By Cindy Sumner

This is the time of year when many of us are wondering how to use a tax refund or desperately trying to find ways to reduce the amount of taxes we owe. The solution to both these problems may be to open an IRA (Individual Retirement Arrangement). Moms with young children often wonder, “What’s more important—to start saving for my child’s college education, or to prepare for my eventual retirement?” If you can’t manage saving for both purposes, it’s actually more crucial to prepare for your own future.

Your child will likely have access to other resources like scholarships, student loans, and part-time jobs, whereas when you reach the “Golden Years,” you may not. Even if kids have to rely on other sources of income during their college years, most would find that preferable to supporting you later when they have kids of their own to worry about.

Many families can deduct contributions of $3,000 or less for each parent from their annual income for tax purposes. The actual amount of the contribution you can deduct from your taxes depends on several factors:

• The amount of income your family earns during the year
• Whether or not you or your spouse participate in an employer-sponsored retirement plan
• The type of IRA you choose—contributions to a Traditional IRA may be tax deductible while Roth IRA contributions are nondeductible. (However, Roth IRAs offer tax-free withdrawals for qualified distributions in the future.)

IRA contributions for 2004 can be made until April 15, 2005, so there’s still time. You can even file your 2004 tax return claiming a traditional IRA contribution before you’ve actually made the contribution, as long as it is made by the due date of your return (not including extensions). The Internal Revenue Service’s Publication 590 contains all the pertinent information about IRAs. Click Here to view this publication online. Consult a tax professional if you are unsure about whether or not a deduction applies to you. For help with Adobe files click here.

Most IRAs require an initial investment of $1,000 or more, but even if your tax refund or savings aren’t sufficient to open an IRA, don’t use them on a spending spree. Keep the money in a savings account where you can slowly add to it. When it comes to investing for your retirement, remember the old adage: a penny saved is a penny earned. The sooner you begin putting money away, even pennies, the faster you’ll start earning.