still time to cut your taxes before turning in your 2015
tax return April 18.
can open an IRA and get a tax deduction. In addition,
that IRA will help move you to where most Americans need
to be ó making more progress accumulating the money
they need for retirement.
get a deduction, open a traditional deductible IRA. For
the maximum deduction, put $5,500 into an IRA if you are
under 50 and $6,500 if you are 50 or older. If you have
a small business, you can save even more in a SEP IRA
and enhance your deduction, but the amount depends on
the income youíve earned in the business.
keep in mind, while $5,500 and $6,500 are the maximum
contributions for individuals, you donít need to
commit that much if itís more than you can handle. You
can open an IRA with $100, or even less. Yet the larger
your contribution, the larger your deduction. Assume you
are in the 25 percent tax bracket and put $4,000 into an
IRA for 2015. That will entitle you to a $1,000
deduction. You multiply $4,000 by 25 percent.
can open deductible IRAs, regardless of their income, if
they have no retirement plan at work, such as a 401(k).
But even those with workplace plans will be able to open
an IRA and use it for a tax deduction if their income is
low enough. The cutoff is a modified adjusted gross
income of $71,000 for individuals and $118,000 for
you are after a tax deduction, donít open a Roth IRA.
That type of IRA doesnít allow people any deduction.
But if you donít need a tax deduction, the Roth may
come in handy at retirement. At that point, anything you
have saved for your future in a Roth IRA will be yours
free and clear. Provided youíve followed the rules,
after age 59 1/2 you wonít have to pay taxes on
anything you take out of a Roth for living expenses or
fun. So if you end up with $1 million after years of
saving in a Roth IRA, every cent will be yours. Uncle
Sam wonít be entitled to any of it.
not true about deductible IRAs. When you retire and
start removing money from a deductible IRA, Uncle Sam
shows up each year at tax time to get some of it. Thatís
the trade-off for the right to take a deduction on your
taxes when younger and putting money into deductible
choice between a deductible IRA and Roth IRA can be
overwhelming. The traditional advice is: If you think
you will be in a lower tax bracket when you retire, get
your deduction now from a deductible IRA. The idea is to
nab the tax deduction because it will do you more good
than having tax-free income from a Roth later in life.
the other hand, IRA expert and certified public
accountant Ed Slott says, "There is nothing like a
Roth." He suggests opening a Roth if you donít
need the deduction from a traditional IRA now because
your future taxes might not end up as low as you think.
As the government tackles the nationís debts, taxes
could go up. And even if there are no oppressive taxes
awaiting you in retirement, Slott notes it will be
comforting to have a stash of money that will all be
yours without Uncle Sam touching a cent.
you open an IRA or Roth IRA, note the deadline of April
18. You can open the account at a brokerage firm such as
Charles Schwab, Scottrade or TD Ameritrade, or a mutual
fund company such as Fidelity, Vanguard or T. Rowe
you open the account and deposit your money, you will
have to invest it. But if investment decisions are
overwhelming as the clock ticks toward the April 18 tax
filing deadline, thereís nothing wrong with parking
the money temporarily in a money market account at the
fund company or brokerage firm. Thatís like a savings
account. And you can take some time to consider what
investment to use.
alternative would be to open the IRA or Roth IRA at
so-called robo advisers such as Betterment or
Wealthfront. Youíll pay a relatively low fee, 0.35
percent or less, and they invest money for you based on
how you feel about taking risks in the stock market and
you go to a brokerage firm or mutual fund company, you
can put money in a fund for your retirement date. So for
example, if you will be 67 and retiring in 2050, you
might choose the Vanguard Target Retirement 2050. It
would charge you about 0.16 percent and invest your
money like this: 54 percent in U.S. company stocks, 35
percent in stocks around the world, 10 percent in bonds,
and about 1 percent would stay in cash. Thatís
aggressive, aimed at young investors who should benefit
from the stock market growing over time, although it
could plunge in the short-run. If you are closer to
retirement and want less risks in stocks, choose a fund
for someone older, maybe one with 2030 as a retirement
date. The date doesnít mean you have to retire then.
Itís just a guideline for investing choices.