I owe approximately $8,800. Can I put some monies in an IRA to reduce the tax burden?

[JulieH1 · Accepted solution]

It depends.  

Because traditional IRA contributions are tax-deductible, they reduce your taxable income. There is one caveat: if you or your spouse is covered by a retirement plan at work and your adjusted gross income exceeds IRS limits, you'll lose some or all of the tax deduction for traditional IRA contributions

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 seven 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 percent 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.