One thing that is absolutely certain in these uncertain times is the fact that we all getting older. That means someday we will either be retired, or want to be retired. For most of us, we will need savings to be reasonably comfortable in retirement, and we will need a lot more savings than you think. Speaking from experience, and contrary to what most young people think, you really don’t cut back on your living expenses that much when you retire, unless you have no choice. Most people are healthy and active retirees, playing sports, travelling, giving back and so on.
Sadly, the savings rate in our country is very low. Many young and middle aged people have little or no savings at all. It is hard to save because people tend to think you need to put a lot away, but in fact, regular systematic savings result produce amazing results, even with amounts as small as $25 a month. Next we are going to tell you how you can save for the future, and gain a tax advantage as well.
There is some wonderful tax advantaged saving vehicles available to both employed and self-employed people. These include the traditional IRA, the ROTH IRA, 401 plans, and the SEP plans, and the Personal 401K. Over the next Blog articles, CPA Accounting and Tax Solutions will walk you through each of these saving opportunities.
Let’s describe the major attributes of the Traditional IRA.
- Contributions to a Traditional IRA generally are tax deductible, meaning they reduce your taxable income.
- Anyone under 70 and one half, who has taxable earned income can open and contribute to a traditional IRA.
- You can contribute up to $5,000 in 2012, and if you are 50 and older, you can contribute up to $6,000, provided you have that much earned income.
- You can contribute to a traditional IRA for Tax Year 2012, up to April 15, 2013, and get the full tax advantage.
- There are restrictions on IRA participation including Income phase outs, availability of an employer retirement plan, and others.
If you are unsure if an IRA is a good savings and tax strategy for you, whether you qualify, or which kind of IRA is best, please call CPA Accounting and Tax Solutions at 239.596.6050. We’ll review your situation free of charge before year end 2012. (We are just too busy during tax season to offer a free look at your tax or saving opportunities).