Reminder: Contributing to Your IRA by April 15th May Lower Your 2018 Tax Score
Here’s your annual reminder to contribute to the IRA by April 15th to potentially lower your 2018 tax bill.
The contribution limit for IRAs (both traditional and Roth) in 2018 was $ 5,500 for those under 50 and $ 6,500 for those 50 and over. ( For 2019, that’s $ 500 more .) Contributing to your traditional IRA lowers your taxable income as long as you have earned income and are not older than 70 1/2 years. The motley fool notes , for example:
If you are an individual filler with an adjusted gross income of $ 60,000 and deposit $ 6,000, you end up paying taxes on just $ 54,000. If you’re married and filing a joint enrollment, make $ 100,000 and deposit $ 6,000, you pay $ 94,000 in taxes.
Traditional IRA contributions are deductibles above the line or not , which means you can claim them upon return whether you are taking the standard deduction or detailing by line .
However, there are limits on who can deduct their IRA contributions, depending on several different factors.
“For IRA contributions to be tax-free, you must be below certain income caps if you have a workplace retirement plan,” says Andrea Coombs, tax specialist at NerdWallet. “There are no income limits unless you and your spouse have work plans.”
Here are the income limits for 2018 if you have access to a retirement plan like 401 (k) at work:
You can still deposit the full amount, it just doesn’t have to be tax deductible based on your income (and the non-deductible IRA contribution still gives you tax-deferred growth).
If you are not covered by the retirement plan, you can deduct contributions in full:
Here’s how this tax deduction helps, according to Kiplinger :
A 25-year-old who contributes $ 5,500 a year to a deductible IRA and has an annual income of six percent will make a total of $ 902,262 at age 65. on a taxable account with six percent annual income, it will grow to about $ 643,500 by age 65. The difference is that paying taxes to the IRS each year creates a drag on aggregate growth.
If you are unsure how or if contributing to an IRA will lower your tax bill, US News recommends including the “IRA Contribution When Preparing Your Tax Return.” You can compare the returns before deciding how to contribute.
If you are making contributions this year but would like them to be flagged as 2018 contributions, make sure you point this out to your account keeper.