Many taxpayers hope to keep their tax liability to a minimum, especially during these tough economic times. But without being sure of what’s in store for the future, it might be a better idea to begin saving for retirement.
I’m sure you’ve heard on the radio, or seen it on the television – or perhaps you’ve even heard it through someone else – that social security might not be available in the years to come. It’s really nothing to fear because despite these grim prophecies, there are many individual options available. From employer-sponsored plans to individual plans set up through your financial institution, you have a couple of plans to choose from.
While some plans reduce your overall taxable income by the amounts you put in, others give you a credit in the year of the contribution. Some even earn tax-free money when you’re ready to retire. But like the diversity of each of these plans, everyone’s tax liability is different, as well. And that is due to several factors; three of the most important being your adjusted gross income, your filing status, and whether you have a plan through an employer.
Consult with your tax advisor to see which plan you might benefit from now, and which plan you might benefit from at the time of your retirement. But be sure to speak with a professional before going out on your own to choose a retirement plan. In many cases, you can create a tax liability for yourself instead of doing what you might think is a tax deferred contribution towards your retirement. One way of benefiting is to choose a plan through your employer and still be able to take a deduction for a contribution made to a Traditional IRA. Or, you can have that same plan through your employer and not be able to take a deduction for contributing to a Traditional IRA, though you might still be able to contribute to a Roth IRA.
Because of these stipulations that are less commonly known, it is highly recommended that you speak with someone knowledgeable before making your next move – because it can be a costly one.