Put All The Tax Money Into Ira Account?

1. a tax lady Says

   Your bank advisor either didn’t say that or you misunderstood them.
   If you currently owe $5000 in income tax (not SE tax) and you put $5000 into a deductible IRA by 4/15/2012, that would lower your tax bill by only a fraction. You will still owe the rest of the money, less any saver’s credit. If you are in the 15% tax bracket, tying up $5000 in the IRA will lower your taxes by $750. You would still owe $4250. (If your AGI is less than $28K, you can have a saver’s credit, but that will only save you about 10%.)
   Run the numbers.

2. Jan Says

   Please pat yourself on the back for trying to find support information. You couldn’t find it because it wasn’t there–but you were smart enough to look–you’d be amazed at how many people don’t check stuff like that out. Card Ron and Tax Lady both gave you correct advice. I’m attaching a link that you might find helpful (which also has links to IRS publications that back up what I say–if you’re doing research you want to be able to prove it.)
   One thing you can do–don’t put money into an IRA yet–you’ve got until April 15th to put money into an IRA for 2011. You can do your taxes, and then play with the numbers to see how an IRA contribution would affect you. You’ll be making an informed decision based upon your exact situation. You’re allowed to file your taxes showing the IRA contribution–as long as you make the contribution by April 15th–so you could even pay for your IRA with your tax refund if you need to. (If you’ve got a refund coming.)

3. card-ron Says

   I’m guessing you misunderstood what your adviser was trying to communicate. You can reduce your tax liability by contributing to an IRA, but it is not a dollar-for-dollar affair. Generally, contributions to a traditional IRA can reduce your taxable income within certain limits. Since your taxable income is reduced, your total tax liability is also reduced but only by your tax rate. So, if you are in the 15% tax bracket and contribute $5,000 to an IRA, the most your tax liability will be reduced is $750 (15% of $5,000).

4. Judy Says

   An IRA contribution is a DEDUCTION. So if you put $5000 into an IRA, your tax savings is 5000 times your tax bracket. So in a 15% bracket for example, your tax savings would go down by $750 – if you would otherwise have owed $5000, you’l still owe $4250.

5. tro Says

   if your bank advisor is not a tax registered tax preparer don’t rely on his tax advice
   a contribution to an IRA will reduce your tax liability but will not be the amount of your contribution

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