WELCOME!

Permanent Tax Reduction vs. Temporary

1

Permanent Tax Reduction vs. Temporary

1040

Have you ever been notified that your contribution to your IRA or 401(k) is only temporary? Yes, you do get to deduct those dollars off of your earned income for that year, but is this a permanent savings? Or will this “tax reduction” come back to haunt you later?

First let’s define what I mean by a permanent tax savings.

If you have a mortgage one your primary residence, under current tax laws you are able to deduct that interest off of your income for that year, and every year that you pay interest on your mortgage. This is a true deduction; saving you tax dollars, period. The interest that you “write off” does not resurface later in a life as taxable income or anything of that nature, its done!

The same is true for acceptable business deductions such as mileage, advertising, office supplies, etc. Once they are written off, you save money, end of story.

Now let’s go back to “tax savings” from contributing to your IRA. While you enjoy some form of tax reduction the year you contribute, will it come back to tax you later? Yes! When its time to access your IRA funds (typically as income during retirement), those dollars come back in the form of Taxable Income. Statistically, you may pay more in taxes on this money than you “saved” putting it in!

Conclusion: IRA and 401(k) contributions are temporary deductions, not permanent. Consider contributing to a Roth IRA or a non-retirement account, in which you will not receive a “tax deduction” today, but will enjoy tax-free or mostly tax free income when you need it the most- at Retirement!

Have you ever been notified that your contribution to your IRA or 401(k) is only temporary? Yes, you do get to deduct those dollars off of your earned income for that year, but is this a permanent savings? Or will this “tax reduction” come back to haunt you later?

First let’s define what I mean by a permanent tax savings.

If you have a mortgage one your primary residence, under current tax laws you are able to deduct that interest off of your income for that year, and every year that you pay interest on your mortgage. This is a true deduction; saving you tax dollars, period. The interest that you “write off” does not resurface later in a life as taxable income or anything of that nature, its done!

The same is true for acceptable business deductions such as mileage, advertising, office supplies, etc. Once they are written off, you save money, end of story.

Now let’s go back to “tax savings” from contributing to your IRA. While you enjoy some form of tax reduction the year you contribute, will it come back to tax you later? Yes! When its time to access your IRA funds (typically as income during retirement), those dollars come back in the form of Taxable Income. Statistically, you may pay more in taxes on this money than you “saved” putting it in!

Conclusion: IRA and 401(k) contributions are temporary deductions, not permanent. Consider contributing to a Roth IRA or a non-retirement account, in which you will not receive a “tax deduction” today, but will enjoy tax-free or mostly tax free income when you need it the most- at Retirement!

  1. National-Insurance-175
    National-Insurance-17504-04-2010

    hm. hope to see same more info. Can we speake about it?

Follow Tim on Twiiter @timrosentv !