It may
Not be too late to reduce your 2024 taxes.
If
you’re preparing to file your 2024 federal income tax return and your tax bill
is higher than you’d expected – or your tax refund is smaller than you’d hoped
— there might still be an opportunity to change it. If you qualify, you can
make a deductible contribution to a traditional IRA until the filing date of
April 15, 2025, and benefit from the tax savings on your 2024 return.
Who’s eligible?
You can make a deductible contribution to a
traditional IRA if:
For 2024, if you’re married, filing jointly and
covered by an employer plan, your deductible IRA contribution phases out over
$123,000 to $143,000 of MAGI. For single filers or those filing as head of
household, this phaseout range is $77,000 to $87,000. It’s only $0 to $10,000 if
you’re married and filing separately. If
you’re not an active participant in an employer-sponsored retirement plan, but
your spouse is, your deductible IRA contribution phases out with MAGI between $230,000
and $240,000.
Deductible IRA contributions reduce your
current tax liability, and earnings within the IRA are tax-deferred. However,
every dollar you take out will be taxed in full (and subject to a 10% penalty
before age 59 1/2, unless an exception applies).
Roth IRA holders may also contribute to their
accounts until April 15, though these contributions aren’t tax deductible, and
some income-based limits apply. Withdrawals from a Roth IRA are tax-free if the
account has been open for at least five years and you’re 59 1/2 or older. Certain
withdrawals are tax-free even before age 59½ or within the five-year period.
How much can you contribute?
If eligible, an individual can make a
deductible traditional IRA contribution of up to $7,000 for 2024. The contribution
limit is $8,000 for those age 50 and up by December 31, 2024. If you’re a small
business owner, you can establish and contribute to a Simplified Employee
Pension (SEP) plan up until the due date for your return, including extensions.
For 2024, the maximum SEP contribution is $69,000.
For more information about IRAs or SEPs,
including additional strategies to reduce your 2024 taxes, contact us or ask
about it when we’re preparing your return. We can help you save the maximum
tax-advantaged amount for retirement.