There’s still time to contribute to your IRA!
If you haven’t already contributed to an IRA (Individual Retirement Account), there’s still time to do so. Many people don’t know that the 2020 contribution deadline is actually April 15, 2021.1 However, if you do decide to contribute, you must designate the year you are contributing for. (In this case, 2020.) Your tax preparer should be able to help you fill out the necessary forms, but please feel free to contact me if you have any questions or need help.
For 2020, the maximum amount you can contribute is $6,000, or $7,000 if you’re over the age of 50.2 This applies to both traditional and Roth IRAs. If you’re unsure whether to contribute, remember:
· Contributions to traditional IRAs are often tax-deductible. And while distributions from IRAs are taxed as income, your tax-rate after retirement could possibly be lower than it is now, lessening the impact.
· Contributions to a Roth IRA, on the other hand, are made with after-tax assets. However, the advantage of a Roth IRA is that withdrawals are usually tax-free.
· Whichever type you use, IRAs provide a great, tax-advantaged way to save for retirement.
If you or your spouse is covered by an employer-sponsored retirement plan and your income exceeds certain levels, you may not be able to deduct your entire contribution. You may qualify to contribute to an IRA for a spouse without taxable compensation. There are also income limitations to be able to make contributions to a Roth IRA. The rules are tricky and there can be penalties for contributing to either a traditional IRA or Roth IRA when over income limits. Consult your tax advisor to be sure you are making the right contribution choices.
If you have yet to set up an IRA for 2020, you can still do that. The deadline to establish an IRA is also April 15th. In other words, if you want to take advantage of the benefits an IRA has to offer, there’s still time to do so, either by contributing to an existing account or by establishing a new one.
If you have any questions about IRAs – whether one is right for you, how it should be managed, or anything else – please give me a call at 240-401-2355. I’d be happy to help you.
Jack Reutemann
Research Financial Strategies
1 “IRA Year-End Reminders,” IRS, https://www.irs.gov/retirement-plans/ira-year-end-reminders
2 “IRA Contribution Limits,” IRS, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits