We’re all looking for ways to save on our taxes, and if we can lower our annual tax bill doing something that provides us with a significant long-term benefit, then all the better. Having a self-directed IRA and contributing to it year in and year out can help you achieve both of these goals.
Think Long-Term as Well as Short Term.
Remember that the idea of saving money on your taxes is more than just minimizing your tax bill this year, although that’s often the aspect we find it easiest to focus on. Having a self-directed IRA can help you save money on your taxes by potentially giving you an immediate tax deduction in the year when you make the contribution.
Contributions to a Traditional Self-Directed IRA May be Deductible.
Making a 2013 tax year contribution (which can be made any time before you file your return, up until April 15, 2014) to a traditional IRA may be deductible on your individual return, depending on your tax filing status, your adjusted gross income (AGI), and whether you’re covered by an employer-sponsored retirement plan (such as a 401(k)).
If you’re not covered by an employer-sponsored plan, then you can take a deduction up to the full amount of your contribution, provided that you file as a single taxpayer, or file jointly or separately and your spouse isn’t covered by a retirement plan at their job. If you are covered by such a plan, or if you file jointly and your spouse is covered by such a plan, then your AGI must be below a certain level in order to take this deduction Your self-directed IRA custodian can provide you with the exact numbers for the 2013 tax year.
But the contribution deduction is only one way a self-directed IRA can save you money on your taxes. Saving money on taxes also means lowering your tax bill in years to come.
Tax-Deferred or Tax-Free Growth.
Consider the tax-deferred or tax-free growth opportunities that are available for your self-directed IRA. If you have a traditional account, you won’t have to pay tax on any income or gains until you withdraw those amounts from your account. But if your self-directed IRA is set up as a Roth account then withdrawals from your account after you reach retirement age will never be subject to personal income tax. That’s right; all the income and gains from a self-directed Roth IRA grow on a truly tax-free basis.
If you haven’t yet set up a self-directed IRA, you’ll need to balance the respective values of contribution deductibility on the one hand versus tax-deferred or tax-free growth on the other. In general, the larger you anticipate your account balance being, and the longer you have your account in place, the more valuable a Roth IRA will be.
Consider speaking with an experienced self-directed IRA custodian such as Quest Trust Company in order to learn more.