Should I open an IRA or a Roth IRA?
I am 65 years old and trying to reduce my taxes for this year.
If you are trying to reduce taxes for the current year, then an IRA would be the best choice.
Assuming certain qualifications are met, your contributions to a traditional IRA are tax deductible in the current year, the account will accumulate tax-deferred, and the distributions will be taxed as income as you withdraw your funds.
A Roth IRA will not give you a tax break in the current year as it is funded with after-tax contributions, but will accumulate tax free and assuming certain qualifications are met, distributions will be tax free in retirement.
I almost think you answered your own question. If your goal is to reduce taxes, a Roth IRA will in no way help you do that. However, a traditional IRA will allow a tax-deductible contribution assuming you’re qualified to make one. I hope this helps and good luck.
If your goal is to reduce taxes for this most recent tax year, an IRA would be the direction you would want to go. A Roth IRA does not allow you an immediate deduction on your current Federal tax return, only tax-free deferral and tax-free withdrawal. You must check to make sure that you are eligible for a deductible IRA, if so, the deduction would help your taxes. One additional feature would be that you can contribute to a deductible IRA up to your filing date or April 18 of this year, again as long as you are eligible, offsetting last year’s income taxes.
Although I am not a tax professional, if you are looking to reduce your taxable income then contributing money to a traditional IRA would be the choice to consider as contributions can be deducted. I would encourage you to speak with a tax professional to make sure this is the best option for your particular income and tax situation.
Assuming you have the earned income, a traditional IRA will allow you to make tax-deductible contributions up to $6,500 (since you are over age 50), but I would review my overall tax bracket and determine if it makes sense. For example, if you contribute the maximum amount of $6,500 in 2016 to a traditional IRA, but are in a 15% tax bracket, that contribution would effectively only reduce your overall taxation by $975. However, the entire amount will be subject to Required Minimum Distributions (RMDs) by age 70 ½, possible Social Security taxation, and fully taxable.
On the other hand, the Roth IRA isn't tax-deductible but also not subject to RMDs, Social Security taxation, and is tax-free when withdrawn (after 5 years).
If you have any further questions, I'd be happy to help.