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Hi, i am currently doing tax returns for myself and for my parents. As I was trying to educate myself on the matter, I just realized how valuable a traditional or roth IRA can be in reducing your tax liability if you can afford to put money away for awhile. Like a person who meets the requirements can max out and deduct like 6 to 7K from their gross income. I don't know of anything that can reduce your tax liability that much for an ordinary earner.
So my first question is, it seems like it is not too late to open up a traditional or roth IRA accounts now and claim the contribution for the 2019 tax year? It seems that the deadline is also extended into July?
To answer the other part of your question, yes, you have until tax day this year to put money in a traditional IRA for 2019. You have to specify when you make that deposit that it is for 2019, not 2020.
There are also income limits you need to be below in order to do this. Check with your broker to find out what they are. I never had to worry about them since I never made that much money. Also, make sure you know all the rules about not touching the money until retirement (penalties, taxes, etc). It's not like a regular savings account.
Yes to you can open either if you meet the requirements.
The ROTH does not save taxes now but does in the future. If you are a low tax person I would go for the ROTH and skip the tax deduction.
Good that you are learning about this. Also investigate using the ROTH for emergency funds if you do not already have one.
Hi, i am currently doing tax returns for myself and for my parents. As I was trying to educate myself on the matter, I just realized how valuable a traditional or roth IRA can be in reducing your tax liability if you can afford to put money away for awhile. Like a person who meets the requirements can max out and deduct like 6 to 7K from their gross income. I don't know of anything that can reduce your tax liability that much for an ordinary earner.
So my first question is, it seems like it is not too late to open up a traditional or roth IRA accounts now and claim the contribution for the 2019 tax year? It seems that the deadline is also extended into July?
Many thanks and be safe!
Still doing your taxes? Depending on your age & income let the tax plan show you how much tax is saved if you pay the $6k for 2019 then another $6k for 2020.
The only other item to have as much bang for the buck is the about $3k for a health savings account.
The fun part is if you can keep on putting away $6k or $7k catch up 401K then $3k-$4k HSA. Over 30 years watch the sums grow!
Hi, thank you so much for your inputs. This is my parent's situation in a little more details and I hope to have your insights to see if my trend of thoughts is correct.
State: Florida (no state tax)
My dad is 72, retired. My mom is 66, just got laid off in March and will retire as well.
For 2019, my parents filed jointly, their total income is $29K (majority is my mom income+interest from a CD+spousal benefit from social security). My dad's income is just social security (10K) but it is not counted toward the total income for tax purpose.
My dad is the only one who has some kind of retirement account, a 401K with $16K in it that he had from his previous job. He never touched the account except taking the RMDs from it. I don't believe he can contribute or do anything with the 401K at this point at his age. But since it is not an "active" 401K, I think it does not prevent my dad or my mom to benefit from other IRAs accounts.
so according to my research, my parents can open and max out other retirement accounts for 2019 at least for the tax deduction:
my dad can open and put in $7000 in a roth IRA (from what I understand-he cannot do traditional IRA because he no longer works). His max deduction however is $2000 according to what I found out about the saver's credit https://www.irs.gov/retirement-plans...-savers-credit
My mom can open and put in $7000 in a traditional IRA. She can deduct the full $7000 off the tax.
So it is like $7000+$1000 of deduction for both. Right now they owe some tax but with this they won't.
Those are the information I got from the IRS website. I hope to get some inputs from you. I also hope this is helpful info for others who are in similar tax situation.
Remember you can not contribute in total to both spouses retirement accounts more than your mothers earned income for 2019 and in 2020 what she earned.
Hi, thank you so much for your inputs. This is my parent's situation in a little more details and I hope to have your insights to see if my trend of thoughts is correct.
State: Florida (no state tax)
My dad is 72, retired. My mom is 66, just got laid off in March and will retire as well.
For 2019, my parents filed jointly, their total income is $29K (majority is my mom income+interest from a CD+spousal benefit from social security). My dad's income is just social security (10K) but it is not counted toward the total income for tax purpose.
My dad is the only one who has some kind of retirement account, a 401K with $16K in it that he had from his previous job. He never touched the account except taking the RMDs from it. I don't believe he can contribute or do anything with the 401K at this point at his age. But since it is not an "active" 401K, I think it does not prevent my dad or my mom to benefit from other IRAs accounts.
so according to my research, my parents can open and max out other retirement accounts for 2019 at least for the tax deduction:
my dad can open and put in $7000 in a roth IRA (from what I understand-he cannot do traditional IRA because he no longer works). His max deduction however is $2000 according to what I found out about the saver's credit https://www.irs.gov/retirement-plans...-savers-credit
My mom can open and put in $7000 in a traditional IRA. She can deduct the full $7000 off the tax.
So it is like $7000+$1000 of deduction for both. Right now they owe some tax but with this they won't.
Those are the information I got from the IRS website. I hope to get some inputs from you. I also hope this is helpful info for others who are in similar tax situation.
Many thanks again.
OK, now I'm totally confused. You say their total income is $29K not counting your dad's non-taxable SS income. Standard deduction for married filing jointly is $24400. Since they are both over 65, they can also deduct and additional $2600. That's a total of $27K deducted from $29K, leaving $2000 taxable. Have I got that right of are you talking about $29K after deductions??
If I'm correct and they only have $2000 of taxable income, how can they owe taxes on it? Were no taxes at all withheld from their salaries through the year??
Remember you can not contribute in total to both spouses retirement accounts more than your mothers earned income for 2019 and in 2020 what she earned.
thank you so much. This is the info that I have been missing. My mother's income is $14k so I guess she can do $7k in her own traditional IRA and my dad can do $7k as spousal IRA (he cannot do anything on his own as he has no taxable income)? After this year then I guess they cannot do anything because neither will have taxable income.
Quote:
Originally Posted by gailjnh
If I'm correct and they only have $2000 of taxable income, how can they owe taxes on it? Were no taxes at all withheld from their salaries through the year??
Sorry for the confusion. The tax comes from interest from a CD when the rate was good long ago. I have no problems with paying the tax (I already know we have to pay it sooner or later-we pay tax almost every year), but since I feel at least my mom should have a traditional IRA while she still can, may as well reap the tax deduction benefit on it.
My parents have low income but are savers and I also give them some money so that explains the disproportion in how much they earn and how much they have.
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