By: Bill Few Associates Vice President, Mia Kovacs, CFP®
The IRS officially extended the federal tax filing deadline from April 15 to May 17. The IRA contribution deadline will also be extended to May 17, giving you more time to consider making and maximizing an IRA or Roth IRA contribution for 2020.
Whether you are considering a contribution to your IRA or not, we recommend consulting with an experienced financial advisor so you can ensure that you are making the right move and setting yourself up for success in the future. Below is some information about IRA contributions that can help you make an educated decision and know what to expect:
How much you can contribute to an IRA or Roth IRA depends on age and earned income.
For tax years 2020 and 2021, you can contribute up to $6,000, assuming you have earned income of at least $6,000. If you are over age 50 by year end, you can contribute an additional $1,000 in 2020 and 2021 as a “catch-up contribution.”
If allowable, making a deductible IRA contribution reduces your income and therefore your taxes. The IRA contribution grows tax-sheltered, but once you take funds out of your IRA, you pay tax on both the contributions and the growth from those contributions.
The deductibility of your IRA contribution depends on your income and if your employer provides you with a company plan.
As long as you have enough earned income, you can always contribute to an IRA. However, your IRA contribution may or may not be deductible for tax purposes dependent on your income and whether you are covered by a retirement plan at work. The income phase-out range for 2020 for those covered by a company plan starts at $104k if married filing jointly and $65k for those filing single or head of household. The income phase-out range for 2021 for those covered by a company plan starts at $105k if married filing jointly and $66k for those filing single or head of household.
Roth IRA contributions are never tax deductible but whether you are eligible to directly contribute to a Roth is dependent on income.
If allowable, making a Roth IRA contribution will not reduce your income or your taxes today. The Roth IRA contribution will grow tax sheltered. Upon taking funds out of the Roth IRA you do not pay tax on the growth or the already taxed contributions.
If directly contributing to a Roth IRA, the income phase-out range for 2020 starts at $196k if married filing jointly and $124k for those filing single or head or household. The income phase-out range for 2021 starts at $198k if married filing jointly and $125k for those filing single or head of household. If your income is too high, you may be able to make a back-door Roth IRA contribution.
RELATED: Learn about these 5 important retirement planning age milestones.
If you have questions about this information, or if you would like to talk with us, call our experienced financial advisors today at 412-630-6000. We are here to help.
(412) 630-6001 fax
Bill Few Associates
740 Washington Road
Pittsburgh, PA 15228
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