Cutting Your Tax Bill
I always tell people: Pay yourself rather than paying Uncle Sam. The best way to do that is to fund your retirement plan. Now, while we can’t do that for this past year, with this year’s changes in our 401(k), this is a good time to look at your 401(k) and ask if you’re putting enough aside. We have new limits on those 401(k) contributions for 2015. If you’re under 50, you can put $18,000 aside. That’s amazing! And, that reduces your federal income tax bill. If you’re 50 or older, you can do $24,000.
If you want to help your bill for this past year, or what’s going to be due on April 15th, contribute to a Traditional IRA. Who can contribute? Well, we have lower income limits. For a couple, it means anyone earning $98,000 or less. For an individual, it means someone earning $61,000 or less. Or, if you don’t have a company plan at all, there is no income limit. You have until April 15th to make your contribution for last year and save yourself some money. You can put $5,500 in if you’re under 50, $6,500 if you’re 50 or older. Whatever you put in will reduce your income. So, it’s going to lower your taxes, and it’s going to be a tax-deferred account.
You can also contribute to a Roth IRA. Now, that’s not going to give you a break on your tax bill, but it will help you later on. We have higher income limits for those Roth IRAs. For a couple, if you’re making $181,000, that’s when it starts to phase out. For an individual, it’s $114,000. And, again, you have until April 15th to make the contribution for last year. Same limits: $5,500 for under 50, and $6,500 for 50 or older. This doesn’t reduce your current tax bill, but the future growth is never taxed.
This is a good time to get started on an IRA for 2015. Go ahead and open an account. Maybe you can only do a small amount, $50 or $100 a month, but set it up on a bank draft. A little goes a long way. You’ll be already prepared for next year’s tax bill.
You can have multiple IRAs, as many as you want at as many institutions as you want, as long as you don’t go over those annual contribution limits per total. So, if I have five IRAs and I’m 50 or older, I can contribute $6,500 in the collection of those five IRAs. It’s cumulative.