Continuing with an earlier example, Jane is age 42, single, had compensation and MAGI of $51,000 for 2018, and was an active participant in her employer’s 401(k) plan. Jane meets the eligibility requirements to make a traditional IRA regular contribution, and because her 2018 MAGI was less than $63,000, she is eligible to fully deduct a traditional IRA regular contribution for 2018. Jane is also eligible to make a Roth IRA contribution. So, preferably with the guidance of a tax professional, Jane may choose to make either a deductible traditional IRA contribution, a Roth IRA contribution which is not deductible, or may split her contribution between the two. Only the portion she contributes to the traditional IRA is eligible to be deducted.
Continuing with an earlier example, Alex and Sherry, ages 52 and 48 respectively, are married and had compensation and MAGI of $128,000 in 2018. During 2018, Alex participated in an employer-sponsored retirement plan and Sherry did not. Since their 2018 MAGI was more than $121,000 any traditional IRA regular contribution made by Alex will not be deductible. However, Sherry was married to an active participant but was not an active participant herself, and any traditional IRA contribution she makes is eligible to be deducted since their MAGI was below $189,000. So, with the guidance of a tax professional, Alex may decide to contribute to a Roth IRA for 2018. Sherry may choose to either make a traditional IRA deductible contribution, forego the deduction and make a Roth IRA contribution for 2018, or make regular contributions to both the traditional and Roth IRAs but not in excess of $5,500 between the two.
IRA contribution deadline
The IRA regular contribution deadline is an individual’s tax-filing deadline, excluding extensions (generally, April 15 following the year for which the contribution is made).
When accepting regular contributions between January 1 and an individual’s tax-filing deadline, it’s always important to ask which tax year (i.e., previous or current) the regular contribution is intended for, and to document it properly.
Making contributions for both 2018 and 2019
Occasionally, IRA owners make contributions for both the previous and current year at the same time. This generally can only occur between January 1 and April 15.
Jane from an earlier example, is age 42, single, and had compensation and MAGI of $51,000 for 2018. Jane has decided to contribute to a traditional IRA. On March 12, 2019, Jane decided to make both her 2018 and 2019 contributions, and subsequently wrote a check to ABC Bank for $11,500. ABC Bank documents a $5,500 contribution for 2018 to her traditional IRA, and separately documents a $6,000 contribution for 2019 to the same traditional IRA. Jane will deduct her 2018 $5,500 traditional IRA regular contribution on her 2018 federal income tax return. Assuming Jane’s MAGI is below $64,000 in 2019, she will again qualify to deduct her entire 2019 traditional IRA regular contribution on her 2019 federal income tax return.
An IRA owner, not an IRA custodian/trustee, is responsible for determining his/her regular IRA contribution eligibility, whether he/she can deduct all or a portion of a traditional IRA regular contribution, or the amount of the Roth IRA regular contribution he/she is eligible to contribute. Although an IRA custodian/trustee can assist individuals by educating them on IRA rules, IRA owners should make their IRA decisions with the guidance of his/her tax or legal professional.
For an opportunity to learn more about IRAs and other tax-advantaged accounts including Health Savings Accounts and Coverdell Education Savings Accounts, consider our on-demand video training offered on a variety of topics. Go here to learn more about training opportunities available to you, or call us at 1-800-552-9408.