While reading this, please keep in mind that this was my situational experience and your tax filing experience may be quite different depending on your financial situation. Consult with your tax adviser to see if you qualify for similar benefits.
As it is currently 2015, the other day we did our taxes for the 2014 tax year. In preparation for the 2014 tax year coming to an end, my wife and I saved up the max amount that we are aloud to contribute to a retirement account based on our income. That amount is $5,500 and since we already paid taxes on it, we decided it was best suited to go into a Roth IRA account. Unaware of a Roth IRA or have heard the term but don't know exactly what it is?
For those vaguely familiar or who have never heard of a Roth IRA, it is quite simply "an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.", according to Google's definition. Basically you earn money and pay the taxes on it. Afterward, you are able to contribute to a Roth IRA and any money you make off of the initial investment are free of any tax after you turn 59-1/2. Since my wife and I are still in our 30s, (me barely), we decided that would be the best investment for our long term goals. But how does this effect our tax filing today?
During our tax filing this year, we learned that we were provided a tax refund based on our contributing to an IRA account. The $5,500 that we contributed provided us with a refund of $436. How cool is that? Merely by contributing, we earned 7.9% on our investment, and we didn't even do anything other than put it in the IRA account.
If anything, this is a great reason to save for your retirement. Even if you don't know how to allocate your funds right away, you can always move funds to the Roth IRA and keep it in a money market account. While this is not recommended, due to missed opportunity, you will at least capture the 8% on your year's investment.
If you have had similar experiences or other tax tips and tricks, EconTips and our readers would love to hear it. Post your experience in the comments below!
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