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.
Traditional and Roth IRAs: Know the Difference
There are two types of IRAs: traditional IRAs and Roth. Both types offer tax-deferred growth on invested assets and follow similar rules for annual contribution limits, but where traditional IRAs and Roth IRAs differ the most is in their tax treatment.
Put simply, traditional IRAs offer investors a tax deduction on before-tax contributions today and tax-deferred growth for the future. Roth IRAs offer investors 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
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.
The annual deadline for making IRA contributions for a given tax year typically falls around April 15 of the following year. However, it's best to check the Internal Revenue Service's website for exact dates.
Both traditional and Roth IRAs have their own limits on annual contributions and on their tax-advantaged benefits depending upon factors like your filing status and modified adjusted gross income. Since there are annual contribution limits (and in the case of traditional IRAs some immediate tax benefits in the tax year in which the contribution is made), you must designate the tax year to which your contribution(s) are to be counted against.
To make a contribution 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 actually have 15 months to contribute to their IRA for a particular tax year.
The same annual contribution deadlines apply for 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) looks at your combined contributions for both traditional and Roth IRAs. The maximum IRA contribution limit for both types of IRAs combined is $6,000 for the 2019 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. If you only have one type of IRA then the contribution limit is the same for that one account.
Through the 2015–2018 tax years, the IRA contribution limit stayed steady at $5,500 and $6,500 for people who were 50 or older.
The ability to qualify for a partial or full income tax deduction for a traditional IRA contribution is dependent on a couple of factors, including your income and whether you participate in another tax-advantaged retirement plan. Income limits also change over time.
Roth IRA contributions are not tax deductible—they're made after taxes are taken out. Once in there, however, the money is generally not taxed again—even when you pull it out during retirement. While there are some restrictions, distributions from Roth IRAs are tax-free.
To qualify for a Roth IRA, there are income limits. It's best to check the IRA website to stay up to date on the income limits for Roth IRAs each year.
Roth IRA Conversion Deadlines
When you convert a traditional IRA asset to Roth IRA assets, the conversion is not actually 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 IRA money to a Roth at any time, and there is no maximum limit on the amount you can convert.