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4 Things to Know About Your IRA Tax Deduction

IRA Tax Deduction

Personal Finance

4 Things to Know About Your IRA Tax Deduction

If you are saving for retirement, contributing to an IRA (Individual Retirement Account) allows your investments to grow and save money at tax time.  Sounds great, doesn’t it? But, there are a few things to know about your IRA tax deduction to make sure you get the most benefit when you file your taxes.

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#1: Only Traditional IRA contributions are Tax-Deductible

When you sign-up for an IRA, you have two different account types to choose from, Traditional or Roth. The first is funded with pre-tax income dollars like an employer 401k plan. Roth IRA’s, on the other hand, are funded after your income taxes have already been withheld, but you don’t pay a tax when you begin to withdraw in retirement.

With a traditional IRA, you can claim the amount you contributed to reduce your taxable income for the current tax year. This can be a good strategy if you might have to pay a tax penalty because enough wasn’t withheld through the year. By making a contribution, you might be able to get a refund or at least “break even.”

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