Tax time is here again! We sat down with Mamie Wheaton a CERTIFIED FINANCIAL PLANNER™️ with LearnLux to talk about making contributions to your Traditional or Roth IRA before you do your taxes.
In this Money Minute, you'll learn:
- When is the final date you can contribute for the previous tax year
- The amount you can contribute based on salary
- How much you can contribute if your filing status is Single
- Age 50 or above? Here's how much you can contribute
- The amount you can contribute if filing jointly with a partner
Click below to watch the video, or read on for the full transcript below.
Hi, I'm Mamie Wheaton, a Certified Financial Planner™ with LearnLux and today we're going to talk about IRA contributions around tax time.
Can I contribute to my IRA now for the previous tax year?
It is a common misconception that you can only contribute to a Traditional or Roth IRA for the current tax year.
But in fact, the IRS allows you to contribute up until April 15th of the current year or tax day for the prior year.
So for example, if you want to make an IRA contribution for the 2020 tax year, you can actually make that contribution until April 15th of 2021.
Why is this allowed? Well, the IRS wants to give you time to get all of your tax forms in the mail to know exactly how much income you earned for the prior year.
So nice of them, right? Well, kind of.
The amount of money you earn will determine if you can deduct contributions to your traditional IRA, or if you can contribute to a Roth IRA.
And while some people know exactly how much they are making, for certain individuals on commission or people who switched jobs in the middle of the year, or maybe a couple that gets married, their income may not be consistent.
Basically the IRS would rather give you a few extra months to make a contribution for the prior year, then have you make a contribution, find out you're over the limit, and make you remove all or a portion of that contribution.
How much can I contribute to my IRA?
How much can you contribute exactly?
Well, for the tax year of 2020, you are allowed to contribute up to $6,000 total in either a Traditional IRA, a Roth IRA, or you can split it up between the two.
If you are over age 50, the IRS allows an additional $1,000 contribution bringing that total to $7,000.
For a Roth IRA, if you file single or head of household, you can contribute the entire $6,000 (or $7,000) if your modified adjusted gross income for the year 2020 is less than $124,000.
You can contribute a reduced amount if your income is between $124,000 and $139,000.
You cannot contribute to a Roth IRA if you are over $139,000.
If you file jointly, you can contribute the full amount if your modified adjusted gross income is less than $196,000 for 2020.
You can contribute a reduced amount if you're between $196,000 and $206,000.
But once you're over that $206,000 you can no longer contribute to a Roth IRA if you're married, filing jointly.
Have there been changes for the 2021 tax year?
For the 2021 tax year, the contribution amount of $6,000 to $7,000 did not change, but the income limits did increase slightly. You can contribute to a traditional IRA regardless of your modified, adjusted, gross income.
However, if you or your spouse are eligible for an employer sponsored retirement plan, the amount you can deduct on your taxes will depend on your salary.
What if I contributed more than I was entitled to?
If you are realizing you may have contributed more than you were entitled to, you can reach out to the financial institution where you hold your IRA and they can walk you through the steps to remove it.
It really is important that you do this in a timely manner.
Where can I find more information?
For more detailed information on the exact dollar amounts, you can view our lessons on learnlux.com or you can visit IRS.gov for up-to-date information.
We went over a lot today, but I have one final tip.
Can I contribute on behalf of my spouse or partner?
If you're married, you can not only make a contribution for yourself, but your spouse as well, even if they don't have earned income.
However, if you do make that contribution for your spouse, it must go into an IRA in their name.
That's all for today. Thank you so much. Have a great day. If you have additional questions, please schedule an appointment with a LearnLux financial planner, and we can walk you through the form in more detail.
Thanks for joining us for this LearnLux Money Minute!