Here’s a personal finance 101 must-know special: the deadline for IRA contributions for a calendar year is the tax deadline for that year. And you can even set up and fund an IRA, for a calendar year, up until that year’s tax filing deadline.
Why is this important to know?
Beyond the obvious that it allows you more time to save up and make a retirement contribution in the first place, there are significant potential tax benefits that you should be aware of.
Once you hit the end of a calendar year, you are extremely limited in the actions you can take to reduce your tax obligation for that tax year. Contributions to an IRA are one big exception.
IRA contributions are often tax deductible (based on income – more details below). In addition to providing significant tax savings, in some cases reducing your taxable income could impact your eligibility for certain income-based entitlement programs. Your contribution could even be eligible for the Saver’s Credit, which is a government funded tax credit that matches a percentage of your retirement contribution, up to 50%.
IRA contributions are also “above the line”, which means that you can claim a deduction even if you do not itemize your taxes and take the standard deduction instead. Any contribution will reduce your adjusted gross income on a dollar-per-dollar basis.
- Roth IRA contributions are not tax deductible, so they won’t help if you’re looking for a last-minute tax saving strategy.
- Traditional and Roth IRA’s have inflation-adjusted contribution limits and an additional catch-up contribution for those aged 50 and over.
- Not everyone is eligible to deduct Traditional IRA contributions or make direct Roth IRA contributions – there are IRA income limits that change annually that you need to be aware of if you and/or your spouse also have an employer-sponsored plan such, as a 401K.
- SEP IRA’s have maximum contributions that are 20% of your net self-employment income.
Also, SIMPLE IRA contributions, because they are employer-sponsored, must be made by the end of the calendar year, much like 401K’s and 403B’s.
Note: the HSA contribution deadline is also at the tax deadline!
How to Make an IRA Contribution for the Previous Year
To make an IRA contribution for the previous year, you simply choose which year you would like to apply the contribution to within your broker account (here’s a screenshot from my Vanguard account).
As you can see, it’s even possible (with Vanguard, at least) to make an IRA contribution for both years at the same time.
If you didn’t know that all of this was a thing, don’t feel bad, you’re not alone. Only 33% of Americans have an IRA, and much less than that contribute annually to one.
Have a last-minute IRA contribution success story? Please share in the comments!