Weekly Update – IRA Contributions
It’s not too late to make a contribution to an Individual Retirement Account (IRA) for the 2018 tax year as the deadline is April 15th, 2019. An individual can contribute up to $5,500 if under the age of 50, and $6,500 if over the age of 50. What are the rules and some things to consider in making a 2018 IRA contribution?
First, let’s discuss the types of IRA accounts:
Pre-tax IRA: A contribution that will lower your taxable income for 2018. Pre-tax money goes into the IRA, and you pay taxes when you take the money in retirement. If you are covered by a workplace retirement plan such as a 401(k), there are IRS income limits on those who can claim the tax deduction. If you have a tax bill, a pre-tax IRA contribution could be a way to put money into a retirement account as opposed to paying it to the IRS.
Spousal IRA: If one spouse is working and the other is not, the working spouse can make a contribution to an IRA for the non-working spouse. You have to file a joint tax return and the non-working spouse must be under the age of 70.5. For those not in the workforce for a period of time, this is a great way to continue saving for retirement.
Roth IRA: The opposite of a pre-tax IRA, after-tax money is contributed and when taken out in retirement the principal and earnings are all tax free. You can make a Roth IRA contribution even after you have filed your taxes as the contribution has no effect on your return. A Roth IRA can be a great way to build another type of retirement bucket, one that has really great tax advantages allowing for more flexibility when taking income in retirement.
SEP IRA: A sole proprietor could take advantage of a SEP IRA and contribute up to 20% of their net income, not to exceed $55,000 up until the April 15th deadline. If you have a side business, receive income from being on a board, or another part-time independent job, a SEP IRA could be a great way to put those extra earnings into a tax deferred retirement vehicle.
There are numerous ways to utilize IRAs to help save in taxes, and build retirement savings in a tax advantaged way. If you have specific questions on how an IRA contribution can be beneficial to you, please contact the office and I’d be glad to discuss it in greater detail.
Have a great weekend!