• Posted on: 8 December 2015
  • By: admin

Smart Moves for the Future can Save Taxes

With tax season upon us, now is the time to make sure you are effectively using investment vehicles to your advantage.  Some strategies may not only save you taxes currently, but also provide you with a more secure retirement in the future.  

When it comes to investing, one way to save on taxes is to open an Individual Retirement Account (IRA).  Traditional IRA investments allow pre-tax money to grow tax deferred, meaning contributions to a traditional IRA reduce your earned income for a given year.  Gains on those investments aren't taxed until the money is actually taken out of the IRA, which is usually upon retirement.

Another option is a Roth IRA, which allows your after-tax contributions to grow tax free, meaning that although you were taxed on your contributions at ordinary income tax rates, you will not have to pay taxes on any funds, including the gains, when they are withdrawn. This is a very attractive vehicle for especially younger investors.

Withdrawals from traditional IRAs can begin penalty free at age 59 1/2, but if money is removed prior to 59 1/2 there is a 10% penalty in addition to the ordinary income tax burden. All 401(k) contributions are made pre-tax, so they effectively reduce your earned income, often resulting in a lower tax bill.