To save more for retirement, you can make a deductible traditional IRA contribution for the 2018 tax year between now and the tax filing deadline. This will allow you to claim the write-off on your 2018 return. You can also contribute to a Roth IRA and avoid paying taxes on future withdrawals.
In order to qualify, you must have a 2018 earned income from jobs, self-employment or alimony to equal or exceed your IRA contributions for the tax year. If you were 70½ or older as of December 31, 2018, you can’t make a deductible contribution to a traditional IRA. However, you can make one to a Roth IRA after that age. If you’re married, either spouse can provide the necessary earned income.
You can make a contribution of up to $5,500, or $6,500 if you were age 50 or older as of December 31, 2018. Your spouse can also potentially contribute the same amount, thereby doubling your tax benefits.
The deadline for 2018 traditional and Roth contributions for most taxpayers is April 15, 2019. If you live in Maine and Massachusetts, your deadline is April 17, 2019.
Deductible IRA contributions are phased out (reduced or eliminated) if the previous year’s modified adjusted gross income (MAGI) is too high.
Types of contributions
If your 2018 IRA contribution limit isn’t already maxed out, consider one of these three types of contributions by the April deadline:
- Deductible traditional. With traditional IRAs, account growth is tax-deferred and distributions are subject to income tax. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k), the contribution is fully deductible. If you or your spouse do participate in an employer-sponsored plan, your deduction is subject to the following MAGI phaseout:
- For married taxpayers filing jointly, the phaseout range is specific to each spouse:
- For a spouse who participated in an employer-sponsored plan for 2018: $101,000–$121,000.
- For a spouse who didn’t participate in 2018: $189,000–$199,000.
- For single and head-of-household taxpayers participating in an employer-sponsored plan: $63,000–$73,000.
Taxpayers with MAGIs within the applicable range can deduct a partial contribution. Those with MAGIs exceeding the applicable range can’t deduct IRA contributions.
- Roth. Roth IRA contributions aren’t deductible, but, if you satisfy certain requirements, distributions — including growth — are tax-free.
Your ability to contribute is subject to a MAGI-based phaseout:
- For married taxpayers filing jointly: $189,000–$199,000.
- For single and head-of-household taxpayers: $120,000–$135,000.
You can make a partial contribution if your 2018 MAGI is within the applicable range. However, you won’t be able to contribute if it exceeds the range.
- Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, a nondeductible contribution to a traditional IRA might benefit you. The account can still grow tax-deferred, but you’ll be taxed on the growth when you take qualified distributions.
Traditional and Roth IRAs provide a powerful way to save for retirement on a tax-advantaged basis. Contact us to learn more about making 2018 contributions and making the most of IRAs in the future.