How to Take Advantage of IRA Tax Breaks

Explore options related to the type of IRA you have. Traditional IRAs allow for tax breaks (they are actually tax-deductible in most cases), but Roth IRAs grow tax-free and allow for withdrawals that carry fewer penalties. Both types of accounts have their pros and cons, and both have an impact on taxes, so you need to evaluate what works best for your particular situation.

Consider transferring part of your IRA to a charity for a tax break. This only works if you are over 70 and in complete control of your account, however. On the other hand, you can comply with IRA payment requirements by making pledges or small donations to a charity at any age. Keep in mind, though, that you cannot deduct the amount you donate from your reported taxes the next time you file.

Find alternate ways of making obligatory payments. If you are paying alimony to a non-working spouse, for example, you can do this by setting up an IRA account in her or his name. This will allow the other person to gather an accrued percentage, plus it will give you a tax break.

Find out if you qualify for a tax break as a low-income taxpayer. If you have a combined income of $25,000 or less, you should be able to receive credit for a percentage of your IRA contributions. This percentage will decrease your taxable income at the time of filing and can be used for further deductions if connected to the income of a spouse.

Take advantage of the fiscal calendar to gain larger breaks. Contributions for a specific year can be made until April 15 of the following calendar year. If you find yourself with a large amount of money at your disposal, consider putting it all into your IRA at the last minute to push up your deductions.