As we head into March, we would like to remind you that it’s NOT TOO LATE to make contributions to your IRA accounts or your children’s or grandchildren’s, or even your parent’s IRA accounts for calendar year 2017.
You have until the earlier of when you file your taxes or April 17th, 2018 to make a 2017 contribution. When April 15th fails on a Sunday, Federal taxes are due the following Tuesday (April 17th, 2018 in this case).
IRA accounts, especially Roth IRA accounts, are terrific for young people in lower tax brackets to begin a systematic and life-long savings strategy. Inheriting Roth accounts can be an important part of your family’s estate plan. There are some important rules that must be followed and several flavors of IRA accounts, and we can help guide you.
Here are some initial guidelines: To contribute to an IRA account, the owner must have earned income in 2017. The contribution is limited to the lesser of earned income or the federally-set annual contribution limits of $5,500 (with a $1,000 catch up amount available to those 50 or older in 2017).
A working spouse can make a contribution for a non-working spouse. Do not waste this valuable deduction!
Also, the person earning the income does not have to make the contribution. A parent can contribute for a child, provided the child does have the earnings. That is, a child that has earned income during the year (summer camp, after school, etc.) can have the parent or grandparent contribute.
TRADITIONAL IRAs MAYBE TAX DEDUCTIBLE
Subject to income limits and whether you are covered by a retirement plan at work, these funds grow tax deferred. Even if a contribution is not deductible, making a non-deductible contribution provides some excellent planning opportunities.
One opportunity for high earners is called the ‘Back door Roth’. Basically you are converting your nondeductible Traditional IRA contribution to a Roth IRA. This technique works best when a person has no balance or a small balance in their IRA accounts. For 401k participants there could be opportunities for the “MEGA Back Door Roth”. This is Back Door Roth on steroids. Contact us to review your current 401k plan to see if you can take advantage of this significant savings opportunity.
ROTH IRAs ARE NOT TAX DEDUCTIBLE
The funds grow tax free (if held for more than 5 years and the owner is at least age 59.5). You can withdraw your contributions without tax or penalty at any time. There are income limitations on Roth contributions but none on conversions or 401k Roth contributions.
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