By now most of us know that an IRA is a good investment for retirement, but it also saves a big chunk of money on your tax bill. Emily Brandon, writing for US News, explains:
Workers can contribute up to $5,000 to an IRA in 2012, or $6,000 if they are age 50 or older. The tax savings from making an IRA contribution in April can be enormous. If an employee who is in the 25 percent tax bracket contributes $5,000 to a traditional IRA, he will save $1,250 on his current tax bill. He is able to defer paying income on that $5,000 until the money is withdrawn. "If you paid those taxes today, that $1,250 is gone. You'd be much better off to have that $1,250 spending the next 30 to 50 years growing," says Donald Whalen, a certified financial planner for Versailles Financial in Alpharetta, Ga. "The longer you can defer taxes, the better, especially when you can let it grow and take it out at a much bigger number." And if you drop into the 15 percent tax bracket in retirement, you will only pay $750 in taxes on that $5,000 later when you withdraw it.
If you're short on money this may not seem like an ideal solution, but if you can save now you ought to. If you can afford it, paying fewer taxes later on money that will grow is pretty much a no-brainer.
Claim This Last-Minute Tax Break | US News
Photo by Alexandr Shebanov (Shutterstock).
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