Once you start searching for ways to reduce your tax amount, first thing that would come to your mind is tax credit and IRS tax relief options. There are several ways you can obtain these relief options and reduce your responsibility of amount of taxes. You can get credit and relief on expenses several however did you know that you get rebate on your pension contributions as well? Pension could work in two ways. First it reduces the tax responsibility and/or will increase your pension fund. You can save money for your secured future by investing in different types of pension plans. However, every pension plan is not tax deductible. Therefore, you should first check the plan thoroughly so that you don’t get trapped in a plan where there is no deduction. One of the most common examples of such situation is: you get tax deductions in traditional IRA however, if you go for Roth IRA, you’re not going to get kind of pension tax relief.
If you are not sure about the procedure of getting tax relief on your pension plan, it would depend on what kind of pension you are choosing to invest your money. You can pick from occupational, personal or public service pension scheme. Generally, your employer gets the pension contributions before tax gets deducted from it. So, no matter whether you are paying taxes at basic rate or higher rate, you will get relief in full without any delays. In case, you are self employed and contributing to public service arrangement, taxes will be levied on portion of your earnings and you can claim tax relief through the self assessment tax return. There is another flexibility that you would get while contributing in pension plans. You can also put money in personal pension account of your relative or friend. Put money in your son’s, wife’s or grandchildren’s account. They would be getting tax relief however, would not affect your tax dues. Check the flexibility of your pension plan because in some cases, you can put money in public service or occupational scheme plans.
In case, as of now you are retired, you would need to pay taxes on whatever you are earning through the investments you have made in the past. However, you don’t need to get down while thinking about these taxes as while you are working and contributing to the pension plan, you will be reducing your tax amount. Recently, The American Recovery and Reinvestment Act would help you to lower your taxes greatly if you are earning a retirement income through your previous investments. The program has been introduced especially for those who have worked for American Government.