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Is it Time for a Last Minute IRA Contribution?

Jan 16, 2024

Last Minute Advice for IRA Contributions

I imagine we all know that tax law and retirement contributions can be a complex topic with many nuances depending on each individual's personal situation. Tax law also changes frequently which further complicates retirement contributions.


 โฐ Let’s go over some last-minute details:

  • The last day you can fund your retirement account for the 2023 tax year is April 15, 2024.
  • Do not wait until the last minute to open your account. Your account must be verified, linked to a funding account and the money transfer completed. I’d suggest planning on at least two weeks to get everything done.
  • The maximum contribution for 2023 is $6,500; if you are over 50, it is $7,000. Please note that you typically cannot contribute more than you made for the year. An exception to this rule would be a spousal IRA, which can be based on the spouse's income.
  • IRAs are Individual Retirement Accounts. So, each person in a marriage can have their own account and fund it to the maximum amount.


โš–๏ธ Chose where you want your account:

Options include: 

  • Traditional Bank: You can open an IRA in a bank; however, this will affect what investment vehicles would be available to you and can seriously impact your earning potential. Typically, options for investment vehicles at a bank include CDs and perhaps a money market account. 
  • Brokerage: You can open an IRA in a brokerage account, which can be done in person, if the brokerage house has a location near you, or online very simply. If you want to do it online, you merely go to their website, choose the appropriate account type and fill out the online form. Typically, brokerage accounts offer a wide variety of investment vehicles, which can include Exchange Traded Funds (ETF), Index Funds (which are linked to specific indexes like, for instance, the S&P 500), Mutual Funds (actively managed funds), Real Estate Investment Trusts (REITS) and individual stocks. Many of them also offer Robo-Advisor IRAs.This type of account can make investments for you based on the form you fill out on your preferences and risk tolerance when you opened your account.


Make sure, when you choose your investments, that you pay close attention to the fees. Your goal is to optimize your returns and harness compound interest to your own advantage.


๐Ÿš€ Chose the type of IRA that would work best for you:

The types of IRAs that are available include Traditional IRAs, Roth IRAs, Back Door Roth IRAs, Rollover IRAs, SEP IRAs (Simplified Employee Pension IRAs) and SIMPLE IRAs (Savings Incentive Match Plan for Employees). The two we will be discussing are the Traditional and Roth IRA today.


Traditional IRAs: 

  •  Almost everyone can contribute to a Traditional IRA but it is not Pre tax for everyone. The IRS has a special form to fill out every year where they calculate your MAGI (maximum adjusted growth income). This number determines if all your contribution, part of your contribution or none of your IRA contribution would be a tax write off.
  •  If you withdraw prior to 59 1/2 years old you will pay taxes and a 10% fine to the IRS.
  •  If you withdraw after 59 1/2 years old you will pay taxes and this money will be treated as income. This may affect your social security or Medicare payments when you are older depending on the laws at that time.
  •  You are required by law to start taking disbursements starting at 72 years old.


Roth IRAs:

  •  After you have owned the Roth IRA account for 5 years you can withdraw your contributions (money you put into the account) at any time.
  •  If you withdraw any gains (money you earned on your investments) prior to 59 1/2 years old you will pay taxes on your gains and a 10% fine to the IRS.
  •  After 59 1/2, you can withdraw your contributions and gains from investments without paying further taxes. Therefore,  it is not counted as income on your tax forms. 
    •  Example: You contribute $6,000 a year for ten years and invest it in  an SP 500 Index Fund with an average return of 8% yearly. You  contributed $60,000 total, and your investments gained an  additional $46,000. You have $106,000 in your account, and  when you withdraw it, you do not have to pay any taxes.
  •  You are not required to take disbursements over 72 years old. 

The IRS has several rules regarding who can contribute to a Roth IRA and these seem to change yearly so it’s a good idea to check the rules each year. 


Contributions to a Roth IRA depends on your income.

2023 Rules: 

Please be aware that the income limits listed below are based on the results from your MAGI (maximum adjusted growth income) form filed yearly with the IRS.


Single or married filing separately (do not live together) 

  • Income under $138,000        

 Full Contribution

  • Income between $138,000 to $153,000

  Partial Contribution

  • Income over $153,000

    No Contribution


Married filing jointly 

  • Income under $218,000

        Full Contribution

  • Income between $218,000 to $228,000

       Partial Contribution

  • Income over $228,000

        No Contribution


Married filing separately (live together) 

  • Income under $10,000

        Full Contribution

  • Income over $10,000

        No Contribution

There are a lot of long-term tax benefits with a Roth IRA, and many people prefer them over a Traditional IRA. If your income is over the limit, you can also consider a Back Door Roth IRA. Many brokerage sites make it relatively easy to roll a Traditional IRA over to a Back Door IRA, which is also an option to consider.


๐ŸŒŸThat is it for the last-minute tips for your IRA contributions. For next year, you may want to consider automatic monthly transfers and investments into your IRA account. That would make next year's contributions simple and carefree!


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