By Jan Grimm, CFP®, Senior Wealth Advisor.
As tax season approaches, it’s important to remember that you still have time to contribute to your Individual Retirement Account (IRA) for the 2023 tax year. Here are considerations you should be aware of:
1. Contribution Limits
For the 2023 tax year, the maximum contribution you can make to your IRA (traditional or Roth) is $6,500 if you’re under 50 years old. For those aged 50 and above, a catch-up contribution of $1,000 is allowed, increasing the total permissible combined contribution to $7,500.
2. Deadline for Contributions is Firm
The deadline to make IRA contributions for the 2023 tax year is April 15, 2024. This means you still have time to contribute, providing a unique opportunity to maximize your retirement savings and potentially lower your taxable income. Note that the deadline for contributions is firm and does not change if you receive an extension of time to file your taxes.
3. Income Limits for Roth Contributions
Roth IRA contributions are subject to income limits. For 2023, single tax filers must have a modified adjusted gross income (MAGI) of less than $153,000. Married couples filing jointly, the joint MAGI must be less than $228,000. Ensure your income is within these limits if you plan to contribute to a Roth IRA.
4. Deductibility for Traditional IRA
Contributions to a traditional IRA may be fully or partially deductible, depending on your income. Lower income earners typically benefit more from deductions and deductibility is subject to phaseout limits based on MAGI and work retirement plan participation.
5. It is not too late to establish an IRA!
If you do not have an IRA but are considering making a contribution for the 2023 tax year, it’s not too late. You can establish a new IRA with a financial institution, such as a bank, brokerage firm, or mutual fund company, and make your 2023 contribution by the April 15, 2024 deadline.
6. Spousal contributions can help
A spousal IRA allows a working spouse to contribute to an IRA in the name of the non-working spouse. This is an excellent way for both spouses to build retirement savings, even if one does not have income from employment. The contribution limits for a spousal IRA are the same as for a regular IRA.
7. You are not too old (or too young) to establish an IRA
There are no age limits for establishing an IRA, whether it’s a traditional or Roth IRA. This flexibility allows individuals of any age to start saving for retirement, as long as they have earned income (or spousal earned income in the case of a spousal IRA). The removal of the age limit for contributions to a traditional IRA by the SECURE Act applies here as well, allowing individuals over 70½ to both open new IRAs and contribute to existing ones. (For Roth IRAs, there was never an age restriction to begin with, so individuals can open and contribute to a Roth IRA at any age, provided they meet the income requirements).
This means that whether you’re starting your first job in your teens or continuing to work past traditional retirement ages, you have the opportunity to establish an IRA and contribute to it, leveraging the power of tax-advantaged savings to support your financial well-being in retirement.
Key Considerations and Reminders:
- Double-check Contribution Limits: Ensure your contributions do not exceed the limits, considering any contributions to other IRAs.
- Mind the Deadline: Contributions must be made by April 15, 2024, for the 2023 tax year.
- Understand the Tax Implications: Contributions to a traditional IRA may lower your taxable income, whereas Roth IRA contributions do not offer an immediate tax break but provide tax-free growth.
- Plan for the Future: Consider your retirement goals and financial situation when choosing between a traditional and Roth IRA.
- Seek Guidance: It is best to seek guidance from a member of our Investment Advisory team or your tax advisor before taking action on your own.
- Act Now!: If you need to establish a new Roth or IRA account, we urge you to open the account three weeks in advance of the tax filing deadline as Custodial firms (like Charles Schwab) are extremely busy this time of year.
Opinions expressed are those of the author and do not represent individual advice or recommendation. Readers should consult with accounting and/or legal professionals in preparing and filing taxes. Jan S Grimm and Riverwater Partners do not receive compensation or referral fees from parties for engaging in tax professional recommendations but we are happy to connect you with a trusted resource if you should have any further questions.
The Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
