It is tax time again and you may be looking for ways to save on your taxes. The most common potentially tax saving move that people seem to talk about this time of year is the tax deductible IRA. Of course that is not actually the name of it and while many people can save money on their taxes (including on your prior year's taxes), it is actually called a Traditional IRA and it is not always tax deductible. Confused yet?
Let's take a quick look at the Traditional IRA:
An IRA is actually called an Individual Retirement Arrangement although it is often mistakenly referred to as an Individual Retirement Account. (There are several different types of IRAs including the Roth, SEP, SIMPLE and the Traditional IRA.)
- The key benefit of a Traditional IRA is tax-deferred growth. If you are eligible to deduct your IRA contributions, your investments will grow free of federal income taxes until money is withdrawn.
- You can have a Traditional IRA whether or not you are covered by an additional retirement plan.
- However, you may not be able to deduct all of your contributions if you or your spouse are covered by an employer retirement plan.
Eventually, you must pay federal income tax on investment earnings and any IRA contributions that you have deducted.
(Learn more about making contributions, taking distributions and much more about IRAs at www.irs.gov, www.us.placetrade.com and via suggested links below.) Please consult your tax and/or legal advisor before making any tax related decisions.
Why participate in a Traditional IRA?
- Contributions to a traditional IRA may be deductible
- No limit on the number of contributions per year
- No limit on the number of IRA accounts
- Earnings in an IRA accumulate tax free until distributed
- IRA accounts can be used as a "channel" for distributions from a qualified plan
- Any participant under the age of 70 1/2 with compensation can participate in a traditional IRA
Note: Due to changing laws, it is always best to review your individual circumstances with a qualified Tax Advisor. Please view IRS Publication 590 for more details and speak with your tax advisor prior to making any decisions.