 into normal investments typically mutual funds but under the umbrella of a retirement structure such as a 401k plan or in this case an IRA when you put the money in the question is do you get a tax benefit when you put the money in such as reducing your income or taking a deduction and then when the money grows over time hopefully it will grow in the form of dividends interest capital gains do you have to pay taxes at that time and then when you take the money out is that a tax triggering event when you take the money out and or could it also trigger the penalties those are the questions that we have now we're looking at the point in time of these investment tools when we put the money into the the account and that of course is when we're asking the question do we get to reduce income at the point in time that we put the money in now notice that if it was a 401k plan or a 403b something through your employer you would get a benefit of not having to include it in income and exclusion but it would be reflected on the form w2 and therefore the employer will already have done it for you and you just have to enter the w2 information and everything should be correct because box one will be reduced properly hopefully by that amount and it might differ then what's on box five and box three which are all income line items if on the other hand you do an an IRA deduction that means it's not being taken out of your wages typically by an employer therefore it's not going to be reflected in your w2 income has to be somewhere else such as the adjustments to income so for IRA purposes earned income includes alimony and separate maintenance payments reported on schedule one line to a so if you were a member of the armed forces earned income includes any non-taxable combat pay you received if you were self-employed earned income is generally your net earnings from self-employment if your personal savings were a material income producing factor so for more details you can see publication 590 a a statement should be sent to you by May 31st 2024 that shows all the contributions to your traditional IRA for 2023 so we're going to use the IRA deduction worksheet to figure the amount if any of your IRA deduction but read the following list before you fill in the worksheet so you you can figure that basically IRA deductions now with the IRA deductions there's going to be a cap in terms of how much that you can put into an IRA it's usually going to be significantly less than like a 401k plan or a 403 b plan that's why it's usually way better off if you have the ability to put money into a 401k or 403 b it's usually that's usually the first place to go because you can put more money in and you might get a a matching kind of benefit with it as well that's also why when people don't have access to a 401k or 403 b possibly because they're sole proprietors and they have a schedule c business they might want to set up their own 401k or possibly a more simple plan that we talked about before like an IRA i mean a simple which is a simple type of retirement plan or a Roth IRA those are going to give you more ability than just a normal individual IRA for a sole proprietor we touched on that before as well when we put money also just note that when you put money into a normal IRA it can be a little bit complex if someone does have access to a 401k plan such as you or say your spouse then the question is well can i still put money into an IRA and that that gets complex it'll depend on different factors fortunately however it is something that that can be done kind of as a last minute tax planning because with the IRA oftentimes you don't have to actually put the money in the IRA in the tax year so if we're talking about tax year 2023 for example you can do the tax return and then possibly be able to do the last minute tax planning move of putting as much money as you can given your tax situation at that time into an IRA so that's often the the last kind of move that you that you can make for tax planning which can happen actually after the the year has ended so that's one something we want to keep in mind when doing tax preparation we'd also like to have some cash on hand in order to take advantage of being able to do that when we file the tax return okay so number one you can't deduct contributions to a Roth IRA but you may be able to take the retirement savings contributions credit savers credit see the instructions for schedule three line four now the Roth IRA is kind of the inverse of a normal IRA so the idea of an IRA would be I want to take the deduction now this would typically be ideal in a situation where you have the max amount of money that you think you're going to make in your lifetime so if I'm making more money then I'm spending right now I'm probably in a higher tax bracket than I will be in the future when I retire because when I retire I'm only going to be taxed on the money I take out