Tax Benefits for Your Retirement Nest Egg

emergency-fundsMany Americans dream of being able to have a financially secure retirement. We all want to be able to stop working and continue to live the lifestyle we’ve worked so many years to achieve.

The best tools available to help achieve a successful retirement plan are tax-favored vehicles including: company retirement plans (if offered) and Individual Retirement Accounts (both traditional and Roth).

All IRAs allow for tax deferral. Tax Deferral means that you do not have to pay taxes on any investment growth, income earned, or capital gains for any investments each year within your IRA. This allows your investments to grow and compound at a much faster rate than any typical savings account.

For all qualified retirement accounts, you will have to pay ordinary income tax at some point in time. Who determines when you pay? You!

For traditional plans, you receive a tax benefit today by not having to pay ordinary income tax on qualifying amounts. But when you retire and begin taking these funds out for living expenses, it’s time to pay Uncle Sam ordinary income taxes on how much you’ve withdrawn. The balance remaining in the account continues to grow tax deferred.

For Roth plans, the tax man collects today. You pay ordinary income tax at your current rate. There is no tax benefit today for Roth contributions (unless you meet the qualifications for the Tax Savers Credit). However, the wonderful feature is that if you meet all qualifying criteria for the Roth account, all initial funds and all growth is able to be withdrawn tax-free. That’s right, if you follow all of the Roth rules, then you never have to pay taxes again on your contributions or any gains!

Once you have identified which accounts are available to you and fit your tax planning objectives, the key is to SAVE, SAVE, SAVE! Save as much as you can each year to maximize the amounts qualified for this preferential tax treatment as well as have the most available for your future self.

For additional assistance your local Horizon Trust Officer or existing tax preparer can assist you with reviewing which IRA planning tool makes the best sense for your situation.

Nicole Nalepa is a Trust Officer of Horizon Bank. For more information on Horizon’s Trust & Investment services contact Tracy Nalepa at 219-750-1113 or via email at