UPDATED FOR 2021
You still have plenty of time to lower your 2020 tax bill. For a win-win, make an IRA contribution for 2020.
You can go with a currently tax-deductible traditional IRA or the Roth IRA (which is not deductible this year but offers many other advantages). As long as you put the money in by April 15, 2021, that contribution can count for 2020.
If you haven't already maxed out your 2020 retirement plan contributions, it’s a good idea to do it now.
With traditional IRAs, making the maximum $6,000 contribution ($7,000 if you’re 50 or older) could slash $600 or more off your 2020 tax bill by reducing your taxable income. And while a Roth contribution won’t reduce this year’s taxes, all of the earnings and growth will come to you 100% tax-free.
Plus, on top of beefing up your retirement savings and lowering your tax bill, your IRA contribution may also qualify for the Saver's Credit. That credit can chop up to $1,000 ($2,000 if you're married) more off of your tax bill.
Be aware that current year tax deductions for traditional IRAs begin to phase out as your income increases. Plus, income limits for the tax deduction are different if you’re also contributing to a retirement plan through work. This doesn't mean you can't contribute, just that your contribution won't be tax-deductible right now. Check here for the current deduction limits for your traditional IRA contribution.
For Roth IRAs, contributions may be limited based on your income. Those limitations start to kick in if your 2020 adjusted gross income (AGI) is $124,000 if you’re filing as Single, Head of Household, or Married Filing Separately (and did not live with your spouse at any time during 2020). For Married Filing Jointly, contribution limits start with AGI $196,000. For 2021, the limits start at $125,000 for single filers and $198,000 for joint filers.
Cash in on the current and long-term tax benefits by putting money into an IRA today. Need help figuring out the best IRA for you? Contact me here to set up a free 30-minute consultation.