The start of each year might be considered “Double IRA” season. Until mid-April (the 15th, in 2019), you can still make contributions to an IRA for 2018, if you have funds you’d like to save for retirement. Most workers and their spouses may each contribute up to $5,500, or $6,500 for those who were 50 or older at the end of 2018.
If you have additional dollars to invest, you also can put them into an IRA for 2019, now that the year has begun. The sooner you put money into a 2019 IRA and choose investments, the sooner tax-advantaged buildup might begin.
Note that such IRA contributions are permitted even if you also participate in an employer’s retirement plan. The same is true if you participate in a SEP-IRA or SIMPLE IRA through your company or self-employment.
Three for the money
Many workers can choose among three types of IRAs.
Deductible IRAs. Although most workers and their spouses can contribute to regular (traditional) IRAs, only some people can deduct their contributions. A full deduction is available if you do not participate in an employer’s retirement plan; if you do participate, the deduction allowed depends on your income.
Contributions to traditional IRAs are not allowed after you reach age 70½.
Roth IRAs. Contributions to Roth IRAs are never tax deductible. However, once you have had a Roth IRA account for five years and reach age 59½, all withdrawals ― including withdrawn investment earnings ― are untaxed.
There are no age limits for contributions to a Roth IRA. However, income limits apply.
Nondeductible traditional IRAs. Some workers and workers’ spouses will not be able to deduct contributions to traditional IRAs or contribute to Roth IRAs because of their income.
Once money is in a traditional IRA, it can be converted to a Roth IRA, in which future distributions may be untaxed. Roth IRA conversions have no income or age limits, but beware because Roth IRA conversions generate tax bills if pretax dollars are moving into an after-tax account. That may not be the case if only after-tax dollars are being converted. If you are considering a Roth IRA conversion, please contact our office and we would be happy to discuss the tax implications for your own situation.