Planning for retirement is not just about securing your future; it can also offer significant tax benefits. The Internal Revenue Service (IRS) provides various retirement plans to help individuals save for retirement while reducing their tax burden.
Here are ways IRS retirement plans can lower your taxes.
Tax-Deferred Contributions
One of the primary benefits of IRS retirement plans, such as 401(k)s and traditional IRAs, is the ability to make tax-deferred contributions. You can contribute a portion of your pre-tax income to these accounts, reducing your annual taxable income. By lowering your taxable income, you ultimately decrease the income tax you owe, allowing you to keep more of your hard-earned money.
Tax-Free Growth
Another advantage of IRS retirement plans is the opportunity for tax-free investment growth. With traditional retirement accounts like IRAs and 401(k)s, your contributions grow tax-deferred until you withdraw them during retirement. This tax-deferred growth allows your investments to compound over time, potentially resulting in significant savings compared to taxable investment accounts.
Roth Options
Retirement plans from the IRS also offer Roth options, such as a Roth self-directed retirement savings plan and 401(k). Unlike traditional accounts, where contributions are made with pre-tax dollars, Roth contributions are made with after-tax dollars. However, the benefit comes at retirement when qualified withdrawals, including earnings, are tax-free, which is advantageous if you anticipate a higher tax bracket during retirement.
Saver’s Credit
For lower-income individuals contributing to IRS retirement plans, there’s an additional tax benefit known as the Saver’s Credit. This credit incentivizes eligible taxpayers to save for retirement by reducing their income tax liability. Depending on your income level and filing status, the Saver’s Credit can be worth up to $1,000 for individuals or $2,000 for married couples filing jointly.
Contact them to get started on IRS retirement plans for a more comfortable and financially secure retirement.
