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.
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.
This is an excellent question and the answer may prompt additional questions.
An IRA would be the only option to potentially reduce your taxes for the year. Keep in mind, you will still need to satisfy certain requirements in order to make a deductible IRA contribution. The monies, when removed from your IRA, will be taxed as ordinary income at that time. You will need to start taking withdrawals or Required Minimum Distributions at age 70 1/2.
Although the Roth IRA will not reduce your tax liability now, the assets will grow tax free. Keep in mind that you need to satisfy certain requirements in order to be able to make a Roth contribution. Not only will the assets grow tax free, meaning if you take withdrawals in the future you will not pay taxes like you will on the IRA, but you will not have the requirement to begin Required Minimum Distributions at age 70 1/2.
I highly suggest you review the options with your advisory team, especially your CPA and fiduciary advisor to discern what the best long term option is for you.
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.
Everyone has given you a good idea that the traditional IRA is the way to go. Without knowing your full situation, it's hard to tell if there are other opportunities to save on taxes. I would consult with a CPA or CFP for more options. Depending on where you are in life, it could be a good time to start your own small business. There are a lot more tax saving options for small business owners, especially during the first years of business.