Last Minute IRA Contribution Advice

 The 2016 tax-filing deadline is upon us. Are you considering making a 2016 IRA contribution? It’s not too late, but time is quickly running out. Here are some  quick words of last minute advice to keep in mind as you make your contribution.

1. Don’t Miss the Deadline. The deadline for making your 2016 IRA contribution is the tax-filing deadline, Tuesday, April 18, 2017. Do you have an extension? That won’t buy you more time.  Even if you have an extension for filing your 2016 federal income taxes, your deadline for making a Traditional or Roth IRA contribution is still April 18, 2017.

2. Don’t Exceed your Limits. The maximum contribution that you can make to an IRA for 2016 if you were under 50 is $5,500. If you reached age 50 in 2016, the maximum contribution limit is $6,500. The annual limit is aggregated for traditional and Roth IRAs. You may not contribute $5,500 to your Traditional IRA and $5,500 to your Roth IRA for 2016. 

Your IRA contribution generally may not exceed your taxable compensation or earned income for 2016. However, if you are married you may be able to use your spouse’s earned income or taxable compensation to make your IRA contribution.

When your modified adjusted gross income (MAGI) exceeds $117,000, if you are single, or $184,000, if you are married filing jointly, your ability to contribute to a Roth IRA begins to be phased out for 2016. There are no income limits for Traditional IRA contribution. 

You may not contribute to a traditional IRA for the year you reach age 70 ½ or any year after. However, you may make Roth IRA contributions at any age, if you are otherwise eligible.

3. Maximize your Benefits. Many people miss out on the benefits of IRA contributions simply because they do not understand the rules. This is particularly true when it comes to how participation in a company plan affects your IRA contribution.

Here is some good news. Your participation in your company plan does not affect your eligibility to make a Roth IRA contribution at all!

Here is more good news. If you and your spouse, if married, are not active participants in a company plan, you can fully deduct your traditional IRA contribution regardless of how high your income is.

However, if you are an active participant in your company’s retirement plan, and your MAGI exceeds $61,000 if you are single, or exceeds $98,000 if you are married, your ability to deduct your 2016 traditional IRA contribution begins to phase out. If you are not an active participant, but your spouse is, your ability to deduct phases out when MAGI reaches $184,000.  

Don’t forget about the Savers Credit! This tax break is often overlooked. If you are 18 years old or older in 2016, and are not a full-time student, you may be able eligible for the Savers tax credit of up to $1,000, if your income is below certain limits. You may also be able to deduct your traditional IRA contribution for a double tax benefit.