With April 15th around the corner Personal Wealth Strategies receives many calls and emails with questions surrounding Individual Retirement Accounts (IRAs). Here are some rules of which you may not be aware.
- The Maximum Contribution is Indexed for Inflation. The maximum contribution you can make for the 2018 tax year is $5,500, but for 2019 the limit increases to $6,000. If you will turn age 50 during the year or are already age 50 you can increase those figures by $1,000 as a catch-up contribution.
- Even Spouses Without Employment Income Can Contribute to an IRA. Normally IRA contributions must be made based on income received from employment, but an exception is made for spouses who do not work outside the home. Stay at home spouses can make an IRA contribution based on their employed spouse’s income.
- Contributions Are Due by April 15th. No Extensions. IRA contributions are due by April 15th, although a later date may be used if you are self employed and contributing to an employer sponsored plan. Even if you file for an extension on your personal tax return, IRA contributions must be made by April 15th.
- Contribute Then File or File Then Contribute. IRA contributions can be made at anytime prior to April 15th. They can be made before or after you file your tax return.
- Traditional IRAs Have Age Limits. Roth IRAs Do Not. You are no longer eligible to contribute to a Traditional IRA once you reach the calendar year in which you attain age 70 ½. However, if you are still working you can contribute to a Roth IRA. There are no age limits for Roth IRAs.
- Other Forms of Retirement Accounts May Produce a Greater Contribution Level. If you have any level of self-employed income other forms of retirement accounts may produce a larger maximum contribution than an IRA. For example, if you make $1,000 per month watching the neighbor’s children, you can only contribute $6,000 to an IRA. However, you can contribute 100% of the $12,000 into an Individual 401(k) plan.
- Tax Saver’s Credit. The Tax Saver’s Credit allows lower income workers to earn a tax credit on their federal income taxes based on the amount contributed to their IRA. The benefit is a true tax credit, which is worth more than a tax deduction, and can go as high as $1,000.