Save For Retirment and Get a Tax Deduction

Are you looking to reduce your taxes this year?  And would you also like to increase your retirement security? Consider making a contribution to a traditional Individual Retirement Account (IRA)! 

According to the IRS, an IRA is “a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.”  A TRADITIONAL IRA is any IRA that is not a Roth or SIMPLE IRA.

For 2007, the most that can be contributed to your traditional IRA is either:

a.     $4,000 ($5,000 if your are between the age of 50 and 70); or

b.     Your taxable compensation for the year

And here’s the sweet part – you can still set up an IRA and make contributions through April 15 for the prior year.  That’s right – you can set up or add to a traditional IRA on April 15, 2008 and still receive the adjustment on your 2007 return! 

If you contribute to your traditional IRA between January 1 and April 15, you must make certain that you designate with your sponsor (that would be the institution where you set up the account), which year the contribution is for.  If you do NOT tell your sponsor that you wish to designate the contribution for the prior year, the sponsor will assume that the contribution is for the current year, and report it as such to the IRS.  

It gets better…..:  Besides the benefits you receive just for setting up an IRA, you may also be eligible for the Retirement Saver’s Credit, based on your Adjusted Gross Income (AGI).  For more information on this credit, click here.

One caveat:  you cannot set up a traditional IRA if you turned 70 ½ by the end of the year you are filing for.

For more information on IRAs, click here.

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