The Under 40 Financial Planning Guide: Let IRA Save You Money

I don't mean your cousin Ira, the accountant; I mean an Individual Retirement Account. If you (and your spouse) aren't covered by a pension plan, like a 401(k), at work, or even if you are, and you earn less than $32,000 on a single return (or $40,000 on a joint return), you can put up to $2,000 into an IRA. The amount you contribute is tax deductible, even if you don't itemize. Once it's in the IRA, you can invest that money in almost any stock, bond, mutual fund, etc. And both the original contribution and the earnings are tax-free until you remove it from the IRA.

The tax savings is your contribution multipled by your tax bracket. For example: If you contribute $1,000, and you are in a 28 percent tax bracket, you are giving up $720 and the IRS is reducing your tax bill by $280, and helping you save. The downside is that you can't take the money out until you are 59 1/2 without paying a ten percent penalty tax. But hey, you're gonna be old sometime, and that money will be big bucks by then.

You can contribute to an IRA up until the April 15 tax deadline, so be sure to consider a contribution even after the tax year is over.