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Remember the IRA Contribution Deadline

 

For many folks, the bulk of their retirement contributions occur in their workplace retirement plan (think 401k’s, 403b’s etc..).  These are certainly some of the best places to start, especially if your employer provides a “matching” contribution.  For these workplace accounts, the contribution limits and timing follows a normal calendar year.  However, for IRA accounts, it is sometimes forgotten that you are able to contribute to them up until tax time of the following year.  In other words, you still have a few weeks until April 15th, to make IRA contributions be effective for the 2021 tax year!

 

Traditional IRA vs. Roth IRA

The nuances of whether a traditional IRA or Roth IRA makes more sense for your situation are too vast to get into within this post.  However, here are some important points to remember for your last minute 2021 contribution plans.

 

Traditional IRA Limits

    • Limited to $6,000 of contributions for the year ($7,000 if over age 50). Note this is a combined limit across ANY type of IRA account.
    • Must have earned income for 2021
    • Your income may limit the ability to deduct your contribution. See starting and ending thresholds below based on modified adjusted gross income:
        • $66,000 to $76,000 – Single taxpayers covered by a workplace retirement plan.
        • $105,000 to $125,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
        • $198,000 to $208,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
        • $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan.
        • If neither you OR your spouse was covered by a workplace retirement plan during 2021 then you can make a fully deductible traditional IRA contribution regardless of income levels.

 

Roth IRA limits

    • Limited to $6,000 of contributions for the year ($7,000 if over age 50). Note this is a combined limit across ANY type of IRA account.
    • Must have earned income for 2021
    • Your income may limit the amount or ability to contribute. See starting and ending thresholds below:
        • $125,000 to $140,000 – Single taxpayers and heads of household.
        • $198,000 to $208,000 – Married, filing jointly.
        • $0 to $10,000 – Married, filing separately.

 

Backdoor Roth IRA

It’s important to keep in mind that regardless of your income level OR workplace retirement plan, you can always make a contribution to your Traditional IRA and simply NOT deduct the contribution.  If you find yourself in this situation, then it is usually prudent to consider completing a Roth IRA conversion of these funds since they were already “after-tax” in nature and wouldn’t incur a tax at conversion.

While 2021 seems a long way gone, remember to prioritize your retirement savings and take these steps before the upcoming tax deadline.