Contribute to 401k or IRA to save on taxes?

“Should I put money into my IRA or 401k to help with taxes?" is a question that's pretty common at the end of the year. Hell, you probably have asked yourself this question as well. And so... well... it depends haha. Here’s a few important markers and tips about contributing to retirement, especially for tax purposes.

401k vs IRA and What “Roth” Means

First, if your retirement account is a "roth" then it isn’t helping you tax wise right now because Roth means post tax. Take me, when I contribute to my Roth IRA I don’t get any tax benefit whatsoever this year. And that’s okay. Instead when I take the money out at 65, there's no taxes to pay on it either since I’m paying taxes on my income now. And the same works for a Roth 401k.

Now on the flipside, if you have a traditional IRA or 401k, then yes, contributing before the end of the year will count as a tax deduction for you and help lower your taxes. Remember it's not a 1 for 1 trade, but still, it's better than nothing. Then when you take the money out when you retire, you'll pay taxes on it as income essentially.

Now before you ask whether you should have a roth or traditional retirement account(s), that's a question for your financial advisor because while we know the basics, it's not necessarily our wheelhouse. Or if you need a financial advisor, we can recommend one to you.

Do you have a specific retirement or tax question that we could answer for you before the end of the end of the year? Schedule a tax return review here with us.