The beginning of each year is full of promise, recovery from the holidays, and a looming income tax deadline. Shrinking your tax bill by maxing out your tax deductions takes away some of the sting, and an IRA account provides one such opportunity. However, you might have already filed your return and forgot to take advantage of an IRA, but don't worry; you still have time to take that deduction, even if it's almost tax day.
IRA Accounts Defined
IRA is an acronym for individual retirement account. A traditional IRA account allows you to save money for retirement and avoid a tax bill on the front end. A Roth IRA is funded with already-taxed money, but it isn't taxed again when you take the funds out in retirement. For traditional IRAs that you fund with pretax dollars, the theory is you'll be in a lower tax bracket during your retirement years, so you'll pay less in taxes then than you would have paid treating the money as regular income during your working years.
The IRS allows you to contribute to your IRA all the way up until the day your tax return is due, which is typically April 15 of any given year. This date sometimes varies by a day or two, depending on which days of the week the 15th and certain national holidays fall. You have until the tax filing date of the following year to make your IRA contribution. For example, you have until April 15, 2019, to make a contribution to your IRA for the 2018 tax year.
The IRS imposes annual contribution limits for IRA accounts of $5,500 for traditional and Roth IRA accounts combined if you're age 49 or younger. Tax filers 50 years and older can contribute up to $6,500 total for the year. If your total compensation was less than these limits, you may only contribute up to the amount of your total annual compensation.
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Some people wait until the last minute to file their tax returns, especially if they owe money. However, it behooves you to file your return as soon as possible if you know you're receiving a refund. As long as you get your tax refund before the April filing deadline, you can use it to fund your IRA contribution for the previous tax year. When completing your tax return, as long as you are sure you will fund the IRA by the April filing deadline, you can take the deduction for it on your tax return when filing.
If You've Already Filed
One caveat exists in the process; unless you claim the deduction when you file your tax return, you have to file an amended return using IRS Form 1040X. Filing an amended return lets the IRS know about your new IRA contribution, along with your updated adjusted gross income and revised tax refund or liability.
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