If you’re lucky enough to earn a high income but are unlucky enough to pay lots of income tax, then consider opening a Traditional IRA to minimize your tax burden.
Traditional IRAs can save you money because you contribute pre-tax dollars and score tax deductions. Your contributions won’t be taxed until you withdraw that money after age 59.5, and you benefit from tax-deferred growth.
- Also Check Out: Roth IRA Rules: 7 Things To Know About Your Roth IRA
Roth IRA vs Traditional IRA
Deciding between a Roth IRA vs Traditional IRA depends on your financial situation today and anticipated income in retirement. To get the math right, check out this Roth IRA Calculator to see which is the best choice for you.
Be sure to compare the projected total value of your Traditional IRA vs a Roth IRA. This calculator will also show your projected annual income at retirement.
Traditional IRA Contribution Limits for 2010
For those under the age of 50, the maximum you can contribute to a Traditional IRA in 2010 is $5,000. This contribution limit remains unchanged from 2009. For those over age 50, you qualify for a catch-up contribution of up to $1,000, making your total contribution to a Traditional IRA $6,000.
The Financial Bottom Line: Contribute to a Traditional IRA if you’re in a higher tax bracket today and could benefit from tax-deferred growth in your retirement tomorrow. For example, if you make $60,000 during the year, and you put $5,000 of it into a traditional IRA, you would only pay income tax on $55,000 saving you up to $1,400.
Easy Retirement Guides:
- Roth IRA Rules: 7 Things To Know About Your Roth IRA
- The 5 Minute Guide To Your Traditional IRA
- 401k Plans: The 5 Minute Guide To Your 401k Plan
Your Turn: Do you contribute to a Traditional IRA? Go ahead and share your Traditional IRA or Roth IRA tips!
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