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. 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 . 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.