Yes, there’s still time to make 2016 contributions to your IRA.
The deadline for such contributions is April 18, 2017. If the contribution is
deductible, it will lower your 2016 tax bill. But even if it isn’t, making a
2016 contribution is likely a good idea.
Benefits beyond a deduction
Tax-advantaged retirement plans like IRAs allow your money to
grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual
contributions are limited by tax law, and any unused limit can’t be carried forward to
make larger contributions in future years.
This means that, once the contribution deadline has passed, the
tax-advantaged savings opportunity is lost forever. So it’s a good idea to use
up as much of your annual limit as possible.
Contribution options
The 2016 limit for total contributions to all IRAs generally is
$5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you
haven’t already maxed out your 2016 limit, consider making one of these types
of contributions by April 18:
1. Deductible traditional. If you
and your spouse don’t participate in an employer-sponsored plan such as a
401(k) — or you do but your income doesn’t exceed certain limits — the
contribution is fully deductible on your 2016 tax return. Account growth is
tax-deferred; distributions are subject to income tax.
2. Roth. The
contribution isn’t deductible, but qualified distributions — including growth —
are tax-free.
Income-based limits, however, may reduce or eliminate your ability to
contribute.
3. Nondeductible traditional. If your
income is too high for you to fully benefit from a deductible traditional or a
Roth contribution, you may benefit from a nondeductible
contribution to a traditional IRA.
The account can still grow tax-deferred, and when you take qualified
distributions you’ll be taxed only on the growth. Alternatively, shortly after
contributing, you may be able to convert the account to a Roth IRA with minimal
tax liability.
Want to know which option best fits your situation? Contact us.
© 2017
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