Like many people, you may be working on finalizing your 2018 tax return before the April 15 tax-filing deadline. If so, there might be an opportunity for you to obtain a valuable tax deduction and boost your retirement savings at the same time, so it’s important to know when the traditional IRA contribution deadline is for the tax year.
Many people don’t realize it, but the deadline for making tax-deductible contributions to some qualified retirement plans actually stretches beyond the end of the calendar year. The traditional IRA contribution deadline (and 401k deadline) is actually the 2018 tax-filing deadline – i.e., April 15, 2019.
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IRA Contribution Deadline: You Can Still Make Contributions for the 2018 Tax Year
The IRA contribution deadline for the 2018 tax year is April 15th, 2019. This presents a great opportunity to contribute to your traditional IRA if you haven’t already maxed it out, and by doing so, possibly reduce your upcoming tax bill if you qualify to deduct these contributions.
The annual IRA contribution limit for 2018 is $5,500 if you’re under age 50, plus $1,000 if you are 50 or older (the 2019 limits are $6,000 or $7,000 for people 50 or older). So, if you haven’t yet contributed the maximum amounts for tax year 2018, you can still make a contribution any time before April 15 in order to reach the annual limit. You may even be able to open a brand-new traditional IRA if you don’t have one currently and possibly reap tax benefits for tax year 2018. (Note that contributions to Roth IRAs aren’t deductible, so this strategy doesn’t apply to them.)
For example, suppose you’re 55 years old and have contributed $4,000 so far to your traditional IRA for tax year 2018. You could make an additional contribution of $2,500 before this April 15 and possibly deduct this amount on your 2018 tax return.
So how do you know if your traditional IRA contributions are tax deductible or not? It depends on whether your employer offers an employer-sponsored retirement plan, such as a 401k. If not, the entire amount of your IRA contribution could potentially be tax deductible.
If your employer does offer a retirement plan, the deductibility of your IRA contributions will depend on how much money you earn. See the IRS site for more on when your deduction would start to phase out or be eliminated.
401k Contribution Deadline
The same principle applies to 401k plans. If you haven’t yet maxed out your 401k contributions for 2018, you could allocate contributions made between now and April 15, 2019, to tax year 2018. In order to do so, instruct your payroll department to apply these contributions to 2018.
Because 401k contributions are made with pre-tax dollars, you can’t take a deduction when you file your income taxes, but you will ultimately have saved on taxes because your overall taxable income will be lower the more you contribute to your 401k.
Get a Jump Start on 2019 Contributions
If you have maxed out your traditional IRA or 401k contributions for 2018, congratulations! You’re taking maximum advantage of one of the best tools available not only to save for retirement, but also to possibly lower your current tax bill.
In this scenario, you will want your next contribution to be allocated to the current tax year (2019) until you have reached the 2019 contribution limit. This will give you a jump start on maxing out your retirement contributions again in 2019.
The 2018 tax-filing deadline is approaching quickly so you’ll need to act fast in order to implement these strategies. Be sure to speak with a tax professional for detailed guidance in your specific situation.
Disclaimer: The information and content provided herein is general in nature and is for informational purposes only. It is not intended and should not be construed as a specific recommendation, or legal, tax or investment advice, or a legal opinion. Individuals should contact their own professional tax advisors or other professional to help answer questions about specific situations or needs prior to taking action based on this information. Tax laws and authorities are subject to change, either prospectively or retroactively, and any subsequent change could have a material impact on your situation.