How much will a traditional IRA reduce your taxes?

Tax planning is a hot topic right now given the recent reveal of tax payments made by President Trump, however, tax planning should always be a hot topic if you are a business owner. One avenue of tax planning that is often ignored is the benefits of a traditional IRA.

Let’s dive into this topic.

There are many different retirement planning avenues available to you when you’re self employed. Choosing the right one will come down to your goals and the amount you’re able to contribute every year. You can find out about all of the different types of plans available to you here. 

In this blog post we’re going to deep dive into traditional IRAs since that is one of the easiest plans to open and also fits the bill for most business owners.

Traditional IRAs are so attractive to business owners, especially new businesses, because of the low contribution limits. They also provide the more flexibility income wise over Roth IRAs with no income limits. You can learn more about the differences between a traditional IRA over a Roth IRA here.

What are the tax benefits of a traditional IRA? 

Depending on your filing status, modified adjusted gross income (AGI), and if you or your spouse have access to a retirement plan through an employer all, a portion or none of your contributions can be deducted. The deduction amounts and qualifying factors can be found here on the IRS website. 

However, regardless of your ability to deduct contributions, all of the growth your contributions experience while in the traditional IRA will grow tax free until retirement. This is perfect if you plan on being in a lower tax bracket upon retirement. If you plan on being in a higher tax bracket you’ll want to look at the other investment opportunities and talk to a retirement planning professional to make sure your retirement plan is optimized. 

If you have any questions about the benefits of a traditional IRA please let me and my team know. We’d love to help you with this decision.