There's Still Time to Fund a 2011 IRA

One potential way to increase your income is to buy a CA lottery ticket for a chance to win that $500 Million Jackpot and then hope for the best.

But, if you're not feeling as lucky as the Castro Valley man who recently won
$13,000 from the lottery,  you may be looking for other ways to keep some of that income you've already earned.  As illustrated in the cartoon, there always
seems to be "leaks" seeping from your reservoir of income.  Income tax is one of those outflows.

Wishing you'd done more to reduce your taxes in 2011?  There's still time to fund a Traditional IRA for 2011. The deadline for contributions to IRAs is April 17, 2012, same as the tax filing deadline. 

If you're still working on your tax returns, funding a Traditional IRA can help to lower your tax burden for 2011 if you meet certain criteria.  Even if you can't take the tax deduction, there still are good reasons to consider investing in either a Traditional or a Roth IRA as soon as possible:

 · the tax-deferred growth offered by the Traditional IRA and

  ·the tax-free growth that the Roth offers to those who meet certain
conditions.

If you are under 50, you can contribute a maximum of $5,000 to a Traditional or Roth IRA.  If you are 50 or over, but still young at heart, you can contribute up to $6,000.

In choosing the option that’s right for you, consider the pros and cons of paying taxes up front or waiting until retirement. While your contribution to a Traditional IRA saves you in taxes now if you qualify for the deduction, Uncle Sam ultimately will demand its share.  Withdrawals from a Traditional IRA during retirement are fully taxed, and raise the income figure used to compute the taxability of your Social Security.

Contributions to a Roth IRA, on the other hand, are not deductible now, but by paying taxes on your contribution in the years the money is earned, you will avoid being hit with the tax bill in your golden years, especially with the imminent threat of higher tax rates in the near future.

There's also tax law changes that took effect on January 1, 2010, that allow you to convert a traditional IRA to a Roth IRA regardless of your income or filing status. If you are considering a conversion this year, keep in mind that you will have to pay taxes on all previous contributions.  Refer to the IRS website at www.irs.gov for more details.

And finally, good luck with that Lottery ticket!

Linda Koziol, Enrolled Agent Office:925-320-7801                                          Visit our Website: www.eastbaytaxpros.com for more tax news.

East Bay Tax Professionals is located at 6400 Village Parkway, Ste. 201, Dublin,
California.

Circular 230 Disclosure: Any advice contained in this post (including any attachments unless expressly stated otherwise) is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.