PSA: You Have Until April to Lower Your Tax Bill With IRA Contributions
If you have a Traditional Individual Retirement Account (IRA), you can deduct the money you save in that account from your taxable income. And tax procrastinators, there’s still time to do that with last year’s taxes.
There are two main types of IRAs: Roth and Traditional. We’ve detailed the differences here . Basically, with the Roth IRA, you pay taxes on your savings now, and with the traditional IRA, you pay taxes when you withdraw your money while paying taxes. In other words, traditional IRAs are not taxable. So, if you now save money in your traditional IRA, you can deduct them from their taxable income, which means , that you pay less tax.
And the IRS gives you pre-tax deductions in the IRA. This year this day is April 18, 2017 . Of course, this assumes that you have not yet reached your 2016 contribution limits . As a rule, the limits for 2015, 2016 and 2017 cannot exceed:
- $ 5,500 ( $ 6,500 if you’re 50 or older), or
- your taxable benefit for the year if your benefit was less than this dollar limit.
Of course, this is not advice that everyone can afford, but if you have a traditional IRA and have the money to spend some more, this is one way to reduce your 2016 tax bill.