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Making Contributions to Last Year’s Retirement Accounts

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Tax season. It’s that time of year again.

We’re now less than a month away from the 2014 filing deadline on April 15. That deadline means several things depending on your financial situation. First, if you haven’t filed your taxes yet, do so as soon as possible.

And perhaps equally important, think about making more contributions to last year’s retirement accounts if you haven’t yet reached the contribution limits. If you have a Traditional IRA, you can contribute up to $5,500 annually if you’re under age 50 and $6,500 if you are 50 or older. With this type of IRA, you can contribute up until age 70.5. You can withdraw money at anytime and may qualify for either a partial or full deduction depending on whether you already have a retirement plan at work. A Traditional IRA is a good and safe investment vehicle for securing your (and your spouse’s) retirement. If you don’t already have one, consider opening an account before April 15 and funding it as close as possible to the 2014 contribution limit before this year’s deadline.

Unlike a Traditional IRA, which has standard contribution limits regardless of income, with a Roth IRA your modified adjusted gross income (MAGI) will determine your eligibility and contribution limits for the year. MAGI is the income you’ve earned for the year plus certain deductions, such as deductions for 50 percent of the self-employment tax or student loan interest.

If you are single and have a MAGI of less than $114,000, you can contribute up to $5,500 to a Roth IRA this year, but if you made more than $129,000 you aren’t eligible to contribute (anyone with an income in between can make a partial contribution). For married couples who file jointly, the threshold for the full $5,500 contribution is less than $181,000 in income. However, you and your spouse will be ineligible if you have a combined MAGI of more than $191,000 (again anything in between qualifies for a partial contribution). For 2015, these income limits will increase slightly.

Some other important things to note:

  • Unlike Traditional IRAs, ROTH IRAs are not tax deductible.
  • The IRA contribution limits do not apply to rollover contributions, such as those from a previous employer that you’d combine with a retirement account for a new employer.
  • Unlike Traditional IRAs, you can still make direct contributions to a ROTH IRA after age 70.5. However, rollover contributions are allowed for both Traditional and Roth IRAs after this age.

IRAs are a great way to secure your nest egg. Compared to other types of investments, they are low risk but still provide a significant return on your initial investment. If you’d like more information about how to open or contribute to an IRA, contact us today.

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