Contribute to your IRA While You Still Have Time

If you didn't make a contribution to an IRA last year, don't worry, there's still an opportunity available. As you gather your documents for filing your 2023 taxs, you might be concerned about a potentially higher tax bill. However, you can still lower it if you qualify by making a deductible contribution to a traditional IRA before the April 15, 2024, deadline, thereby benefiting from tax savings on your 2023 return. 

Who qualifies for this opportunity? 

You're eligible to make a deductible contribution to a traditional IRA if: 

• You and your spouse aren't active participants in an employer-sponsored retirement plan, or 

• You or your spouse are active participants in an employer plan, but your modified adjusted gross income (AGI) doesn't exceed specific thresholds determined annually based on filing status. 

For 2023, if you file a joint tax return and are covered by an employer plan, the deductible IRA contribution phases out over a modified AGI range of $116,000 to $136,000. For single filers or heads of household, the phaseout range is $73,000 to $83,000, and for married filing separately, it's $0 to $10,000. If you're not an active participant in an employer-sponsored retirement plan but your spouse is, the phaseout range for your deductible IRA contribution is $218,000 to $228,000. 

Deductible IRA contributions reduce your current tax bill, and the earnings within the IRA are tax deferred. However, withdrawals are fully taxed (with a 10% penalty before age 59½, unless exceptions apply). 

While you have until April 15 to make a Roth IRA contribution, contributions to a Roth IRA aren't deductible. Nevertheless, withdrawals from a Roth IRA are tax-free under certain conditions. 

Here are two additional IRA strategies to potentially save on taxes: 

• Convert a nondeductible Roth IRA contribution into a deductible IRA contribution through "recharacterization" if you need the deduction provided by a traditional IRA contribution. 

• Make a deductible IRA contribution even if you don't have earned income, utilizing the spousal IRA option if your spouse is the wage earner and you're a stay-at-home parent or homemaker. 
  

What's the contribution limit? 

For 2023, if eligible, you can make a deductible traditional IRA contribution of up to $6,500 ($7,500 if you're 50 or over). Additionally, small business owners can establish and contribute to a Simplified Employee Pension (SEP) plan by the due date for their returns, including extensions, with a maximum contribution of $66,000 for 2023. 

For more information about IRAs or SEPs, feel free to contact us or inquire when preparing your return. 

Begin filing your business returns today by scheduling a meeting with your VAAS Tax Consultant or uploading your tax files via our secure client portal. We look forward to working with you this tax season.