Income Tax Help – Individual Retirement Accounts

NOW is the time to think about starting an Individual Retirement account (IRA).

It is never too early or too late to start saving for your retirement. If you open a Traditional IRA before April 15th of this year you will reduce your tax bill for 2005 and you may be eligible for the retirement saver’s tax credit. The Saver”s Tax Credit is the government’s way to encourage you to save for your future.

Personally, I prefer the Roth IRA. With the Roth IRA you contribute after tax dollars. Money you take out of your pocket or a savings account. Money that you already have paid taxes on. When you contribute to a Roth IRA, it will not reduce your taxes for the 2005 year. However, the big advantage is that when you withdraw your money you will not pay any taxes on it. This is significant because the money will not increase your taxes during the years you withdraw it. Therefore if you are getting Social Security benefits or you are working part time the money you with draw from the Roth IRA will not increase your taxes and will not decrease your Social Security benefits. The same withdrawal from a traditional IRA could do both and hurt your bottom line.