Only In America! - Tax Tip #6
Apr 08, 2013
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Posted by Keith Hall (NASE Tax Expert) - What if I told you that the IRS would subsidize your retirement savings plan? My guess is that you wouldn't believe me, but it's true. If you haven't filed your tax return yet, make sure you consider your options for contributing to a qualified retirement plan such as a traditional IRA or a Simplified Employee Pension (SEP) Plan. The contributions that you make before you file your return are deductible even though it is already three-and-a-half months after the end of the year. This is the one true tax planning tool left for all of us right up to the date we file the return.
Most taxpayers are eligible to make a tax deductible contribution to a traditional IRA of up to $5,000, and even more if you are over age 50. Small-business owners may be able to contribute even more to an SEP, up to 20 percent of the net earnings from their business, and get a deduction on last year's return. If you are in the 25 percent marginal tax bracket, that $5,000 could mean $1,250 in lower taxes simply by investing in your own future. Investing $5,000 in your own savings account and getting the IRS to lower your taxes by $1,250 is exactly the same as the IRS subsidizing your retirement plan. Only in America!
So as we approach the tax filing date, don't forget to think about the future. Call your bank or your brokerage company and ask about retirement plan contributions. Look into your options for creating an SEP for your business or making a deductible contribution to an IRA. It's never too early to start thinking about your future, and it's never too late to reduce that tax bill.
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