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How do you spell tax break? I.R.A. | Bob Williams

Tax time is here. It’s that time of year when everyone is preparing their taxes and searching for deductions.  A contribution to an IRA may provide you with a little relief this tax season.

An IRA is a personal savings account that provides you with tax advantages for setting aside money for retirement. What are those advantages you ask? There can be two basic benefits provided by an investment in an IRA. Depending upon your circumstances, contributions that you make to an IRA may be fully or partially deductible. Generally, earnings and gains on investments made by an IRA are not taxed until distributed. In some cases, you can completely avoid the taxes if the money is carefully distributed according to the rules.

Here are some specifics on the two commonly used types of contributory IRAs:

* A traditional IRA lets you make contributions with monies that may be deductible on your tax return¹. One true benefit is that the earnings and gains in an IRA are normally allowed to grow tax-deferred until you withdraw them in retirement. Under the generally accepted assumption that you will be in a lower tax bracket due to a reduced income in retirement, it’s possible that you may lower the amount of taxes owed upon withdrawal as well. This can be a considerable advantage.

* Roth IRAs allow contributions with money that has already been taxed (after-tax) and your money is generally allowed to grow tax-free. Additionally, provided that you comply with certain conditions, the funds can be withdrawn tax-free after retirement².

Regardless of whether you fund a Traditional or Roth IRA, the potential for tax deferred growth and possible tax free withdrawals will generally allow your savings to grow or compound more quickly than in a taxable account.

1 full deductibility of a contribution is available to active participants whose 2012 Modified Adjusted Gross Income (MAGI) is $92,000 or less (joint) and $58,000 or less (single); partial deductibility for MAGI up to $112,000 (joint) and $68,000 (single). In addition, full deductibility of a 2012 contribution is available for working or nonworking spouses who are not covered by an employer-sponsored plan whose MAGI is less than $173,000 for 2012; partial deductibility for MAGI up to $183,000.

2A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, death, disability, qualified first time home purchase.

Bob Williams
Senior Vice President & Managing Director
Delta Trust Investments, Inc.
501.907.2377
bwilliams@delta-trust.com

Delta Trust Investments, Inc., member FINRA and SIPC, does not provide tax advice and recommends that you consult a qualified tax professional.

Investments offered through Delta Trust Investments, Inc. are not FDIC insured, may lose value, and are not guaranteed.

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