Last Minute Tax Tip – Make Your 2008 IRA Contribution Now

Ok, everyone and their dog tells people to make their 2008 IRA contribution now in order to reduce their 2008 income taxes.  But, there is good reason for that.

If you qualify for a deductible contribution to a traditional IRA either by meeting the income limits, or because you don’t have a retirement plan provided for you at work, then it can give you a much lower tax bill and you get to keep all of the money.  How many other deductions can claim that?

If you contribute $5,000 to your 2008 IRA, you would get a $5,000 tax deduction on your 2008 taxes.  Now, that is a deduction, not a credit, but in the 30% tax bracket, that works out to a $1,500 savings on your taxes.  For many tax payers, that is the difference between oweing money and getting a refund. You get an even bigger savings if you are a high income earner because your deductions are more valuable due to your high tax bracket.

It gets even better.  If you are married filing joint, and you can make a similar deductible contribution for your spouse, that’s $10 grand that you can sock away, and now you will save $3,000 on your taxes!

If you have an emergency fund, or some cash sitting in a brokerage account after selling some investments or real estate this year thanks to the stock market downturn, this is a huge opportunity to both earn some money on your cash ($3,000 savings on your taxes is like earning $3,000 on your $10,000 investment) and to get future growth and earnings tax defered.

You have until April 15 to mail your contribution to your broker, so there isn’t necessarily any rush, but you don’t want to be caught up opening a new IRA account if you don’t already have one.  So, open an IRA account NOW, and then worry about getting the $5,000 or $10,000 into it later.

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