Individuals or employers may establish IRAs. Those established by individuals may be grouped into two broad categories:Traditional IRAs and Roth IRAs. Traditional IRAs may be either Traditional Deductible IRAs or Traditional Nondeductible IRAs.
In this Retirement Education Tuesday Tip video we will discuss the difference between a Traditional Deductible IRA and a Traditional Nondeductible IRA and how to use them to lower taxes on your income.
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LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

Lowering taxes is a goal that many individuals strive for, and one effective way to achieve this is through a Traditional Individual retirement account (IRA). A Traditional IRA is a type of retirement account that allows individuals to contribute pre-tax income, which can help reduce their taxable income and lower their overall tax burden. By utilizing a Traditional IRA, individuals can take advantage of potential tax savings and ensure a more secure financial future.

One of the primary ways that a Traditional IRA can help lower taxes is through tax-deferred contributions. When individuals contribute to a Traditional IRA, they are able to deduct the amount of their contribution from their taxable income for the year. This means that the money they contribute to their Traditional IRA is not subject to income tax in the year it is contributed, which can result in significant tax savings. For example, if an individual contributes $5,000 to a Traditional IRA and is in the 25% tax bracket, they would save $1,250 in taxes in the year of contribution.

Another way a Traditional IRA can lower taxes is through tax-deferred growth. The money that is contributed to a Traditional IRA grows tax-deferred, meaning that individuals do not have to pay taxes on any earnings or gains within the account until they withdraw the money during retirement. This can result in significant tax savings over time, as compound interest can help the account balance grow at a faster rate than if taxes were paid on the earnings annually.

Additionally, individuals may be able to lower their taxes by utilizing a Traditional IRA to reduce their adjusted gross income (AGI). By contributing to a Traditional IRA, individuals can lower their AGI, which is used to determine eligibility for various tax credits and deductions. A lower AGI can result in eligibility for tax benefits such as the Savers Credit, which provides a tax credit for low- and moderate-income individuals who contribute to a retirement account.

In order to take advantage of the tax benefits of a Traditional IRA, individuals must be mindful of contribution limits and eligibility requirements. For the 2021 tax year, the maximum contribution limit for a Traditional IRA is $6,000 for individuals under the age of 50 and $7,000 for individuals age 50 and older. Additionally, individuals must have earned income in order to contribute to a Traditional IRA, and there may be income limits that determine whether or not contributions are tax-deductible.

In conclusion, a Traditional IRA can be a valuable tool for individuals looking to lower their taxes and secure their financial future. By making tax-deductible contributions, taking advantage of tax-deferred growth, and reducing their AGI, individuals can maximize their tax savings and set themselves up for a comfortable retirement. It is important for individuals to consult with a financial advisor or tax professional to determine the best strategy for utilizing a Traditional IRA to lower their taxes and achieve their financial goals.