2 ways to reduce your taxes for 2018 and in retirement

Key Points

  • A contribution to a traditional IRA could reduce your tax bill this year.
  • A Roth IRA can help you build tax-free income for retirement.
  • Meet with your advisor to discuss whether a traditional or Roth IRA could help you achieve your goals.

Are you taking advantage of opportunities to potentially reduce your 2018 tax bill and boost your retirement savings?

Here are two actions to discuss with your advisor:

  • Fund a traditional IRA before the tax filing deadline
  • Make 2018 contributions to a Roth IRA.

Tax benefit today: Consider funding a traditional IRA by April 15, 2019

If you think you will be in a lower tax bracket in retirement — or if your income is too high for a Roth IRA — a traditional IRA is an option to consider for retirement savings. Here are the highlights to start a conversation with your advisor:

  • Earnings and gains in a traditional IRA grow tax-deferred and generally are not taxed until you start taking distributions.
  • Contributions you make may be fully or partially deductible, depending on your circumstances.
  • There are no income restrictions for contributing to a traditional IRA or converting those funds to a Roth IRA in the future.
  • Your required minimum distribution (RMD) — the minimum amount you must withdraw from your account every year — begins at age 70 1/2.

Tax benefit in retirement: Consider opening or funding a Roth IRA

Investing in a Roth IRA can help you build more tax-free income for the future. Earnings grow tax-free, and qualified withdrawals are generally tax-free if you satisfy certain requirements. This enables you to keep more of your income —especially beneficial if you expect to be in a higher tax bracket in retirement.

What else to know about a Roth IRA:

  • You can make contributions to your Roth IRA as long as you have income, and the account is never subject to RMDs.
  • Your contributions might be limited based on your filing status and income — talk with your advisor to learn more.
  • You can make withdrawals from your Roth IRA contributions at any time without penalty, but you will owe taxes and penalties on earnings you take out before age 59 ½, unless you qualify for an exception.

Reach out today

  • Talk to your financial advisor and tax professional soon to determine whether a traditional or Roth IRA could provide you with tax benefits and help you achieve your goals.
  • Remember to make your 2018 IRA contributions before April 15, 2019.