IRA versus paying more for taxes

[marthasunny]

Hi!

My husband and I are in the late 20s. We're planning to buy a house and a car within the next year or two. We have two options during tax season.

1. We can owe $6000 in taxes this year. With this option, we'd have more leftover money for a down payment on a house.
2. We can owe only $4000 in taxes this year. However, to do so, we'd need to put $8000 into IRAs. Thus, we'd be spending $12,000. However, we would be better planning for our retirement future.

We're butting heads over which option to choose. What do you think?

Thanks!

[GrimJack]

Well, if you put 8,000 away each year and get a (conservative) 5% return, you will end up with 592,661.86 in 30 years.

I know that 30 years sound like a long ways away but your house will be paid off then too.

[disneysteve]

I can't answer with just the info given. If you make the IRA contribution, will you still have enough in savings for a 20% down payment on the house you are looking at? Will you still have an adequate emergency fund? Do you have any consumer debt? Why such a large tax bill this year?

Obviously, it is better to pay $4,000 in taxes than to pay $6,000 in taxes, but you need to look at the big picture.

[noppenbd]

Also, how much are you putting into other investments and/or retirement accounts (401ks, 403bs, etc)?