another plan, you can deduct the full amount of your contribution. Remember that you should always talk to an investment professional when determining how much to contribute and how it affects your taxes.
“We’re committed to banking with a purpose and one of the most effective ways we can do that is helping our members create a more secure future and prepare for retirement,” said Valley First Credit Union President & CEO Kathryn Davis. “Funding an IRA and going above and beyond retirement benefits employers offer can be a powerful vehicle in preparing for the future.”