If I open an IRA will that reduce the amount of taxes that I owe to federal

[allisonkacer]

I owe $339 to federal for taxes, if I open an IRA can I reduce the amount that I owe?

[JulieH1 · Accepted solution]

Depending on your tax bracket you could save all of it and not owe taxes.

To figure out how much a traditional IRA will save on taxes, look at your taxable income before you deduct your traditional IRA contribution. The amount will put you into one of six tax brackets. The more you make, the higher the tax rate is. For example, the tax brackets for 2017 were 10 percent, 15 percent, 25 percent, 28 percent, 33 percent  35 and finally 39.6 percent. The exact amount of taxable income subject to each tax bracket varies depending on your filing status. Once you find your highest tax bracket, called your marginal tax rate, multiply it by the amount of money you contributed to your traditional IRA. That’s how much a traditional IRA reduces your income tax. For instance, suppose you contributed $4,000 and your marginal tax rate is 25 percent. Multiply 25 percent times $4,000 to get $1,000. Those thousand bucks are your traditional IRA tax savings.

So if you are in the lowest tax bracket at 10%, you would need to contribute $3390 to an IRA to owe no tax.

[Zbucklyo]

Make sure that you are allowed to make a deductible contribution at all to a Traditional IRA - it depends on your income and whether you are covered by a retirement plan at work,

[smalaney]

I am $1000 over my AHCA limit ($84100 versus $83100) due to the $5000 income my daughter in college earned. If she takes out a new IRA and contributes $1200, would this reduce her income by $1200 thereby bringing my total MAGI below the $83100 line to $82900?? This would save me repaying the $6800 in AHCA tax subsidies. My AGI is $78,793 and my daughters $5352 for a total of $84105. If I can get our combine income below $83,100, I do not have to pay the AHCA tax subsidy back.