There’s still time to reduce your 2014 tax bill by hundreds or perhaps more than a thousand dollars, if you’re willing to tuck some cash away in an individual retirement account. Here’s how you can significantly decrease the amount of taxes you owe or boost your refund by saving for retirement and investing for the future.
Maximize your deduction. You can contribute up to $5,500 to an IRA in tax-year 2014, or $6,500 if you are age 50 or older. If a worker in the 25 percent tax bracket contributes $5,500 to an IRA, he will save $1,375 on his 2014 tax bill. Those in the 15 percent tax bracket will save $825 on the same contribution, while those in the 28 percent bracket will save $1,540. A worker in his 50s or 60s who maxes out his IRA could reduce his tax bill by $1,620 if he’s in the 25 percent tax bracket. Income tax won’t be due on IRA contributions until the money is withdrawn from the account. “Sometimes people look at their taxes and see how much they would save by contributing to an IRA,” says Jim Pasztor, a certified financial planner for Pasztor and Associates in Aurora, Colorado. “If you make a contribution to an IRA and you’re in the 25 percent tax bracket, a $1,000 contribution is actually only costing you $750, and actually less if you are in a state that charges income taxes.”