Procrastinating? Last Minute Tax Advice for Parents
Scrambling to file your taxes this weekend? No sweat. We talked to Matt Becker, financial planner and founder of Mom and Dad Money, for some last-minute advice for parents.
“The biggest tax deadline tip I have is to get your IRA contributions in before the deadline,” Becker says. “For 2014, the maximum IRA contribution is $5,500 and you have until the April 15 tax filing deadline to make it. The only catch is that you had to have opened your IRA by the end of 2014.”
And contributing to your retirement fund isn’t only a smart investment — it can be a way to get money back immediately. “If you contribute to a Traditional IRA, you have the added benefit of getting a 2014 tax deduction, which can increase the tax refund you receive.”
Wondering how much you’ll get back if you’re contributing to a Roth IRA? Don’t get too excited. “A Roth IRA contribution won’t give you a deduction, but you will eventually be able to withdraw the money tax-free,” says Becker.
If you can’t decide which type of IRA is right for you, Becker breaks down the difference.
“Any money contributed to a Traditional IRA is treated as a tax deduction in the year of the contribution. This lowers your taxable income for the year, giving you an immediate benefit,” he says.
Citing 2013 information, he uses an example that applies to many young parents. “If you’re a married couple in the 15 percent tax bracket and you contribute the maximum $11,000 to a Traditional IRA for 2013, you will save yourself $1,650 in taxes for 2013. The flip side is that when you actually reach retirement and start taking money out of the account, those withdrawals will all be taxable.”
And for the Roth IRA?
“The tax treatment for a Roth IRA is exactly the opposite.”
Check out Mom and Dad Money for more financial information.