Using a traditional IRA is a great way to save for retirement AND reduce your tax bill. In today’s video I’ll show you exactly how much you can save so you can determine if it is worth it to deposit money into a traditional IRA. Also, if you’re really disciplined with your finances you’ll get a bonus tip on how to get the most from your tax savings.

Let’s say you are single and make $50k/year in 2021. This would place you in the 22% marginal tax rate, meaning you pay $4,617 + 22% of the amount over $40,125 ($50,000-$40,125=$9,875). See chart below.

This breaks down like this:

$4,617 + ($.22 x $9,875) = $6,789 tax owed on $50k of income (no other considerations made)

If you contribute the max of $6k into a Traditional IRA your taxable income is now $44k. You are still in the same bracket, but now the numbers look like this:

$4,617 + 22% of the amount over $40,125 ($44k-$40,125= $3,875)

$4,617 + ($.22x $3,875)=$5,469.00 = tax owed on $44k of income.

Difference= $6,789-$5,469=$1,320.00 = tax saved by contributing to a Traditional IRA.

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