topic I owe $8,716 how much would an IRA save me? If I have to spend more for an IRA than what it will reduce my tax payment, is it worth it? in Retirement tax questions

I owe $8,716 how much would an IRA save me? If I have to spend more for an IRA than what it will reduce my tax payment, is it worth it?

john1010 — Fri, 26 Mar 2021 14:39:49 GMT

Re: I owe $8,716 how much would an IRA save me? If I have to spend more for an IRA than what it will reduce my tax payment, is it worth it?

SweetieJean — Fri, 26 Mar 2021 14:55:42 GMT

That depends entirely on your tax bracket. For example, if you are in the 22% bracket, a maximum regular Traditional IRA contribution of $6,000 (under age 50) would save you $1,320 in taxes.

But if you owe almost $9,000 in taxes, your income may be too high to contribute to an IRA. You are asking from TT self-employment, so I wonder if you are being hit with a penalty for underpayment of estimated taxes as well. Also see:

Retirement Plans for Self-Employed People | Internal Revenue Service (irs.gov)

Re: I owe $8,716 how much would an IRA save me? If I have to spend more for an IRA than what it w...

MinhT1 — Fri, 26 Mar 2021 14:58:08 GMT

If you are eligible to contribute to a deductible IRA, you can contribute up to $6,000 (plus a catch up of $1,000 if you are aged 50 or older).

By contributing to an IRA, you will save on taxes, but not dollar for dollar. The IRA contribution is a deduction from income and your tax savings is equal to the contribution multiplied by your marginal tax bracket. So if you make a contribution of $6,000 and your tax bracket is 22%, then you will save $1,320 ($6,000 x 22%) in taxes.

Whether it is worth making the contribution is a matter of personal judgment.