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Make a 2015 contribution to an IRA before time runs out

Published on 3/15/2016
Written by: Tim Dages, CPA, Paul Bogdanoff, CPA

One of the last tax moves that may still be made is to make a contribution to an Individual Retirement Account (IRA) before the filing deadline of your personal tax return not including extensions (see below). When one is considering making a contribution to a retirement plan there are several options that should be considered. Tax-advantaged retirement plans allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years. So it’s a good idea to use up as much of your annual limits as possible. Have you maxed out your 2015 limits?

April 18 deadline

While it’s too late to add to your 2015 401(k) contributions, there’s still time to make 2015 IRA contributions subject to certain limitations. The deadline is April 18, 2016. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2015).

A traditional IRA contribution also might provide some savings on your 2015 tax bill. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2015 tax return as long as the contribution is made on or before April 18th 2016.

April 18th is also the deadline for contributing to a Health Savings Account (HSA), which may offer a tax deduction and the funds will grow tax free.  As is the case with IRAs, HSAs also have income limitations. Health Savings Accounts are used in conjunction with high deductible health insurance plans.

Evaluate your options

If you don’t qualify for a deductible traditional IRA contribution, see if you qualify to make a Roth IRA contribution. If you exceed the applicable income-based limits, a nondeductible traditional IRA contribution may even make sense. Neither of these options will reduce your 2015 tax liability, but they still provide valuable opportunities for tax-deferred or tax-free growth. In some situations, rolling over a either deductible or nondeductible IRA contributions into a Roth IRA is a planning opportunity that may provide future benefits that outweigh the current tax impact. There can be tax ramifications with conversions of a traditional IRAs to ROTH IRAs so make sure you consult with one of the tax advisors at Bogdanoff Dages and Co. before you make any conversions.

The members of Bogdanoff Dages and Co. PC are her to help you determine which type of contributions you’re eligible for and what makes sense for you.