You still have time to make 2017 IRA contributions | Tax-Advantaged Savings

tax-advantage savingsTax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. The deadline for 2017 contributions is April 17, 2018. Deductible contributions will lower your 2017 tax bill, but even nondeductible contributions can be beneficial.

Don’t lose the opportunity

The 2017 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2017). But any unused limit can’t be carried forward to make larger contributions in future years.

This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So to maximize your potential for tax-deferred or tax-free savings, it’s a good idea to use up as much of your annual limit as possible.

3 types of contributions

If you haven’t already maxed out your 2017 IRA contribution limit, consider making one of these types of contributions by April 17:

1. 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 on your 2017 tax return. If you or your spouse does participate in an employer-sponsored plan, your deduction is subject to a modified adjusted gross income (MAGI) phaseout:

  • For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
    • For a spouse who participates: $99,000–$119,000.
    • For a spouse who doesn’t participate: $186,000–$196,000.
  • For single and head-of-household taxpayers participating in an employer-sponsored plan: $62,000–$72,000.

Taxpayers with MAGIs within the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

2. Roth. With Roth IRAs, contributions aren’t deductible, but qualified distributions — including growth — are tax-free. Your ability to contribute, however, is subject to a MAGI-based phaseout:

  • For married taxpayers filing jointly: $186,000–$196,000.
  • For single and head-of-household taxpayers: $118,000–$133,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth.

Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Maximize your tax-advantaged savings

Traditional and Roth IRAs provide a powerful way to save for retirement on a tax-advantaged basis. Contact us to learn more about making 2017 contributions and making the most of IRAs in 2018 and beyond.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

3 Keys to Mid-Year Retirement Planning Checkup

Retirement Planning, Retirement Savings Checkup, Retirement Plan, Ramsay CPA, Mahtomedi, MNWith Q2 firmly in the rearview and Q3 of the 2016 calendar year off to a strong start, now is the perfect time to review your retirement savings goals and opportunities.

From contributions to spending and net worth, give your retirement investments a mid-year checkup to make sure your retirement plans are still on track. Here are three keys to any checkup worth its salt.

1. Adjust Your Annual Contributions.

Whether you contribute to a 401(k) or to Roth IRAs, you still have time to fine-tune your annual contributions to maximize your retirement savings. If you don’t already belong to your employer’s retirement plan, join as soon as you can. If the plan allows for contributions, review your contribution amount to take advantage of the opportunity to save for your retirement.

The maximum annual salary deferral contributions allowed for 2016 are $18,000 to 401(k) or 403(b) plans and $12,500 to SIMPLE plans. If you are 50 or older by the end of the year, your plan may allow you to make additional catch-up contributions of $6,000 to 401(k) or 403(b) plans and $3,000 to SIMPLE plans.

If an employer’s retirement plan is not an option, you can still contribute toward your retirement via a traditional or Roth IRA. For 2016, you can contribute a maximum of $5,500 ($6,500 if you are 50 or older) or your taxable compensation for the year, whichever is less.

2. Rebalance Your Net Worth.

From Brexit to the immanent presidential election, this year’s events have resulted in a volatile stock market. If you are near retirement and see a big fluctuation in your net worth in 2016, perhaps you have too much invested in stocks. While the bull has stampeded throughout the US stock market in recent months, an unstable economic climate could quickly curtail the bear’s hibernation.

3. Stick to Your Spending Budget.

Many of us overspend during the holiday season, resolve to be more frugal in the new year and successfully adhere to a stricter budget for the first several months. However, much like diet and exercise resolutions, summertime can throw a wrench in our plans and reset the cycle. Mid-year is a good time to check your budget and see if you are spending too much money. Consider increasing the salary deduction percentage if you aren’t maxed out on your 401(k) contributions yet. Less cash in the bank might take a little getting used to but it will help you achieve your budgetary goals.

Confused about which retirement plan is right for you? Ramsay & Associates can analyze your needs and help you understand which plan makes the most sense for your financial circumstances. Contact us today to learn more!

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.