Whenever someone tells you something that seems too good to be true, often your assumption is correct. However, since 1974, individuals have enjoyed the opportunity to “keep money and file a tax deduction” which seems too good to be true.
Sure, there are some rules and notes that must be followed to take a deduction, but overall, an Individual Retirement Account (IRA) is a powerful tool for planning your future.
Many changes have been made that affect IRA investors. The basic premise of “having your own cake and eating it too” continues for these types of accounts. Due to the IRS’s recent announcement of postponing the original arrival date of individual reports, you have another month to contribute to your IRA and introduce a tax deduction for 2020. Furthermore, if you live in a declared disaster area, such as Oklahoma, the president’s statement postpones to file an individual application by June 15, 2021. Ultimately, you can fund your IRA on June 15, 2021 or earlier and make a tax deduction for 2020.
Too many individuals fail to take advantage of the IRA. The cause of this misunderstanding is often some misconceptions. Many people think they are too old to contribute to the IRA. The 2019 SECURE Act abolished the age limit for traditional IRA contributions. You are no longer limited to contributing to your IRA at the age of 70. Many of our citizens continue to work during their retirement years. By earning income, a taxpayer may be eligible to contribute to their IRA until they no longer work. This is a game change for individuals from another career!
Another misunderstanding is the inability of a single-income family to contribute to a non-working spouse. Suppose one spouse, aged 30, works outside the home while the other takes care of the children. If the employed spouse earns and meets other criteria, he or she may contribute $ 6,000 to his or her own IRA, and his or her spouse may contribute the spouse’s IRA of $ 6,000 to the traditional or Roth IRA based on his or her spouse’s income.
One of the most common excuses or misconceptions I hear from individuals when they talk about saving for their future by contributing to their IRA is that they simply cannot afford it. You do not have to contribute to your IRA every year to receive tax benefits. Every dollar you bring into your IRA is a possible reduction in your taxable income. Little is known about the tax law known as the Savings Credit which can help you reduce the tax burden. Lower-income workers who contribute to the IRA can seek credit.
If you are single and have earned $ 32,500 or less for 2020, you can qualify for this income tax credit. The maximum loan amount is limited to the first $ 2,000 of your contribution to the IRA and you can claim 50% of the loan for a maximum of $ 1,000 against income taxes. One of the best methods of teaching your children the power of investing and allowing compound interest to help them accumulate is by giving funds to their traditional IRA, or better yet, Roth IRAs.
Suppose your granddaughter got her first job as a teenager and it pays her $ 10,000 for 2020. Being a wonderful grandfather and noting that this is a great time to teach, you are donating $ 2,000 to your granddaughter to your Roth IRA. On the income tax return in 2020, they will receive a credit savings of $ 1,000.
Individual retirement accounts are powerful tools that can bring huge tax-deferred savings over time. Start early and teach your children the power of complex interest. The famous Albert Einstein, a famous theoretical physicist, said: “Complex interest is the eighth wonder of the world. He who understands this, earns … who does not, pays. “
Registered principal securities offered by Cambridge Investment Research, Inc., broker / dealer, member of FINRA / SIPC. Jimmy J. Williams is a representative of an investment advisor, Compass Capital Management, LLC, a registered investment advisor. Cambridge and Compass Capital Management, LLC are not affiliated. 321 S. 3., Ste. 4, McAlester, OK 74501. Cambridge does not offer legal or tax advice. Please contact your legal and tax advisor for specific property and income tax planning strategies.