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Making An IRA Contribution? Here Are 6 Rules That May Surprise You.

April 6, 2024 | General Financial PlanningThrift Savings Plan (TSP)

While many have already filed their taxes, you still have time to finalize yours or make an amendment if you forgot something, like an IRA contribution. While they can be relatively simple, here are 6 IRA contribution rules in the tax code that you may not be aware of.

You Can Contribute for Your Kids.

Your (grand)children should be making IRA contributions if they have earned income. Summer jobs are great for this, but kids often need the cash for their own expenses. That’s where family members can come in. You can contribute into their account on their behalf, and they can file that a contribution was made. This is a great way to help encourage them to start saving and investing.

No Age Limits.

IRS rules used to state that contributions were allowable until 70.5, which is when RMDs used to begin. But the laws have changed since. Roth IRA contribution have never had an age limit, and now you can make either a Traditional or Roth IRA contribution at any age. If you have some earned income as a retiree, you can make a contribution.

Earn Too Much for Roth IRA? No Problem.

This one is technically an exception to the rule. Eligibility for a Roth IRA contribution is phased out once you reach a certain income. But there is a way to “backdoor” funds into a Roth by making non-deductible IRA contributions, then converting the funds with no taxes. This is especially helpful for younger families still working who earn too much. Just know that there are many moving parts to this strategy, so use it wisely. It’s definitely not a strategy for everyone.

Spousal Contributions are Allowed.

Not working outside of the home doesn’t mean that you also can’t contribute to an IRA. If your spouse has taxable earned income for the year, their spouses can also make an IRA contribution based on their earnings. This allows stay-at-home parents that dedicate all of their time to the family to also save for retirement.

No Extension for IRA Contributions.

Many know that you can extend your tax return filing date if you need more time, but that doesn’t mean that you extend everything about your return. IRA contribution deadlines do not get extended and must be completed by the filing deadline, even if you’re filing an extension. SEP IRAs excluded; Traditional/Roth contributions must be made by April 15, 2024.

File First, Fund Later.

You don’t need to have made your IRA contribution by the time you file your taxes. This means you can file your taxes with all the appropriate elections, then complete your IRA contribution later, as long as it’s completed by the filing deadline.

We hope these IRA contribution rules will can help you and your family save more and better plan your future retirement expenses.