Every year as the calendar changes, you start seeing more and more commercials from tax preparation companies reminding you to get your taxes in order. As you gather all the pertinent information for your tax planning (W-2 income statement, medical expenses, mortgage info, etc.), don’t forget you can still make IRA contributions that count for the 2016 tax year.
Saving for retirement is always a good idea, whether you’re looking to save pre-tax (Traditional IRA) or after-tax (Roth IRA). Contributions can still be made into an IRA for the 2016 tax year up until the current year’s tax-filing deadline, normally April 15, but we have a few extra days this year thanks to the 15th being a Saturday, and the 17th being Emancipation Day in Washington, D.C.*
Every year the IRS sets a maximum contribution limit to IRAs because of the tax advantages they offer. These limits are for total contributions to IRAs—traditional or Roth IRAs. If you have both types of IRAs, your total contributions must not exceed the limit.
IRA Contribution Limits
In addition to saving for retirement, if you find out that you actually owe money to the IRS while preparing your taxes, it may be beneficial to make a traditional IRA contribution assuming you’re eligible to deduct the contribution, as it can lower the taxes you owe.
If your income exceeds certain levels, it will impact how much you can contribute to an IRA or potentially the deductibility of said contributions. The amount you can contribute to a Roth IRA is based on your modified adjusted gross income, or MAGI. Above is an overview; if your income falls in the “partial” range, your tax advisor can help determine your exact maximum.
Remember, the earlier you contribute, the more time your money will have to benefit from potential growth. Just because you have until April 18th to add to your IRA, doesn’t mean you should wait until the last minute to do so!