It's time again to file tax returns and suffer the burden that is INCOME TAX. If your Adjusted Gross Income is over $36,841 (as of 2013 data), you are among the half of Americans who pay more than 97% of the federal income taxes collected*. So what can you do to keep more of your hard earned money in your pocket rather than Uncle Sam's? It's really simple, but likely you forget to do this most years. In fact, it's the most common mistake I see as a financial advisor every year: failure to shift savings into an IRA.
The tax savings from making such a shift can be tremendous. If you're under age 50, you can move up to $5,500 into an IRA for the 2015 tax year, and if you're married, so can your spouse for a total of up to $11,000 between the two of you. If you're age 50 or more, you can do up to $6,500 ($13,000 total for a married couple). But you say, "I don't have an extra $5,500 - $13,000 laying around." Quite right, many of us don't. However, I see it time and time again where people forget about their non-retirement investment accounts or bank savings accounts often with relatively large balances in them. A contribution to an IRA doesn't have to come from "new" money, but can rather simply be a transfer from a non-retirement investment or bank account.
For example, do you have a non-retirement account at a brokerage firm or a mutual fund company? What about a bank account with $20,000 or more languishing at interest rates not even worth mentioning? Just move $5,500 from one of those accounts into your Traditional IRA, and you've saved yourself more than $1,000 in taxes. Simply by shifting your money from one "pocket" to the other, your pockets remain fuller.
"Just how much can I save in taxes?" you might ask. Well, if you're in the 25% federal and 9.3% state tax brackets a $5,500 IRA contribution will save you $1,886 in taxes. That can increase to $4,459 in tax savings for a married couple over age 50 in that bracket who makes the $13,000 max contribution. All that savings for just moving money from one account to another.
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* http://www.ntu.org/foundation/page/who-pays-income-taxes