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Tags: CPA Sarasota, QuickBooks Bookkeeping, Sarasota Financial Planning Strategy, Tax Planning

As we navigate the complexities of financial planning, one opportunity stands out for young adults: individual retirement accounts (IRAs). With the 2023 tax-year contributions deadline fast approaching on April 15, 2024, now is the perfect time to consider how you can leverage an IRA.

Traditional and Roth IRAs: A Brief Overview

Both traditional and Roth IRAs offer unique benefits, so the choice between them largely depends on your current financial situation and future expectations. For the 2023 tax year, you can contribute up to $6,500 or your earned income for the year, whichever is less. This cap increases to $7,000 for the 2024 tax year.

Traditional IRAs provide the potential for tax-deductible contributions, which can be particularly advantageous if you’re looking for immediate tax relief. The deductibility of your contributions may phase out based on your income and whether you’re covered by a workplace retirement plan. It’s also important to note that withdrawals from traditional IRAs are taxable, and early withdrawals may incur penalties.

On the other hand, Roth IRAs offer tax-free growth and tax-free withdrawals in retirement. Although contributions are not tax-deductible, the tax-free withdrawal benefit in retirement can be significant, especially if you expect to be in a higher tax bracket then. Additionally, Roth IRAs do not require minimum distributions during your lifetime, offering more flexibility in retirement planning.

Key Considerations for Young Adults

Income limits and phaseouts. Be mindful of the income-based phaseout ranges that may affect your ability to contribute to Roth IRAs or deduct traditional IRA contributions.

Tax bracket considerations. Your current and expected future tax brackets are critical in deciding between traditional and Roth IRAs. If you anticipate being in a higher tax bracket in retirement, Roth IRAs may offer greater benefits.

Flexibility and future planning. Roth IRAs provide significant flexibility, allowing for tax-free and penalty-free withdrawals of contributions and offering benefits to your heirs.

The Power of Early Contributions

If you can start your IRA contributions while young, you can significantly impact your retirement savings. Even modest annual contributions can grow substantially over time, thanks to the power of compounding.

How We Can Help

Sterling Tax and Accounting is here to help your business with tax planning!  Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket.  If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.

Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.

Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.

Welcome to the Sterling Standard of business!  Want to learn more?  Schedule a meeting with our tax planning team here:  https://www.sterling.cpa/contact-us/

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