It’s never too late to start an IRA
Ever hear someone tell you its never too early to start saving for retirement? Yes. I’m sure you have. You can start an IRA (Individual Retirement Account) or add to an IRA you’ve been underfunding, tax free. That’s right. When you can put money into an IRA, you deduct that investment on your tax return. Your taxable income goes down AND you put money into your retirement plan.
The allowable limits change every year. According to https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-contributions, “The annual contribution limit for 2015, 2016, 2017 and 2018 is $5,500, or $6,500 if you’re age 50 or older.” It is not too late to fund an IRA for 2018. Here’s why I say that.
You have until April 15 to fund an IRA for the previous year. In this case, you have until April 15, 2019 to transfer money to your IRA and have it post to tax year 2018. Let’s suppose you transfer $5000 and post it to last year. Let’s also suppose you’ve paid 20% federal income tax the past three years and am expecting that same math this year. You send $5,000 to the IRA and reduce your taxable income by $5,000. When you do your taxes, you will enjoy a $1,000 reduction ($5,000 * 20% = $1,000). This is even before you invest that money from within the IRA.
The Trump Tax did not change the deduction for SEP/IRA, simple, Keough, Defined Benefits, and other retirement plans. You have until the due date of the tax return plus extensions to make your contribution.
It’s not too late to fund an IRA. Not only do you put away money for retirement, but you also reduce your taxable income and lower your tax bill. For help with your tax returns or finances in general, contact Dave Fechter, CPA at (916) 984-2081.