An IRA Account Can Increase Your Tax Refund by Thousands of Dollars

Want to potentially increase your tax refund by thousands of dollars? If so, then you should seriously consider opening and/or contributing to an IRA account.

Mar 22, 2014 at 2:49PM


If you want to increase your tax refund by thousands of dollars, the easiest way to do so is to open and fund an IRA account before April 15. The math on this is simple.

Let's say you're married filing jointly and that your combined taxable income for 2013 was $90,000. If neither you nor your spouse contributed to a workplace retirement plan, you're each entitled to deduct $5,500 from your gross income to contribute to a traditional IRA account. That adds up to $11,000 and thereby reduces your taxable income to $79,000.

Here's where the magic comes in. Without this deduction, you would owe $14,358 in taxes for the 2013 calendar year. This would equate to 16% of your taxable income. By contrast, with the deduction, your tax liability would drop to $11,608, or 12.9%, of your taxable income.

In other words, under this scenario, all you have to do to save yourself $2,750 (and thereby increase your tax refund by a commiserate amount if you're subject to withholdings) is to transfer $11,000 from one account under your control -- say, for example, your savings account -- to another -- your IRA account.


Now, just to be clear, there are a handful of rules that govern how the IRA deduction works.

In the first case, it's important to keep in mind that there are two types of IRAs -- traditional and Roth. A traditional IRA, which is what I've discussed, allows qualified taxpayers to take an immediate deduction. A oth IRA, on the other hand, doesn't provide for a deduction this year, but it allows the assets therein to grow tax-free -- click here to learn more about Roth IRAs.

A second thing to be aware of is that there's a limit to how much you can contribute to an IRA account and thereby deduct on your tax return. The maximum limit for 2013 is $5,500 per taxpayer. But this is assuming that neither you nor your spouse contributed to a tax-advantaged retirement account at work -- most commonly, a 401(k).

Additionally, the deduction phases out at higher income levels. If you're married filing jointly, the two thresholds are modified adjusted gross incomes of $95,000 and $115,000. If your modified AGI is below the former, you can take the full deduction. If it exceeds the latter, you can't take any. In between the two, you're entitled to a partial deduction -- see the IRS's official explanation here.

Exceptions aside, it's irrational not to take advantage of an IRA account if you have the ability to do so. It's effectively free money that's just waiting for you to claim it. As a result, if you haven't already pulled the trigger on this, you still have until April 15 to make the decision.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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