Tax Savings: Compare Annuities and IRAs

In the Globe Gazette’s article “Ease the sting of tax bite,” Laura Bird gives advice to help those who were hit hard by Uncle Sam this year.  For people who owed a lot of money in taxes this year, the easiest way to change that might be updating your withholding information at work.  Having more withheld from each paycheck will decrease the likelihood of you owing the government tax money April 15 of next year.  Tax deductible investments are also a great way to decrease your taxable income.  Putting money into an annuity, IRA, or 401k will lower the amount of taxable income that you claim when filing your taxes.

If you qualify for an IRA or have an employer sponsored 401k plan, contributing to retirement plans like that help come tax time.  Not everyone qualifies for those types of plans though.  Compare annuities to IRA’s and 401k’s and you still get some tax relief.  Most annuities are tax-deferred, so that you don’t pay taxes on any of the income you are earning until you actually start taking your earnings out of the annuity.  That typically happens during retirement when your income and tax brackets are lower.  Tax-free bonds and energy tax credits for appliances and work done on your home are other ways to lessen your tax burden for next year.

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