Tax time is just around the corner, and you may find yourself looking for those last minute breaks before year end.Â Personally, I just got married this year so I get a rather large standard deduction to take.Â However, I also make some side income now so I need to be wise about how much taxable income I allow before year end.Â Whatâ€™s unfortunate is that I also donâ€™t have much time left, or many options to affect my bottom line, except make less money and that just isnâ€™t happening.Â What I eventually concluded was that increasing my 401K contributions to the maximum allowed would greatly reduce my tax bill at year end.Â Also, investing money into an IRA is another option as well.Â I just need to be cognizant of the income limitations, withdrawal penalties, and what the difference is between the multitude of IRAâ€™s to choose from.Â I find myself asking, which IRA is best for me?
A Coverdell account is a nifty type of IRA that basically allows you to save for future education expenses.Â Raising a child is expensive enough, sending one off to college can darn well break the bank.Â Be smart and save early on, compounding returns work for more than just retirement.
A Roth IRA is another interesting option, and one you may have heard more about.Â Unlike a typical 401K, the money going in is taxed, however, the money coming out is not.Â This is a great investment and retirement tool since the gains are not taxed when you pull them out in retirement, which I donâ€™t have to tell you can add up to some big dollars.
A Traditional IRA is another common one you may have heard about.Â This actually works in a very similar fashion to a 401K.Â You invest tax free dollars, and the funds are then taxed at your regular income rate when they are withdrawn.Â This can be doubly advantageous since often times a personâ€™s tax bracket in retirement is much lower than when they are working.
As you can see there are many options to choose from, and in fact, you can actually choose them all!Â Not only are these sound investment vehicles for both retirement and higher education, but they also lessen your annual tax burden to boot.