IRAs are another way to save for retirement while also reducing your taxable income. Depending on your income, you may be able to deduct any IRA contribution on your tax return. Like a 401 (k) or 403 (b), IRA money will increase with deferred taxes and you won't pay income tax until you withdraw it. If you have a retirement plan at work, or if your spouse does, your ability to deduct contributions depends on whether your income is above traditional IRA income limits.
For those looking to diversify their retirement portfolio, consider investing in a Buy Physical Gold IRA. This type of IRA allows you to invest in physical gold, providing a unique way to protect your retirement savings. If your income exceeds the maximum income limit, you can't deduct your IRA contributions. With a traditional IRA, you can make contributions with money before taxes, reducing your taxable income. 75 percent of Americans think it's illegal to fund an IRA after the end of the year to reduce their taxable income, the personal finance site reports.
Money deposited in a traditional IRA reduces your adjusted gross income (AGI) for that tax year on a dollar basis, assuming that you are within the annual contribution limits (see below). See publication 590-A, Contributions to Individual Retirement Arrangements (IRA), for additional information, including how to declare your IRA contributions on your individual federal income tax return. Many plans are designed for participants to opt for a qualified default investment alternative, so that their contributions are automatically invested instead of remaining in cash. Assuming you qualify, you have until Monday, April 15, the tax deadline to contribute to an IRA from the previous year.
If you contribute to a traditional IRA, you can definitely lower your taxable income; however, some people may not be eligible to deduct these contributions based on their income level. That means you won't have to make tax deductions in advance (and now there won't be any decreases in your taxable income), but you'll never have to pay a dime for any withdrawals you make after your 59-and-a-half birthday. Even if you don't qualify for additional tax relief if you make a last-minute contribution for this year, if you follow the steps to determine what deductions and IRAs you could apply for now, you can make the most of them in the next tax year. Anyone with earned income can open a traditional IRA, contribute as much as possible, and benefit from tax-deferred investment growth.
If your income is below the limits, you have the right to request a tax deduction for your contributions to a traditional IRA. Let's look at those and other ways to reduce your gross income, freeing up funds to contribute to an IRA and get the maximum advantage. Just because you can make one of these last-minute contributions to the IRA doesn't mean you necessarily have to.