Retirement savings vehicles are great for people who want to grow their nest eggs. These individual retirement accounts, or IRAs, are especially good for self-employed workers. It’s important to first know the IRA contribution limits and deadlines.
What is the difference between a traditional and Roth IRA?
You may have heard of two popular types of IRA accounts: Traditional and Roth. Both permit your money to grow tax-free. But the kind of account gets different tax benefits.
For a Traditional IRA, contributions are deductible in full if you have no retirement plan at work. It’s also deductible if you take part in a workplace retirement plan. You will pay taxes on Traditional IRA qualified distributions when you retire.
The IRS allows you to deduct the full amount up to the contribution limit if your modified adjusted gross income (MAGI) is $184,000 or less in 2016. See the IRS-supplied IRA deduction limit tables to determine the MAGI limit for your situation.
The Roth IRA is the reverse. There’s no tax deduction at the time of contribution. But, the funds are generally not taxable upon distribution. You can make Roth IRA contributions at any age, but you can’t contribute to a Traditional IRA after age 70 ½. Certain income thresholds also apply to Roth IRA contributions.
When are the IRA contribution deadlines?
The deadline for making an IRA contribution is the day that your tax return is due. You can contribute to this up until tax day to receive a deduction. But, your account must be established in the taxable year you’re getting the deduction.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.