Contributions can be made until April 15

Published in the March 19-April 1, 2014 issue of Morgan Hill Life

By Dan Newquist

Dan Newquist

Dan Newquist

The 2013 calendar year may be behind us, but there is still time to make your 2013 IRA contribution ahead of the tax filing deadline.

Contributions for 2013 can generally be made until the federal income tax filing due date of April 15, 2014. You can contribute to a Traditional IRA if you had taxable compensation and did not reach age 70 ½ by the end of 2013. If you are younger than 50 with taxable compensation, you can contribute up to the lesser of $5,500 or your taxable compensation for the year into a Traditional IRA account. Individuals age 50 or older can contribute the lesser of $6,500 or your taxable compensation for the year.

Can you deduct your contribution?

If you or your spouse were covered by an employer sponsored retirement plan in 2013, like a 401(k), the deductibility of your Traditional IRA contribution will depend on your federal tax filing status and your 2013 Modified Adjusted Gross Income (MAGI) level or eliminated (phased-out) completely.

Even if you can’t deduct your IRA contribution, you can still make a non-deductible contribution to a Traditional IRA. You miss out on the primary benefit of a tax deduction, but you get the benefit of tax deferral on the dividends, capital gains and realized gains.

What about a Roth IRA?

With a Roth IRA, you can contribute even if you are age 70 ½ or older, the lesser of $5,500 (younger than 50) and $6,500 (age 50 or older) or your taxable compensation in 2013. However, your ability to contribute depends on your Modified Adjusted Gross Income and filing status. If you contribute to a Roth IRA there is no immediate tax benefit, but your contributions will grow tax free and any qualified distributions you take in the future are completely free from federal income tax.

What about 2014?

People often, if not always, ask “how much should I save for retirement?” The obvious answer is, “as much as you can and the sooner the better.” We recommend making regular, systematic contributions into your 401(k) account, Traditional IRA and Roth IRA accounts. The sooner you get those contributions in, the longer they can grow tax deferred. Contribution limits for employer sponsored 401(k) plans, Traditional IRAs and Roth IRAs remain the same for 2014. Special catch-up limits may also apply to 403(b) and 457(b) plan participants.

As always, discuss tax deductible and tax deferred retirement strategies with your investment advisor or tax professional.

This column is for educational purposes only and is not intended as tax, legal or investment advice.

DAN NEWQUIST, CFP®, AIF® is a Principal Investment Advisor Representative with RNP Advisory Services, Inc, a registered investment advisor. Reach him at (408) 779-0699 or [email protected]. Securities offered through Foothill Securities, Inc., member FINRA/SIPC, an unaffiliated company.