The Benefits of Making IRA Contributions Before Tax Filing Date
The Benefits of Making IRA Contributions Before Tax Filing Date
Individual Retirement Accounts (IRAs) stand as powerful tools for securing a comfortable and financially stable retirement. Contributing to an IRA not only helps you build a nest egg for the future but can also offer immediate tax advantages. It’s important to understand who can make IRA contributions and why making these contributions before the tax filing date is a prudent financial move.
Who Can Make IRA Contributions?
IRAs are available to a wide range of individuals, making them an accessible option for many Americans. The two primary types of IRAs are Traditional IRAs and Roth IRAs, each with its own set of eligibility criteria.
- Traditional IRAs:
- There are no longer age limitations for regular contributions to a traditional or Roth provided you have earned income (compensation for work).
- Contribution limits can vary based on income and tax-filing status.
- Roth IRAs:
- Roth IRAs have income limits that determine eligibility. As of the latest information, for tax year 2023, the ability to contribute to a Roth IRA begins to phase out for single filers with a modified adjusted gross income (MAGI) above $138,000 and for married couples filing jointly with a MAGI above $218,000.
Why Contribute Before Tax Filing Date?
- Tax Deductions with Traditional IRAs:
- Contributions to a Traditional IRA may be tax-deductible, providing an immediate reduction in taxable income. Check with your tax advisor or financial advisor for deductibility details especially if you or your spouse is covered by a retirement plan at work.
- By making contributions before the tax filing date, individuals can retroactively contribute for the previous tax year and potentially lower their tax liability.
- Tax-Free Growth with Roth IRAs:
- While Roth IRA contributions are not tax-deductible, the earnings within the account grow tax-free.
- Contributing before the tax filing date allows individuals to maximize their contributions and potential growth for the previous tax year.
- Extended Tax Planning Opportunities:
- Making IRA contributions before the tax filing date extends the window for strategic tax planning.
- Individuals can assess their overall financial situation after the end of the tax year and decide on the most advantageous contribution amount for their IRA.
- How much can you contribute: For 2023 the limit is $6500 and for those over age 50 it is $7500.
- Retirement Readiness:
- Regular contributions to an IRA demonstrate a commitment to building financial security for retirement.
- Taking advantage of the time value of money and compounding benefits can significantly enhance one's preparedness for a comfortable retirement.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
This information is general in nature and should not be considered tax advice. Investors should consult with a qualified tax consultant as to their particular situation.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The Pitti Group Wealth Management, LLC (“The Pitti Group") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where The Pitti Group and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at thepittigroup.com.