Did you know there can be additional tax savings to having a traditional IRA or any qualified plan? In any business entity that passes through to your personal return, plans deducted in the entity can normally reduce your income in the entity. 401Ks reduce an employee’s salary. Traditional IRAs and self employed plans are deducted before calculating Adjusted Gross Income.
I know this was a mouthful, but if you are still awake, the key to all these items is reducing Adjusted Gross Income. AGI is used for many different calculations on your tax return. If you have deductible medical expense, reducing AGI will give you a bigger deduction. Same thing with miscellaneous itemized deductions, that catch all of items that don’t go anywhere else. if you are in the entertainment industry or a salesman for instance, you probably have some misc itemized. Reducing your AGI will give you a bigger deduction. There are certain credits that you can’t get over a certain amount of AGI.
You not only do your reduce your income by your retirement plan contribution, you can possibly increase your deductions in other areas. Check with me to see if you qualify for any of these deductions. I will go into more detail in April newsletter.