Reducing taxes
Depending on your income and other factors, if you can contribute the 2025 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? It depends on your income bracket and whether or not you contribute to another type of retirement plan.
If your tax rate is 22%, a $7,000 traditional IRA contribution could cut your current year’s taxes by about $1,540. If you’re in the 32% bracket, you could reduce your current taxes by about $2,240. If you’re over 50, in the 32% bracket, and can make a catch-up contribution of an extra $1,000 for a total of $8,000, you could reduce your current taxes by about $2,560. 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.