Contributions to a traditional IRA are tax-deductible, within certain limits. Taxpayers have until April 15, 2009, to make a contribution for their 2008 IRA.
In addition to reducing your taxable income, contributions to an IRA or other retirement plan could make you eligible for the retirement savings contribution credit. This credit is worth up to $1,000 (or $2,000 for joint filers).
A common question is which IRA is better: traditional IRA or Roth IRA? The answer depends on your specific financial situation. Traditional IRAs offer a tax-deduction for your savings contribution, thus lowering your taxes upfront. Roth IRAs, by contrast, aren't tax deductible. Instead distributions from a Roth are tax-free as long as certain criteria are met. I think traditional IRAs are good for people who don't have access to a 401(k) plan through their employer, as this gets some pre-tax money into a savings vehicle. And I think Roth IRAs are best for people who have already contributed to a 401(k) and are now looking for additional ways to save some money.
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