Hear that ticking? It's the sound of your clock counting down toward the deadline for filing your taxes. You're down to your last month before the dreaded April 17 deadline comes around.
If you've been putting off getting your taxes ready because you know you're going to owe a big bill, there may be something you can do to turn that bill into a refund. If you haven't yet made an IRA contribution for 2006, you can still do so anytime in the next month. Not only will opening an IRA help you plan for your retirement, it can also lead to big savings right now on your 2006 tax return.
Get that deduction!
After the apple falls in New York City to ring in the New Year, it's usually too late to claim any new deductions for the previous year. IRAs, however, are an exception, and it can be extremely valuable for you to take advantage of them. For many taxpayers, traditional IRAs are fully deductible on your tax return. If you're in the 35% tax bracket, that means a savings of $1,400 if you make the maximum contribution of $4,000. If you're 50 or older, you can put away an extra $1,000 in your IRA, increasing your savings to as much as $1,750.
There are a couple of things to watch out for, however. If you're eligible to participate in a retirement plan offered by your employer, you may not be able to deduct an IRA contribution if your income level is too high. The deduction begins to phase out above $50,000 for singles and $75,000 for married couples.
Tax-free beats tax-deferred
On the other hand, even if you don't need a tax cut, that doesn't mean you can't benefit from an IRA. The Roth IRA doesn't give you a current tax deduction, but it does give you tax-free growth both as your account grows and after you take withdrawals. Even if you make too much to deduct contributions to a traditional IRA, you might be able to contribute to a Roth -- the income limits are much higher, at $95,000 for singles and $150,000 for couples. And if you invest in stock ETFs like the Nasdaq 100 Trust (Nasdaq: QQQQ ) or iShares Russell 2000 (NYSE: IWM ) that produce significant capital appreciation over the years, you'll never have to worry about taxes.
Ready to get started? This month's issue of Motley Fool Green Light, the Fool's personal finance service, gives you all sorts of information about IRAs, including how to open an account, the best investments for your IRA, and much more. Every month, Foolish experts Dayana Yochim and Shannon Zimmerman work to bring you the most current information and helpful advice on everything you need to make better financial decisions for yourself and your family. If you haven't tried Green Light yet, financial well-being can be yours with our free 30-day trial.
Don't put off your taxes any longer. Get the tax savings you deserve by opening an IRA today. Taking the first step toward retirement security can make you richer right now.
You can also find more information about IRAs in the Fool's IRA Center, where you'll find detailed information about various options and comparisons of different financial institutions that offer IRA accounts.
Fool contributor Dan Caplinger dutifully makes his IRA contributions in the first week of January. He doesn't own shares of any of the companies mentioned in this article. The Fool's disclosure policy keeps paying you back.