It may be the new year but there is still time to contribute to an IRA which could lower your taxable income on your 2018 taxes. The deadline to contribute to an IRA is April 15, 2019.
Trademark offers IRA accounts that offer different tax advantages:
- Traditional IRA – This type of account offers tax benefits up front by allowing you to deposit pretax funds. This reduces your taxable income in your current tax bracket. When you retire and begin to withdraw from your IRA, you will be taxed in the tax bracket at the time of withdrawal which should be lower in retirement than your current tax bracket. It’s your own tax cut plan.
- Roth IRA – The major difference between a traditional IRA and Roth IRA is that with a Roth IRA, you contribute after-tax dollars. This means your current taxable income isn’t reduced so there is not a tax benefit for 2018. The advantage will be realized after retirement. When you make a qualified withdrawal from a Roth IRA, the funds will not be taxed at the time of withdrawal.
- Education Savings Account (ESA) IRA – Contributions are not tax deductible, but, like a Roth IRA, amounts deposited in the accounts grow tax-free until they are withdrawn. ESA’s aren’t just for college either! You can also use your savings to pay for K-12 expenses tax-free, and they can offer more investment options and lower fees than other educational plans.
- IRA Certificates – These are offered as a way to earn more interest in the three types of IRAs listed above.
The amount you can contribute to your Traditional and Roth IRAs is dependent upon your age and is the smaller of:
- For 2018, $5,500, or $6,500 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.
- For 2019, $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.
The total amount you can contribute to your ESA cannot exceed $2,000 in any year, no matter how many accounts have been established.
The type of IRA you choose will also dictate your allowable tax deductions. Before deciding to increase your contribution for 2018, speak with a tax accountant or financial planner to determine the best course of action.
At Trademark, we offer IRAs to help lower your tax burden while saving for retirement. We are always here to help to maximize your financial health.