Fund Your IRAs by July 15

Mari Adam

CFP®, MBA, CRPC®, Client Advisor & Branch Manager

Jun 9, 2020

Summary

You have until July 15 to contribute to your retirement and have it count for 2019. There are no extensions beyond the July 15 date, so we encourage you to take advantage of these four pro tips to make the most of your contribution.

 

Tax Day is fast approaching

July 15 is Tax Day. The clock is ticking, but you still have time to contribute to your Roth or traditional Individual Retirement Account (IRA) and have it count for 2019. A quick recap: Contribution limits for 2019 are $6,000 max if you are under age 50 and a maximum of $7,000 if you’re age 50 or over at the end of 2019. You have until July 15, 2020 to make your contribution.

Here are four pro tips on how to make the most of your contribution:

 

Tip #1: If you are eligible to fund a Roth IRA, make sure you do so.

The Roth IRA lets you grow wealth tax-free over time. If you ever need the funds, you can always withdraw your contributions without fee or penalty. But if those funds stay in the Roth account, they’ll be forever free of tax. What’s not to like about that?

It’s amazing how that modest $6,000 per year contribution can grow over time. If you start contributing to a Roth at age 22 and continue until you turn 65, you could accumulate almost $1,300,000 in tax-free wealth, assuming a 6% annual growth rate. So, starting early and continuing to contribute to your Roth, can help you better prepare for retirement.

Remember that the Setting Every Community Up for Retirement Act (“SECURE Act”) made significant changes to how we can save for retirement. For example, there is no longer an age limit for IRA contributions and Required Minimum Distributions (RMDs) can be deferred until age 72. This applies to anyone who is not currently in RMD status. In addition, relief legislation as a result of the COVID-19 crisis has waived RMDs in 2020. These changes give you more time to save for retirement.

You can also take advantage of the low tax rates now to convert a traditional IRA into a Roth IRA. A Roth IRA conversion can help you diversify your income sources in retirement and create a tax-free inheritance for your beneficiaries. Our Insights page has several resources you can use if you’re considering a Roth IRA conversion.

 

Tip #2: Are you a non-working spouse? Make sure there’s an IRA with your name on it.

If you’re a stay-at-home spouse, there are plenty of ways to keep your retirement savings growing. Keep in mind that you can contribute to a spousal IRA if you’re married, even if you don’t work, as long as your working spouse makes enough to cover the amount of the combined retirement contributions. For example, if a 40-year-old worker earns a $75,000 salary, and deducts $10,000 for his workplace 401(k), both he and his spouse can each still contribute $6,000 per year to their Roth or traditional IRAs.

 

Tip #3: You can fund an IRA even if you contributed to your 401(k) at work.

Even if you participate in the 401(k) plan at work, you can “double-dip” by funding a traditional or Roth IRA. That could be a smart move, depending on your income and tax situation. Your financial advisor or tax preparer can steer you in the right direction.

 

Tip #4: Making a non-deductible IRA contribution? Make sure you report it on your taxes.

A non-deductible contribution to your IRA means you cannot deduct it from your taxes, but it doesn’t need to go into a separate account (that’s a misunderstanding of the tax rules). Make sure you do report it when filing your taxes so you don’t get taxed twice on the same non-deductible dollars. Likewise, remember to report deductible IRA contributions on your 2019 tax return to get the maximum tax savings.

 

Has your tax situation changed?

2020 has upended all of our lives. If you are dealing with life events that may impact your taxes, such as a job loss or your business suffering due to the pandemic, your advisor and tax specialists can help anticipate how the choices you make today can affect your future taxes and wealth. We can review your past taxes and work with you to anticipate and adjust your tax projections as needed.

Also, be sure to check your state’s filing deadline, as it may differ from the federal filing deadline. Here are some important tax dates to keep in mind.

Please contact us with your IRA questions so we can help ensure your accounts are funded before the deadline! There are no extensions beyond the July 15 contribution date.

 

 

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