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farm406 14 farm finance rate. As a result of this, a producer in a high income year might pay a marginal tax rate of 33% (25% federal plus 6.9% state). In a lower income year the marginal rate might be closer to 23% (15% federal plus 6.9% state). These variations in marginal income tax rates can play a factor in how to maximize the tax advantages of contributing to an IRA. Traditional IRA contributions are made on a "pre-tax" basis. If you contribute to a Traditional IRA your taxable income is reduced by the amount of your contribution on your current year's tax return. If you contribute $1,000 and are in the 28% federal tax bracket and 6.9% state income tax bracket; then your taxes will be reduced by $280 at the federal level and $69 at the state level. If you were in the 15% tax bracket and the 6.9% state tax bracket your savings would be $150 and $69. An equal $1,000 contribution generates a higher income tax savings of $130 ($349 vs. $219) for those subject to a higher marginal tax rate versus those subject to a lower marginal tax rate. All withdrawals from a traditional IRA are taxable income in the year in which you withdrawal them. Roth IRA contributions are made on a "post-tax" basis. If you contribute $1,000 to a Roth IRA, your current year income taxes are unaffected. Withdrawals from a Roth IRA are not included in your taxable income. Regardless of NMLS #506458 1019 7 TH STREET SOUTH | (406) 268-0404 :: 3635 10 TH AVENUE SOUTH | (877) 265-0404 BANKING FACE TO FACE YOUR HOME TOWN LENDING EXPERTS Land, Home & new ConstruCtion Loans JIM NMLS#1149141 BRIDGET NMLS#514399 KAYLEE NMLS#1601273 MANDI NMLS#514355 JILL NMLS#1547093 KIMBERLEY NMLS#1145765 LAURA NMLS#1002081 whether you have a high or low marginal tax rate when you make Roth IRA contribution, the current year tax implications are equal. To maximize the income tax savings from an IRA contribution, you'll want to keep in mind your current marginal tax rate. A Traditional IRA will likely provide a greater income tax reduction than a Roth IRA if you are currently in a high marginal income tax rate situation. A Roth IRA will be more attractive if you are currently in a low marginal income tax rate situation. If saving for retirement is part of your financial plan, keep in mind that the optimal choice between a Traditional IRA and a Roth IRA can vary from year to year based on your marginal income tax rate. There are other reasons to save for retirement beyond income tax minimization but, choosing a Roth IRA in an otherwise lackluster year might just be the silver lining to a dark cloud.

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