Reduce tax bill by contributing to self directed ira

How to Cut Your Tax Bill by Saving in a Self-Directed IRA


Written by John Rothans

Mar 6, 2018

While 401(k) contributions are typically due by the end of the calendar year, you have until the tax filing deadline of April 17 to make Individual Retirement Account (IRA) contributions. That means there may still be a way to reduce your taxable income for 2017 and save on your tax bill. Find out how funding a Precious Metals IRA can help you both now and later—especially when it's one backed by the power of precious metals.


Ensure your IRA contributions are tax-deductible

Not all Self-Directed IRA accounts offer tax-deductible contributions. This is a key difference between Self-Directed Roth IRAs and Self-Directed Traditional IRAs. Roth IRA contributions are never tax deductible. Traditional IRA contributions may be tax-deductible, depending on your income level and whether you (or your spouse) are covered by a workplace retirement plan. Review IRS guidelines for deductions or consult with your financial advisor to ensure your contributions are tax deductible.

What if you already have a Roth IRA? Or you don't have a Traditional Self-Directed IRA? You can have multiple IRA accounts, and you have the freedom to open a Traditional Self-Directed IRA before this year's tax filing deadline, which is April 17, 2018, for the year 2017. Per the IRS, Traditional IRAs must be established by the tax filing deadline (without extensions) for the tax year in which your qualifying contributions will apply. U.S. Money Reserve's IRA Account Executives can walk you through setting up and funding your first (or second!) Self-Directed IRA.

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Confirm you’re eligible to make additional IRA contributions

Once you've established that your IRA account allows for tax-deductible contributions, it's time to do a little math. Double check that you haven't already reached your contribution limit. If you're under age 50, the total you can contribute to all of your Traditional or Roth IRAs cannot be more than $5,500. If you're over age 50, you can contribute up to $6,500.

If your total IRA contributions are greater than the allowed amount for the year in question and you do not withdraw the excess contributions before the due date, you'll face a 6 percent penalty tax on the excess contribution, reports Tax Act.

But if you have room to contribute, consider maxing out your IRA!

“A worker in the 25 percent tax bracket who maxes out his IRA could reduce his tax bill by $1,375,” calculates U.S. News & World Report. “Even a $500 contribution would reduce your tax bill by $125 if you are in the 25 percent tax bracket.”

You don't have to guess the amount you could reduce your tax bill either, adds U.S. News & World Report. “You can run the numbers in real time as you are getting your taxes done and see what a difference it will make. That may be enough to convince you to go ahead and make that contribution.”


Keep an eye on the calendar and specify the tax-year for your IRA contribution

IRA accounts, including Self-Directed IRAs, give you until April 15, 2018 to contribute to your IRA for the 2017 tax year (and April 15, 2019 for the 2018 tax year). Keep an eye on the calendar and remember to specify the tax-year you want your contribution applied to.

“If you want to apply it as your 2017 contribution, you have to tell the custodian or trustee, otherwise it is going to be applied as the 2018 contribution, ” says Barbara Weltman, author of J.K. Lasser's 1001 Deductions and Tax Breaks 2018: Your Complete Guide to Everything Deductible.


Reduce your tax bill & increase your security

Beyond its tax advantages, a Traditional Self-Directed IRA is ideal for savers who want to call the shots and play an active role in managing their retirement portfolios. Self-Directed IRAs can hold an array of non-paper based assets like real estate, livestock, franchise interests, and IRA-approved gold and silver, alongside stocks, bonds, and mutual funds. Whatever you're interested in, there's a chance you can tie it into a Self-Directed IRA. Being “self-directed” means you're in control of the asset mix, not an employer or anonymous portfolio manager.

The truth is, there may still be time to make a big difference in your 2017 tax bill with the help of a Traditional Self-Directed IRA. Get started with a free IRA consultation today and see how you may be able to lower your tax burden in a few simple steps. Call 1-844-307-1589 to speak with an experienced IRA Account Executive now!


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