See, every year, we can contribute to our Individual Retirement Accounts ( ), up to a limit -- $5,000 last year and $5,500 this year (and if you're 50 or older, you can make a "catch-up" contribution of another $1,000).
Since the limits are done by year, you would think the deadline to contribute up to the limit would end on New Year's Eve. But, happily, it doesn't.
That means that if you didn't get to max out your contribution before December 31, you can add more we wouldn't necessarily recommend waiting until the last minute).until April 15th and have it count toward last year (though
This doesn't work with 401(k)s, unfortunately, so if you want to max out your 401(k) contribution for 2013, you've got eight months remaining in 2013 toaway $17,500 before December 31 (or $23,000 if you’re 50 or older).
If you do make that IRA contribution for 2012 now, you get a bonus: If you have the right kind of IRA, you can get a for making that contribution on your 2012 .
But the tax filing deadline is only two weeks away! Don’t panic: Here's what you need to know about contributing to your IRA in time.
Can You Afford It?
You can't savings to make a late-in-the-game contribution? You can, if it leaves you with an emergency large enough to live on for about six months or more. If you're way behind on retirement savings, however, and dipping into your savings would leave you three months of expenses in your , that would be a smart move too. Just don't bring your savings down to zero! That you in a very precarious position.your IRA with a . So should you dip into your
If you have income below a certain threshold (it's complicated to calculate, but tax filing software or your tax preparer pick up on this for you), you could qualify for a of up to $1,000 if single or $2,000 if married filing jointly by contributing to a retirement account, whether a 401(k) or IRA. So not only would you get the of contributing, you would get a tax credit on top of that. That makes it more than worth it to contribute. Read more about it at the .
Do You Have The Right IRA?
If you haven’t yet opened an IRA, it's quick and easy to do so online. But first, make sure it's the right retirement vehicle for you. We can help...
If You Have A Traditional IRA
If you contribute to your IRA, you can taxes. The good news is that unlike many other deductions, you don't have to itemize to claim a for a traditional IRA.that amount on your 2012
If You Have A
While you won't get to deduct what you contribute to a Roth IRA, it still benefits you to contribute before April 15th. That’s one more year of retirement savings in the bank -- and you won't pay taxes on the , ever!
Designate The Year
If you make a contribution now to either a traditional or Roth IRA, and want it to count for your 2012 taxes, make sure you tell the brokerage firm that you are making it for 2012. Otherwise, it could report to the IRS that the contribution is for year 2013. If you’re writing a physical check, write the contribution year (in this case, 2012) in the memo section. If you’re transferring the online, the brokerage should have a place to enter the contribution year.
For Next Year
If you think you'll have trouble saving up the full IRA contribution amount to transfer to your account all in one go, what we would recommend for this year is that you set up automatic transfers to your IRA every month.
To save the full amount by the end of the year, divide it by the remaining months in 2013 and send that portion in every month. For example, if you want to save $5,500, and you're starting in April, you would send $611 every month. It’s still a , but much more manageable than $5,500 all at once!
Here’s a nifty trick: Let’s say you don't get to make your IRA contribution in 2013. Next year, you can file early in the season, say February, and tax return that you made a contribution ... even if you haven't actually made it yet. Then, if you know that you'll get a , you can use your tax refund to fund your IRA. Tricky, huh?on your
Just make sure of two things: 1. That you refund in time. Unfortunately, it's too late for this year, but it's nice to know for next year!get a large enough to make this work, and 2. That you actually do the funding before April 15th, or you could be penalized. To make that happen, you'll need to file your taxes at least a few weeks in advance to get your