Everything You Need to Know About Annual IRA Contribution Deadlines
Individual retirement accounts (IRAs) are not only an indispensable tool for saving and investing for retirement, but they're also great tools for tax planning. Here's what you need to know about these plans, their contribution limits, and their contribution deadlines.
Contribution deadlines typically align with the tax filing deadline of April 15. The IRS tax filing deadline was extended to June 15, 2021 in Texas, Oklahoma, and Louisiana, which were declared 2021 winter storm disaster areas by FEMA. This means that IRA contributions are extended, too, for taxpayers in these areas.
The tax filing deadline for all other taxpayers has been extended to May 17, 2021. This has not extended IRA contribution deadlines, however.
Traditional and Roth IRAs: Know the Difference
There are two types of IRAs: traditional and Roth. Both types offer tax-deferred growth on invested assets and follow similar rules for annual contribution limits, but traditional IRAs and Roth IRAs differ in their tax treatment.
Traditional IRAs offer a tax deduction on before-tax contributions today and tax-deferred growth for the future. Roth IRAs offer the opportunity to invest after-tax money in a tax-deferred account with tax-free distributions in retirement. Of course, these differences come with their own regulations and even eligibility criteria, which should be considered when you're deciding which IRA is better for you.
For example, you might not be able to deduct all or some of your contributions to a traditional IRA if you're covered by a retirement plan at work. Whether you can take a full or partial deduction—or none—depends on your income and filing status. Your ability to make contributions is based on your income and filing status with a Roth IRA.
Annual IRA Contribution Deadlines
You can contribute to your traditional or Roth IRA at any time, making several small contributions over the course of the year or one lump sum. That said, contributions are restricted based on the tax year.
You must contribute by the tax filing deadline for that year for a specific tax year. In most cases, this means you must make your contribution by April 15 for it to be eligible to be counted as a prior-year contribution. The exception in 2021 is the June 15 deadline for Texas, Oklahoma, and Louisiana.
The contribution must be considered a current-year contribution after that date. This means that investors have over 15 months to contribute to their IRA for a particular tax year.
The same annual-contribution deadlines apply to spousal IRA contributions, which allow working spouses to make an additional IRA contribution on behalf of a non-working spouse.
Contribution Limits for Traditional and Roth IRAs
The Internal Revenue Service (IRS) sets combined contribution limits that apply across any IRAs, including traditional and Roth IRAs. The maximum IRA contribution limit for both types combined is $6,000 for the 2020 and 2021 tax years. However, you can contribute an extra $1,000 for a $7,000 total contribution limit if you'll be age 50 or older by the end of the year.
You can divide your contributions between your IRAs in any way you like, as long as you don't exceed your limit overall. For example, you could put $3,000 in a traditional IRA and $3,000 in a Roth IRA without exceeding the contribution limits if you're younger than age 50. You could also put all $6,000 in a traditional IRA and nothing in your Roth.
Roth IRA Conversion Deadlines
The conversion is not considered a contribution if you convert a traditional IRA to a Roth IRA. Those IRA assets would already have been counted as part of annual contributions for previous years, so Roth conversions aren't subject to the same limits as IRA and Roth IRA contributions. You can convert traditional IRA money to a Roth at any time, and there's no maximum limit on the amount you can convert.
- You can typically deduct your contributions to a traditional IRA on your taxes. Your contributions aren't deductible with a Roth IRA, but you can withdraw them tax-free in retirement.
- The contribution deadline for each year is usually Tax Day of the following year. For example, 2020 contributions must be made in states unaffected by the winter storms by April 15, 2021.
- There's a limit on how much you can contribute: $6,000 in total across your IRAs for the 2020 tax year, or $7,000 if you're age 50 or older.