Retirement Accounts: How to Make the Most of Tax Advantages
Let’s take a close look at Traditional vs. Roth retirement account contributions and crunch the numbers for each.
Depending on which type of retirement account you choose to contribute, the dollars will fall into one of two tax categories: Traditional Contributions or Roth Contributions. The key difference is Traditional contributions can provide tax benefits today, while Roth contributions offer tax-free withdrawals in the future.
Another potential tax benefit of saving in a retirement account is the Retirement Savings Contributions Credit (Saver’s Credit). The Saver’s Credit is a tax credit worth up to $1,000 ($2,000 if married and filing jointly) for low- and mid-income taxpayers who contribute to a retirement account. Visit the IRS website to see if you qualify for the credit.
Which type of retirement contributions make sense for your situation? Find out now with this calculator. Note that this calculator is not intended to provide tax advice.
While this discussion of the tax treatment and tax advantages of different retirement accounts is intended to provide valuable information, it is not a substitute for professional tax advice and you may want to consult with a tax advisor to determine the best options for your situation.