"Kevin McCormally's Tax Tips"-Last Minute Tax Options
Monday, April 16, 2007SUSIE GHARIB: The Federal tax filing deadline is tomorrow, but there are still some things that you can do to reduce your tax burden. Tonight, last minute IRA contributions. Here's our tax expert, Kevin McCormally, editorial director of "Kiplinger's Personal Finance."
KEVIN MCCORMALLY, EDITORIAL DIR., "KIPLINGER'S PERSONAL FINANCE": Tonight I want to talk about a way to jumpstart the younger generation on the way to becoming both savvy taxpayers and financially secure in their retirement. I'm talking about helping children or grandchildren fund a Roth IRA. As soon as someone has income from a job, whether it's a teen working retail or a college grad's first real-world job, he or she can have an IRA. Of course, if you're trying to get by on $25,000 to $35,000 a year, saving for retirement too often seems an unaffordable extravagance.
That's where parents come in. You can give the youngster the money for a Roth, up to $4,000 as long as he or she made at least that much from working in 2006. And let me remind you about the magic of compounding. A single $4,000 deposit in a 22-year-old's Roth today will grow to nearly $300,000 by the time he or she applies for Social Security, assuming the account earns an average of 10 percent a year. In the Roth, it will all be tax-free. There's still time to make a 2006 Roth deposit, too. And you can do it even if the youngster you want to help out has already a tax return. Roth contributions aren't reported on the forms. Just make sure the beneficiary of your generosity gets the money in the IRA by close of business tomorrow.
A last-minute Roth contribution might even earn a valuable tax credit. As long as the newly-minted Roth owner is not a dependent and was not a student during 2006, the retirement saver's credit can refund between 10 percent and 50 percent of the amount stashed in the Roth. The credit is available to those whose income is less than $25,000 on a single return or under $50,000 on a joint return. I'm Kevin McCormally.
