RETIREMENT PLANNING
What does it mean to maximize your individual retirement account (IRA)?
In short, it means putting the most money possible into your traditional or Roth IRA to pave the way for a more prosperous retirement.
While IRAs are often touted for the tax-deferred growth of the investments within the account, traditional IRA contributions may also provide a helpful tax deduction, reducing your current year’s income tax.
In other words, every traditional IRA investment dollar you contribute may reduce your current taxable income by the same amount. However, while your traditional IRA contribution may cut your current taxes, it wouldn’t eliminate them altogether. Any traditional IRA distributions you receive would be treated as taxable income.
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Depending on your income and other factors, if you can contribute the 2026 maximum to your traditional IRA, you may be able to reduce your current taxable income by that same amount.1
What does that mean in current tax savings? Your traditional IRA contributions may be tax-deductible, but there are several factors that may limit and disqualify you from the deduction, depending on whether you or your spouse are covered by a retirement plan at work and/or your income exceeds certain levels.
If your tax rate is 22%, a $7,500 traditional IRA contribution could cut your current year’s taxes by about $1,650. If you’re over 50, in the 22% bracket, and can make a catch-up contribution of an extra $1,100 for a total of $8,600, you could reduce your current taxes by about $1,892. In fact, if your IRA deduction drops your taxable income into a lower tax bracket, your current taxes could be cut even further.
You could be foregoing a generous break on your current year’s taxes—not to mention the potential tax-deferred growth of the investments in your account—if you don't make the most of your IRA each year.
For contribution limits and other IRA rules, see: IRA Contribution Rules and Limits.
1 IRS.gov was the source for all IRA facts and conditions stated in this article.
The information provided is not intended as a source for tax, legal or accounting advice. Please consult with a legal and/or tax professional for specific information regarding your individual situation.
Take advantage of tax contribution limits and open a Thrivent Mutual Funds IRA today. Choose an account, select mutual funds that match your retirement goals and investing style, and open your account.
