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The money you invest is from before tax...so say you normally make $100 and pay tax of $25, you would have $75 to invest. By being allowed to use before tax money, the entire $100 is invested. So you have more money working for you. Then the (presumably) gains on your investment, which would normally be taxed as realized, (so if you have interest income or sell a stock at a gain you normally really receive only that after tax amount again), aren't taxed currently. Leaving you all your investment income to re-invest. It does not go untaxed however. When you reeach retirement and start withdrawing it, the amount you withdraw is taxable then. (Of course, it has worked for you the whole time, is now paid in later probably deflated dollars, and probably when your income and rate is lower).

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Q: How you get tax benefit in IRA contribution?
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Do you have to pay income tax on IRA income?

On a standar IRA, Yes (you didn't pay tax on the $ contributed or as it grew). On a Roth IRA, (where you paid the tax on the income before contribution), No.


When did IRAs change from pretax to post tax?

Only when you do not qualify to deduct your contribution from your total income an pay have to pay the income in the year of the contribution then you would have a post tax contribution amount in your IRA account after income tax cost basis in your IRA account.


Can you claim post tax on your taxes?

I guess it depends;for instance, the traditional IRA is a retirement savings plan where contributions may be tax deductible and the values can grow tax deferred until withdrawal at retirement.However, for 2010, the IRA contribution limit for any wage earner is $5,000 or the individual's taxable wages, whichever is less. A wage earner over the age of 50 can contribute an additional $1,000 into an IRA. In the case of R-IRA, Roth IRA contributions are not tax deductible by definition. The tax benefit from a Roth IRA is taken at retirement when distributions are tax-free.


What can you tell me about a Roth IRA tax deductible?

The benefit to a ROTH IRA tax deductible is that it is TAX DEDUCTIBLE. But that does not mean that there are no implications, so you still have to be thorough.


Does one have to pay taxes in the interest earned on after tax contribution to a traditional IRA account?

Earnings within an IRA are not taxable in the year earned. A traditional IRA contributions are possibly tax deductible in the year made and are tax deferred until they are taken out of the IRA.

Related questions

Do you have to pay income tax on IRA income?

On a standar IRA, Yes (you didn't pay tax on the $ contributed or as it grew). On a Roth IRA, (where you paid the tax on the income before contribution), No.


What are the tax benefits of having IRA funds?

The benefit of filing your IRA on a tax return varies, dependent on what type you have. Most IRA plans can be deducted from taxes and then you may become eligible for a non-refundable tax credit. This tax credit is up to 50% of your IRA contribution and not exceeding $1000. Therefore, if you're expecting any money back from your tax return, this may give you some more money.


When did IRAs change from pretax to post tax?

Only when you do not qualify to deduct your contribution from your total income an pay have to pay the income in the year of the contribution then you would have a post tax contribution amount in your IRA account after income tax cost basis in your IRA account.


Can you claim post tax on your taxes?

I guess it depends;for instance, the traditional IRA is a retirement savings plan where contributions may be tax deductible and the values can grow tax deferred until withdrawal at retirement.However, for 2010, the IRA contribution limit for any wage earner is $5,000 or the individual's taxable wages, whichever is less. A wage earner over the age of 50 can contribute an additional $1,000 into an IRA. In the case of R-IRA, Roth IRA contributions are not tax deductible by definition. The tax benefit from a Roth IRA is taken at retirement when distributions are tax-free.


What can you tell me about a Roth IRA tax deductible?

The benefit to a ROTH IRA tax deductible is that it is TAX DEDUCTIBLE. But that does not mean that there are no implications, so you still have to be thorough.


Does one have to pay taxes in the interest earned on after tax contribution to a traditional IRA account?

Earnings within an IRA are not taxable in the year earned. A traditional IRA contributions are possibly tax deductible in the year made and are tax deferred until they are taken out of the IRA.


What is the difference between a Roth IRA and a traditional IRA?

ROTH IRA and Traditional IRA may differ in many ways. Few examples of their differences are: Roth IRA has no tax break for contributions; tax free earnings and withdrawal in retirement. While the Traditional IRA has tax deduction during contribution year; an ordinary income tax owned on withdrawals.


What are my IRA contribution limits?

Information about IRA contribution limits may be found directly on the IRS official website. Navigate to the retirement plans section and then to the IRA topics. These articles will help you to calculate your limits for the tax year.


I have a cash account associated with a Traditional IRA. We did not get any tax benefits for this money. Can we move the money into another investment without being taxed?

You really need a sit down with a personal advisor. Your confused on many things. If your contribution is in an IRA, then you more than likely DID receive a tax benefit when making it...the money wasn't taxed (or was tax deductible) when deposited. If you speaking about an excess 401k contribution, that was after tax, and then rolled into an IRA, it is not taxabale on distribution. All IRAs can be moved from investment to investment without any tax. However, stringent rules on how the funds are handled must be follwed, that every IRA administrator does all the time.


What benefit does a traditional IRA have over other IRA accounts?

The main advantage of a Traditional IRA, compared to a Roth IRA, is that contributions are often tax-deductible. For instance, if a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year. Because qualified distributions are taxed as ordinary income (the taxpayer's highest rate), the long-term benefits of the traditional IRA are only comparable to those of a Roth IRA (whose qualified distributions are tax free) if the current year tax benefit ($1,000 above) is reinvested, or if the pre-tax amount going into both is the same.


Can you get a tax deduction for Roth IRA contributions?

No, you do not get a tax deduction for Roth IRA contributions. You pay regular income tax on the amount your contribute to your Roth IRA. The tax benefit is that any income you generate with the account (interest, dividends, etc.) is not taxed when you withdraw the money.


Does the IRA have any traditional IRA rules?

There are several traditional IRA rules that apply to the IRA or an IRA account. These rules include restrictions on age (how old you need to be to apply for an IRA), maximum contribution limits, withdrawal limits, and tax deductibility.