IRA Tax Deduction: What You Need to Know
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IRA Tax Deduction: What You Need to Know

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The easiest way to maximize your tax refund is to contribute to an IRA. Here are the most important things you need to know in order to do so.

The easiest way to maximize your tax refund is to contribute to an IRA. Here are the most important things you need to know in order to do so.

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    IRA Tax Deduction: What You Need to Know IRA Tax Deduction: What You Need to Know Presentation Transcript

    • IRA Tax Deduction What You Need to Know
    • For the 2013 tax year, the limit for individual IRA contributions is $5,500.
    • For married couples filing jointly, it’s $11,000.
    • For an individual with $50,000 in taxable income, the associated tax deduction will reduce his or her taxes by $1,375.
    • For a married couple with a combined $90,000 in taxable income, this will save them $2,750.
    • Also, if you’re age 50 or older, your contribution limit increases to $6,500.
    • There are two things that could stop you from maxing out this contribution.
    • First, it phases out as your income increases.
    • Here’s a link to the official explanation from the IRS’s website.
    • Second, it decreases if you make a contribution to a retirement plan sponsored by your employer.
    • Think 401(k)…
    • Finally, there are two types of IRAs that you should be aware of.
    • The first is a traditional IRA.
    • That’s what we’ve been talking about here, as these allow you to take an immediate tax deduction from your gross income.
    • There’s also a ROTH IRA, which doesn’t offer an immediate deduction, but does allow the money therein to grow tax free.
    • So, which is right for you?
    • As a general rule, a Roth IRA is the better choice if your tax rate during retirement will not be lower than your current tax rate.
    • Alternatively, if your tax rate will be lower during retirement, then the traditional IRA may be the better choice.
    • Want to learn more ways to decrease your taxes and maximize your refund?
    • If so, click here to download The Motley Fool’s free report about how you can fight back against higher taxes.