Roth IRA + Taxes

[Al P]

I haven't yet contributed for 2004 however when preparing my taxes my refund jumped by $200 by saying I'll contribute the full $3000 before April 15th.

That's an easy 6.6% gain I'll take anyday.

[LondonBroil]

Correct me if I'm wrong, but aren't Roth IRA contributions made after already being taxed? How can you take a deduction for that?

[TGoldman]

If your modified AGI is low enough, you are eligible to deduct a certain percentage of your Roth IRA contribution. Credit for IRA Contributions (http://www.hrblock.com/taxes/fast_facts/tax_tips_detail.jsp?cat=1&scn=IRA%20&sc=40&taxtip_ id=2131). This deduction isn't realistic for most people, since they set the required MAGI levels so low. Otherwise, the original poster may be confusing a traditional IRA with a Roth IRA. In which case, the IRS isn't going to appreciate that deduction very much. :P

[ruleof72]

To get your deduction you must contribute to a traditional IRA, not Roth. With a Roth, you are paying taxes up front and getting your distributions at retirement tax free.

[TGoldman]

You are eligible to receive a tax credit on all IRA contributions (Both Roth and traditional) if your MAGI meets certain requirements. You'll need to file a Form 8880 (http://www.irs.gov/pub/irs-pdf/f8880.pdf) . See the instructions on the form for all of the details.

[Al P]

Yes, I was working part time for most of the year and finally got a full-time gig in November so my AGI was only like $16,000.

[TN_POKER_MAN]

Cool. It is rare to find somebody that can take advantage of that new retirement credit.

Keep in mind, the tax advantages are just a small part of why a Roth IRA makes sense.