With tax season in full swing we are presented with many opportunities to implement last minute tax or investment planning strategies before the tax filing deadline of April 18, 2017.
Contributing to an IRA or ROTH IRA can be a good way to not only save for retirement but also save taxes. The annual contribution limits for an IRA/ROTH IRA is $5,500 per year for individuals younger than 50 and $6,500 for individuals 50 and older. You have until the tax filing deadline of April 18, 2017 to make a prior year 2016 contribution.
The benefits of a traditional IRA is that you may receive a tax deduction for the contribution, any appreciation is tax-deferred, and there are typically more investment options when compared to employer sponsored plans such as 401k or 457 plans.
In contrast, a ROTH IRA does not offer a current tax deduction but may provide tax-free growth.
Both an IRA and ROTH IRA may provide diversification of retirement income sources, greater family planning strategies, flexibility with income tax planning, and additional tax-favored investments outside of an employer sponsored plan.
However, it is important to keep in mind that these types of accounts are subject to eligibility requirements for the deductibility and/or contributions with strict rules that must be followed. Failure to comply with these rules may result in a penalty on the excess contributions or earnings. We will gladly discuss your options and help determine eligibility and which type of account is most suitable for your current situation.