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Save on taxes for 2016…until April 15, 2017
Eligible for an IRA?
Anyone under age 70 ½ with earned income can open a traditional IRA. Roth IRAs have no limit.
It’s not too late to contribute to your 2016 IRA (unless you’re reading this after April 15, 2017).
You have until tax-day to make a contribution to your 2016 IRA and save on your 2016 taxes. If you worked last year (had earned income), you can also move money from another savings account or even borrow the money to get the tax break. The tax savings could be substantial.
Conservative?
Consider investing your IRA into a credit union Certificate of Deposit. If you put your IRA into a 3-5 year certificate of deposit and risk none of your principal. (And you won’t have to pay a commission or an annual maintenance fee). Come on, you’re smart enough to read and understand irs.gov (retirement-plans on the internet…see link below). When you consider how much you save in taxes. It’s a deal hard to beat.
Deferring taxes could save you as much as $3300 or more in Federal and State Taxes for 2016
If you and your spouse each made at least $5500 last year, you could contribute $5500 to each of your IRAs ($6500 each if you’re over 50). And keep in mind, if you’re married and you made between $75,000 and $152,000 last year, the last money you make you’re paying 25% tax. You’d be paying at least 25% federal tax and 5% state tax. A total for 30%. 11,000 x 30% = $3300 tax savings. Your taxes are deferred until you take the money out of the IRA – hopefully when you’re older and in a lower tax bracket.
You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer.
Why a Roth? With a Roth you’re not deferring taxes. However, the benefit is you don’t have to pay taxes on the interest you earn on a Roth IRA Account.
See more details at:
Contribution Limits |
2016 |
2017 |
| Traditional IRA Contribution Limit | $5,500 | $5,500 |
| Traditional IRA Contribution Limit if 50 or over | $6,500 | $6,500 |
| Roth IRA Contribution Limit | $5,500 | $5,500 |
| Roth IRA Contribution Limit if 50 or over | $6,500 | $6,500 |
| Roth IRA Income Limits | Phase-out starts at | Phase-out starts at |
| (for single filers) | $117,000 | $118,000 |
| Ineligible at $132,000 | Ineligible at $133,000 | |
| Roth IRA Income Limits | Phase-out starts at | Phase-out starts at |
| (for married filers) | $184,000 | $186,000 |
| Ineligible at $194,000 | Ineligible at $196,000 |
Examples from irs.gov
Examples
- Danny, an unmarried college student working part-time, earns $3,500 in 2016. Danny can contribute $3,500, the amount of his compensation, to his IRA for 2016. Danny’s grandmother can make the contribution on his behalf. (Who doesn’t love their grandmother? Danny surely will).
- John, 42, has both a traditional IRA and a Roth IRA and can only contribute a total of $5,500 to either one or both in 2016.
- Sarah, age 52, is married with no taxable compensation for 2016. She and her husband reported taxable compensation of $60,000 on their 2016 joint return. Sarah may contribute $6,500 to her IRA for 2016 ($5,500 plus an additional $1,000 contribution for age 50 and over).
401k Limits – You can have both!
If you have access to a 401k at work, be sure to contribute at least as much as your employer matches. The 401k limit is $18,000 per year. $24,000 if you’re 50 and over. You can make an IRA contribution in addition to these amounts.
Good luck! Saving for retirement is a prudent and smart activity. Start now!