Taxes

You still have time to make an IRA contribution for 2019

Due to the coronavirus tax filing extension, there's still time to make a regular IRA contribution for 2019. For most taxpayers, the contribution deadline is July 15.

Due to the coronavirus tax filing extension, there’s still time to make a regular IRA contribution for 2019. You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2019 ($7,000 if you were 50 or older on  Dec. 31, 2019).

For most taxpayers, the contribution deadline for 2019 is July 15, 2020.

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100 percent of your earned income). You also may be able to contribute to an IRA for your spouse for 2019, even if your spouse didn’t have any 2019 income.

Traditional IRA

You can contribute to a traditional IRA for 2019 if you had taxable compensation and you were not age 70½ by Dec. 31, 2019.   However, if you or your spouse were covered by an employer-sponsored retirement plan in 2019, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.)

Even if you can’t make a deductible contribution to a  traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA.

Income phaseout ranges for determining 2019 deductibility of traditional IRA contributions:

Covered by an employer-sponsored plan and filing as single/head of household:

* Deduction reduced if your MAGI is $64,000-$74,000.

* Deduction eliminated if your MAGI is $74,000 or more.

Covered by an employer-sponsored plan and filing as married filing jointly:

* Deduction reduced if your MAGI is $103,000-$123,000.

* Deduction eliminated if your MAGI is $123,000 or more.

Covered by an employer-sponsored plan and filing as married filing separately:

* Deduction reduced if your MAGI is $0-$10,000.

* Deduction eliminated if your MAGI is $10,000 or more.

Not covered by an employer-sponsored retirement plan, but filing a joint return with a spouse who is covered by a plan:

* Deduction reduced if your MAGI is $193,000-$203,000.

* Deduction eliminated if your MAGI is $203,000 or more.

Roth IRA

You can contribute to a Roth IRA even after reaching 70½  if your MAGI is within certain limits. For 2019, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $122,000 or less.

Your maximum contribution is phased out if your income is between $122,000 and $137,000, and you can’t contribute at all if your income is $137,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $193,000 or less. Your contribution is phased out if your income is between $193,000 and $203,000, and you can’t contribute at all if your income is $203,000 or more.

And if you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.

Income phaseout ranges for determining 2019 eligibility to contribute to a Roth IRA:

Filing as single/head of household:

* Ability to contribute to a Roth IRA is reduced if your MAGI is $122,000-$137,000.

* Ability to contribute to a Roth IRA is eliminated if your MAGI is $137,000 or more.

Filing as married filing jointly:

* Ability to contribute to a Roth IRA is reduced if your MAGI is $193,000-$203,000.

* Ability to contribute to a Roth IRA is eliminated if your MAGI is $203,000 or more.

Filing as married filing separately:

* Ability to contribute to a Roth IRA is reduced if your MAGI is $0-$10,000.

* Ability to contribute to a Roth IRA is eliminated if your MAGI is $10,000 or more.

Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. You can  make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)

If you make a contribution  — no matter how small — to a Roth IRA for 2019 by your tax return due date and it is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on Jan. 1, 2019.

Finally, note that 2019 is the last tax year for which the age 70½ restriction on traditional IRA contributions applies. Due to passage of the SECURE Act in late 2019, beginning with the 2020 tax year, investors over the age of 70½ will be able to contribute to a traditional IRA provided they have compensation equal to at least the amount of the contribution (spousal IRA rules will remain in effect). Keep in mind that if you’re using a back-door Roth IRA strategy for 2019, the age 70½ rule still applies.

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC.  This is for general information only and is not intended to provide specific investment advice or recommendations for any individual.  It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. 

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with CD Wealth Management.

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