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 are 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.
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 sets of regulations and even eligibility criteria, which should be considered when deciding which IRA is best for you.
For example, if you're covered by a retirement plan at work, you may not be able to deduct all or some of your contributions to a traditional IRA. Whether you can take a full, partial, or no deduction depends on your income and filing status. With a Roth IRA, your ability to make contributions is based on your income and filing status.
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.
To contribute for a specific year, you must do so by the tax filing deadline for that 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. After that date, the contribution must be considered a current year contribution. 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 all your IRAs, including traditional and Roth IRAs. The maximum IRA contribution limit for both types of IRAs combined is $6,000 for the 2020 tax year. However, if you will be 50 or older by the end of the year, you can contribute an extra $1,000 for a $7,000 total contribution limit.
You can divide up your contributions between your IRAs in any way you like as long as you don't exceed your limit. For example, if you're younger than age 50, you could put $3,000 in a traditional IRA and $3,000 in a Roth IRA without exceeding the contribution limits. You could also put all $6,000 in a traditional IRA and nothing in your Roth.
Roth IRA Conversion Deadlines
When you convert a traditional IRA to a Roth IRA, the conversion is not considered a contribution. Those IRA assets would have already been counted as part of annual contributions for previous years. As such, Roth conversions are not 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 is no maximum limit on the amount you can convert.
- With a traditional IRA, you can typically deduct your contribution on your taxes. With a Roth IRA, your contributions aren't deducted, 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, 2019 contributions had to be made by July 15, 2020, which is when taxes were due (normally April 15, but moved for 2020).
- There is a limit on how much you can contribute. For the 2020 tax year, you can contribute $6,000 in total across all your IRAs. If you're age 50 or older, you can contribute $7,000 in total.
IRS. "Amount of Roth IRA Contributions That You Can Make for 2020." Accessed Sept. 28, 2020.
IRS. "IRA Year-End Reminders." Accessed Sept. 28, 2020.
IRS. "Retirement Topics—IRA Contribution Limits." Accessed Sept. 28, 2020.