Two Quick Ways to Help You Be Tax-Savvy
About Retirement Savings

It may be true that few of us look forward to the often grueling and sometimes onerous task of paying taxes every year. The good news is: the federal tax code offers tax deductions for certain retirement savings vehicles.

Here are two great ways to help boost your retirement savings while potentially easing your current tax burden.

1) Contribute to a traditional IRA

If you are under age 70-1/2 and have not already made a contribution to a traditional IRA for 2014, you have until the April 15, 2015 tax filing deadline to make one. For the 2014 tax year, you can contribute up to $5,500 in earned income.

Should you meet certain deductibility requirements your contribution will reduce your taxable income dollar for dollar. People between age 50 and 70-1/2 can make an additional $1,000 “catch up” contribution that will also reduce taxable income accordingly.

The money invested in the traditional IRA grows tax deferred. That means income taxes will not be due until taking distributions from the account, which is required beginning no later than attaining age 70-1/2. The deferral of taxes may help your account increase in value faster than if the investments were held in a taxable account.

2) Invest Your Tax Refund in Your Retirement

If you are expecting to receive a federal tax refund this year, consider depositing it directly into an IRA. For the upcoming 2015 tax year, the same contribution rules and limits will apply. The IRS reported that the average refund in 2014 was $3,000. At that rate, you might already be half way to your annual contribution limit for 2015.

As a taxpayer, you can split your refund into up to three accounts. You can use the traditional IRA, and enjoy the benefits stated above. Or you can elect to contribute any amount of it to a Roth IRA (if you meet certain contribution requirements).

Contributions to a Roth IRA are made with post tax dollars. So they will not reduce your taxable income. However they will grow tax deferred. And distributions will be tax free, if certain distribution requirements are met.

Unlike a traditional IRA, currently there is no age limit on contributions and no required minimum distributions beginning at age 70-1/2 with a Roth IRA. Furthermore, beneficiaries of Roth IRAs enjoy tax deferred growth and tax free distributions, provided they also meet certain distribution requirements.

How to Take These Two Quick Steps

These two strategies may seem like “no brainers” in terms of their benefits to you. And indeed, they are. It is just that understanding your choices and complying with them can be a bit complex.

To help make sure you get these two steps right, contact your RBC Wealth Management financial advisor. He or she can work with your independent tax advisor to recommend solutions that are appropriate for your unique situation.

Or use the locator tool to find an experienced investment professional near you to discuss these opportunities. 

RBC Wealth Management is not a tax advisor. All decisions regarding the tax implications of your investments should be made in consultation with your independent tax advisor.

Important disclosure information about Royal Bank of Canada (RBC) and RBC Capital Markets, LLC