SAN ANTONIO — Most people will recognize the familiar 401(k) plan, which is offered to employees of a company. You can designate money from your paycheck to be automatically deposited into the retirement account, and employers can also match your contribution.
But there are also plans that you can fund without the help of an employer. There are what's called individual retirement accounts (IRAs) available for retirement. A traditional IRA is a retirement account that allows an individual to contribute pre-tax income that will grow tax-deferred, meaning you won't have to pay taxes until you withdraw money from the account in the future.
The upside of opening a traditional IRA is that you may end up paying less taxes, since your taxable income could be less in retirement. Karl Eggerss, senior wealth advisor and partner of Covenant, shared one strategy where you could benefit from income tax deductions based on your filing status. He gave one example of a retirement-age married couple.
“Every couple gets a tax deduction, a standard tax deduction of $27,400 if you’re over age 65; that’s due to the tax law changes a couple of years ago. You could make up to $27,400 with no taxes. So, lets say for example, there’s a couple living off of social security and it’s not quite up to that $27,400 level. You could take a little out of your IRA, and not pay any taxes on it because you’re getting that standard deduction,” explained Eggerss.
He added that individuals with an IRA should be considering tax laws today and how the upcoming election could potentially change the rules.
“The idea, right now, is to really think about what your income is going to be not only in 2020, 2021, but to plan out for the next several years,” he said. “We know that the tax laws could change if the administration changes. If that’s the case, it will require more financial planning to really determine what your cash flow is going to be and if you can take advantage of brackets in 2021, before maybe a tax law would go into effect.”