“Never leave that till to-morrow which you can do to-day” Dr. Benjamin Franklin, Ways to Wealth published in Poor Richard’s Almanac (1758).
Of course this quote by Dr. Franklin can be applied to filing annual tax returns on a timely basis, but we can also say the best tax advice anyone can give, is to save for retirement, and what are tax advantages/savings for retirement? The key fundamental ideal about saving for retirement is that the income is tax deferred, in other words, the earned income that is saved for retirement is not going to be taxed until it is utilized. In addition, depending on what retirement is established, there can be a tax deduction. Here are some retirement plans for the average individual:

• Traditional Individual Retirement Account (IRA) – which is simply any type of investment account than can be opened at a bank and/or a brokerage that can be contributed into (up to $5,500 for 2014), and there is a tax deduction for contributions to a Traditional IRA, subject to income limitations. However, any distributions or withdrawals from a Traditional IRA would be taxed at normal tax rates. Furthermore, if a distribution or withdrawal from a Traditional IRA is done before the magical age of 59½, then there is a 10% (plus a 2½% in California) excise tax penalty for early distributions (within certain exceptions). Of course, Traditional IRA contributions for 2014 can be made all the way to April 15, 2015. Also there are required minimum distributions (RMDs), once the magical age of 70½ is reached.
• Roth IRA – This a retirement plan enacted by Sen. William Roth (b. July 22, 1921 – d. December 13, 2003), which is an investment account that can be opened at a bank and/or a brokerage that can be contributed into (up to $5,500 for 2014), but there is NOT a tax deduction for Roth IRA contributions. However, any earnings that developed within the Roth IRA could be excluded from income if certain qualifications are met (e.g. keeping the account for at least 5 years and reaching the magical year of 59½). There are no required minimum distributions.
On Traditional & Roth IRA plans, any contributions are using “after-taxed” dollars.
• 401(k) – This a retirement plan, sponsored from an employer, where the employee can contribute, through his salary/wages, up to $17,500 for 2014. In this plan the contributed wages would not be subject to income tax, until the employee make withdrawals from the plan. So the employee is using “before-taxed” dollars for 401(k) contributions. Of course, any distributions before the magical age of 59½, then there is a 10% (plus a 2½% in California) excise tax penalty for early distributions (within certain exceptions). Also the 401(k) has required minimum distributions (RMDs), once the magical age of 70½ is reached.

These are some of the retirement plans that are available for the ordinary individual, with some tax advantages. So if you need us to help with a good retirement plan that is right for you, please contact us at , and we can start following Dr. Franklin’s advice on saving for your retirement.