Did you know there is a federal tax credit for making a retirement contributiom? The amount depends on several factors. Maximum adjusted gross income is $27,750 for single, head of household is $41,625 and married joint is $55,500. This link gives more details:http://www.irs.gov/newsroom/article/0,,id=107686,00.htmlWhile I usually like a Roth IRA more than a traditional IRA because I think taxes will go up in the future, If you make a traditional IRA ot 401K contribution, you not only get the tax deduction (plus the company match in the 401K) but a tax credit too. It really does pay to save for retirement.
Brian’s Tax Musings
Want to be a millionaire? The best way is to start young and put a monthly amount into a Roth IRA. 400 a month at 8.5% annual yield for 35 years will give you a million bucks! The key is to start young and consistantly invest. WIth the Roth IRA, you will never have to pay income tax on the money either. I will go into this a little further in my March newsletter.
Brian’s Tax Musings
If you are saving for retirement, the question is ‘should I contribute to a Traditional IRA or a Roth? What about my company 401K?’ Usually this is not a cut and dry solution.If you have a 401K with a company match (say they match 50% of the first 5% of your salary you contribute), it is found money to take the match. You have just made 50% on your contribution, plus the tax deduction. After that if you feel tax rates will be higher in the future (I think this is also a no-brainer. We have the lowest rates in over 40 years now), you should contribute to the Roth IRA next. No tax deduction, but when you retire you can take all the money out tax-free. Maximum contribution is 100% of earned income up to $5,000, $6,000 if you are over fifty. If you still want to save more for retirement, go back to the 401K and have as much as you can put in that plan. No match, but you get a tax deduction. Feel free to spend what money you have left after that. (Or you could save some in an investment account. What an idea!)