The start of each year might be considered “Double IRA” season. Until mid-April (the 15th, in 2019), you still can make contributions to an IRA for 2018, if you have funds you’d like to save for retirement. Most workers and their spouses may each contribute up to $5,500, or $6,500 for those who were 50 or older at the end of 2018.
If you have additional dollars to invest, you also can put them into an IRA for 2019, now that the year has begun. The sooner you put money into a 2019 IRA and choose investments, the sooner tax-advantaged buildup might begin.
Note that such IRA contributions are permitted even if you also participate in an employer’s retirement plan. The same is true if you participate in a SEP-IRA or SIMPLE IRA through your company or self-employment.
Trusted advice about nondeductible and deductible IRAs from Batley CPA
Three for the money
Many workers can choose among three types of IRAs.
Deductible IRAs. Whereas most workers and their spouses can contribute to regular (traditional) IRAs, only some people can deduct their contributions. A full deduction is available if you do not participate in an employer’s retirement plan; if you do participate, the deduction allowed depends on your income.
Different MAGI numbers apply to married taxpayers filing joint returns, qualifying widows or widowers, and married taxpayers filing separate returns.
Contributions to traditional IRAs are not allowed after you reach age 70½.
Roth IRAs. Contributions to Roth IRAs are never tax deductible. However, once you have had a Roth IRA account for five years and reach age 59½, all withdrawals ― including withdrawn investment earnings ― are untaxed.
There are no age limits for contributions to a Roth IRA. However, income limits apply.
Different MAGI numbers for Roth IRA contributions apply to married taxpayers filing joint returns, qualifying widows or widowers, and married taxpayers filing separate returns.
Nondeductible traditional IRAs. Some workers and workers’ spouses will not be able to deduct contributions to traditional IRAs or contribute to Roth IRAs because of their income.
Once money is in a traditional IRA, it can be converted to a Roth IRA, in which future distributions may be untaxed.Roth IRA conversions have no income or age limits.
Roth IRA conversions generate tax bills if pretax dollars are moving into an after-tax account. That may not be the case if only after-tax dollars are being converted.
Behind the back door
- Suppose a taxpayer with $26,000 of pretax money in a traditional IRA makes a $6,500 nondeductible contribution to a new traditional IRA.
- That brings the IRA total to $32,500, of which $6,500 (20 percent) is after-tax money.
- Then,a Roth IRA conversion of any amount will be 20 percent tax-free and 80 percent taxable, regardless of which IRA is used for the Roth conversion.
- Such back-door Roth conversions may be most appealing to high income taxpayers with little or no pretax money in traditional, SEP, or SIMPLE IRAs.
Drive cautiously… but carry ample auto insurance
January is a good time to review your insurance coverage. In particular, you should be sure you have adequate auto insurance if you own or lease one or more cars.
IRS says business meal deductions still apply
The Tax Cuts and Jobs Act (TCJA) of 2017 generally disallowed all deductions for business entertainment, amusement, and recreation. However, the TCJA did not specifically turn thumbs up or down on the deductibility of business meal expenses.
About Batley CPA
Batley CPA, LLC is a full-service CPA firm providing tax, accounting, payroll and advisory services to businesses and individuals throughout Green Bay and the Fox Cities. Batley CPA regularly provides clients with best practices and strategies to maximize cash flow, profit, reduce taxes, manage costs and risk, and bring meaning to financial and operational data. The company has offices in Appleton, Neenah and Green Bay.
Batley CPA is available to answer any questions you may have about nondeductible and deductible IRAs.
View original article on deductible IRAs here.