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IRA Contributions and Tax Savings

IRA Contributions and Tax Savings
Image: http://www.blackenterprise.com

As tax day rolls around, I was talking with one of our employees about taxes. While we do not (yet) offer a company sponsored 401K plan, it should not deter our employees from contributing to their own personally managed IRA. We did the math and one employee was able to save approximately $1500 in taxes, by putting $8000 towards his IRA. Another employee was able to save $400 by putting only $1700 towards his IRA. This results in an immediate ROI of 18% and 23% towards savings that the employees should be doing anyways.

Clearly, the benefits vary depending upon what you contribute, but this is one good way to keep money out of the hands of the taxman for owners and employees of small businesses.

For the year 2007, tax payers under the age of 50 can contribute $4000 and those over 50 can contribute $5000. Might be worthwhile playing with TurboTax to see how your mileage varies.

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