Shortcut Navigation:

Question for the Money Doctors

Question submitted on Dec 30, 2010.

Question

My husband is self-employed and pays his own Social Security. Each year, we pay about $4,000 in estimated quarterly taxes. If we put that $4,000 into a traditional IRA throughout the year, would that lower our annual taxes?
Thank you.

Answer

Unfortunately, contributions a sole proprietor makes to a pension plan on their own behalf do not reduce self-employment taxes. These contributions do reduce income taxes. So it is possible to reduce your overall Federal tax burden by contributing to an IRA.

Contributions to an IRA provide a deduction from taxable income, not a dollar for dollar reduction in your income tax liability.


For additional information visit http://www.360financialliteracy.org/