Taxes » Traditional IRAs Make Tax Sense For Some Filers

When it comes to individual retirement accounts, you have several choices. All offer some tax savings. The big difference is when, exactly, you get those savings.

For some people, a traditional IRA still has a lot of appeal. These taxpayers find that this type of savings plan helps build tomorrow's nest egg while reducing today's taxes, thanks to a deduction that doesn't require itemizing.

The maximum contribution limits are per taxpayer. The limits also are what can be deducted by taxpayers who aren't covered by an employer provided retirement plan at work.

But before the lure of lower taxes prompts you to open a traditional IRA, be aware that a $5,000 (or $6,000 if you're 50 or older) contribution won't automatically cut your tax bill by that much. Rather, at the bottom of Form 1040 or Form 1040A, you subtract your contribution amount from your income to come up with your adjusted gross income, and then you figure your tax bill. And the less taxable income you have, generally the smaller the check you have to send to the Internal Revenue Service.

OK, even though it's not a direct contribution-to-write-off situation, you've determined that a traditional IRA is a good move, but you didn't have the money to contribute last year. No problem. Just because the tax year ended Dec. 31, that doesn't mean your annual contribution opportunity stopped then, too.

The allowable contribution amounts can be deposited into your traditional IRA as late as the annual tax-return filing deadline and still count toward cutting your prior year's tax bill. You even can file your return before you make your contribution.

Just be sure you actually put the money in your account by the April deadline. Remember, the financial institution that manages your IRA sends account activity information to Uncle Sam, as well as to you.