Don’t Miss These Tax Savings

Dec 16, 2014 by

gift

Uncle Sam’s got a gift for you!

Another year is winding down and holiday revelry, shopping, decorating, and general merry-making fill your plate! But before the year slips away, take a moment to assure you’ve contributed to your IRA all the cash Uncle Sam allows or that you can afford. When the time comes to do your 2014 tax return (ugh, I know), you’ll get a late but generous holiday gift from Uncle Sam!

IRA Contribution Tax Benefits

To help motivate you to carve out a bit of time before year’s end to think about IRAs and other tax-advantaged savings opportunities, let’s revisit these saving vehicles’ excellent tax benefits.

Tax Deductible Contribution

If you’re eligible, you can deduct your Traditional IRA contribution from your taxable income. If you make the maximum $5,500 contribution ($6,500 if you’re age 50 or older in 2014) and are in the 15% tax bracket, you’ll cut your tax bill by $825!

Saver’s Tax Credit

The less known Saver’s Credit rewards contributors to just about any tax-advantaged savings vehicle, not just to IRAs. If you’re eligible (and most adults are), your tax bill could be slashed by as much as $2,000, the maximum Saver’s Credit. Here’s how to know how much credit you can claim:

saver's tax credit

The Saver’s Credit can be taken for contributions to a Traditional or Roth IRA, 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18), governmental 457(b) plan, or voluntary after-tax employee contributions to a qualified retirement and 403(b) plans.

Avoid the Excess Contribution Tax

Another reason to take a moment to think about your IRA is to be sure you haven’t over-contributed. If you contribute more than the 2014 limits, you’re subject to a 6 percent tax on the excess! You have until April 15, 2015 to withdraw the excess, but as long as you’re taking time now to review your IRA, why not get any excess cleaned up before it slips your mind and you get dinged.

Be on the ball with your tax-advantaged savings, and you could pay your entire holiday bill! 🙂

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  • We’ve only done 401(k) rollovers to IRAs, but I was surprised to read about the 6% tax on excess IRA contributions. Something for me to keep in mine if we ever contribute directly.

    • Yes, I just learned of that myself through an IRS bulletin. But I bet if a guy uses a tax preparation software it would red flag an excess contribution, giving him a chance to make the withdrawal before April 15.

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