A traditional IRA is an account for retirement savings that can proved favorable at tax time. If your work doesn’t offer a retirement plan, or your income is below a specific threshold, then money contributed to a traditional IRA can be deducted at tax time. For 2015, the maximum amount of contributions for the year is $5,500, or 100% of your compensation, depending on which is the lesser amount. This limit applies regardless of whether the deposits are deductible or not. Taxpayers over age 50 are eligible for an additional $1,000 in contributions, increasing the limit to $6,500. If your spouse does not work, you are allowed to contribute part of your salary to your IRA for your spouse.

Taxes are not assessed to earnings saved in an IRA until the funds are withdrawn. If you receive funds from an IRA before you are 59 ½ years old, you likely will be penalized. Also, the ability to deduct contributions made to an IRA begins to phase out for taxpayers at higher income levels, and those covered by a plan at work. In 2015, the phase out is as follows:

• Single filer: A partial deduction offered to AGI between $61,000 and $70,999. No deduction is offered after $71,000 AGI.
• Married filing jointly: Partial deduction offered to AGI between $98,000 and $117,999. No deduction offered at $118,000 AGI.
• Married filing separately: less than $10,000 AGI is offered a partial deduction, and anything greater than that surrenders the deduction entirely.

Roth IRA

A different type of retirement savings account, a Roth IRA has tax benefits that come when it’s time to use the funds. You cannot deduct contributions made to this type of account, however you will not be taxed on any withdrawals you take after the age of 59 ½ as long as the account was open for at least four years. A Roth IRA shares the same contribution limits as a traditional account, $5,500 as well as the extra $1,000 for those over age 50.

However, if your adjusted gross income exceeds certain limits, you are not eligible to contribute to a Roth IRA. Those limits for 2015 are:

• Single filer: AGI less than $116,000
• Married taxpayers: AGI less than $183,000