It's Not Too Late For One More Tax Deduction: IRA Contribution
March 31, 2019
Looking for a last minute tax deduction? Consider an IRA contribution. With only 53% of working-age families participating in retirement plans, according to a 2013 report from the Economic Policy Institute, it’s important to save as much as you can. Take advantage of your tax deductions by contributing to an IRA — boosting your retirement savings.
What is an IRA?
An IRA (individual retirement arrangement) is a kind of savings account offering tax benefits. The money you contribute may be partially or entirely tax deductible, depending on your situation, and you don’t pay tax on the interest earned while the money remains in your account. You only pay tax when you withdraw money from your IRA.
Types of IRAs
The Traditional IRA offers upfront tax benefits, allowing you to deposit pre-taxed funds and to make tax-deferred investments. You may be able to deduct all or some of your IRA contributions if you meet certain requirements and deposit the funds by the IRA contribution deadline for the tax year. A Roth IRA is funded with post-tax income (you can’t deduct your contributions on your income taxes). All future withdrawals that follow Roth IRA regulations are tax free. MSUFCU also offers IRA Insured Money Management Accounts (IMMA) which allows you to have immediate access to your funds, while earning higher dividends on balances of $2,000 or more. To open an IRA IMMA, you need at least $50 and will need a $2,000 minimum balance to start earning dividends.
Most financial institutions offer IRAs and you can manage the account’s funds on your own, choosing which stocks, bonds, and mutual funds to invest in. If you wish to withdraw the accumulated funds without incurring a penalty, you have to meet certain requirements, such as age, term, etc.
Who can open an IRA?
You can open a traditional IRA if you or your spouse (if you file a joint return) received taxable compensation during the year, such as wages or income from work, and if you were younger than 70½ by the end of 2018. If you’re married and you and your spouse both fulfill these conditions, you each can open separate accounts, not a joint IRA.
With a traditional IRA, you may be able to deduct qualified contributions to reduce your taxable income. You also benefit from tax-deferred growth of your investments in an IRA account: your contributions — and earnings on these contributions — aren’t taxed until you withdraw them.
For 2018, you can contribute up to $5,500 toward your IRA if you are younger than 50. If you’re 50 or older, you can make a catch-up contribution of an additional $1,000, bringing your annual contribution limit to $6,500. But you can’t contribute to a traditional IRA if you’re 70½ or older.
When is the IRA contribution deadline for 2018?
You have until April 15, 2019 — the deadline for filing and paying your 2018 federal income taxes — to make an IRA contribution for 2018.
Many people don’t contribute to tax-advantaged accounts, but there are many benefits to doing so. If you are considering an IRA, MSUFCU offers IRAs as well as other savings products to help you reach your retirement and other savings goals. For more information, visit msufcu.org.