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Contribute to an IRA Before the May 17th Deadline

| March 22, 2021
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Your financial advisor can help you navigate the ever-changing IRS rules

Taxpayers of all ages may be able to claim a
deduction on their 2020 tax return for contributions
made to their Individual Retirement Account made
through May 17, 2021 (the U.S. Department of the
Treasury is delaying the April 15th deadline to file and
pay taxes until May 17th, giving individuals and
businesses another month to file and then pay the
government what they owe). And unlike in past years,
there is no longer a maximum age for making IRA
contributions.

Contributions to a traditional IRA are usually tax
deductible, while distributions are generally taxable.
There is still time to make contributions that count for
a 2020 tax return, so long as the contributions are
made by May 17, 2021. The good news is that
taxpayers can file their return claiming a traditional
IRA contribution before the contribution is actually
made, but the contribution must then be made by the
May due date of the return.

While contributions to a Roth IRA are not tax
deductible, qualified distributions are tax-free. In
addition, low- and moderate-income taxpayers
making these contributions may also qualify for the
Saver’s Credit.

Contribution Limits from the IRS

Generally, eligible taxpayers can contribute up to
$6,000 to an IRA for 2020. For someone who was 50
years of age or older at the end of 2020, the limit is

increased to $7,000. The restrictions on taxpayers
age 70 1/2 or older to make contributions to their IRA
were removed in 2020.
Qualified contributions to one or more traditional IRAs
are deductible up to the contribution limit or 100% of
the taxpayer's compensation, whichever is less.
For 2020, if a taxpayer is covered by a workplace
retirement plan, the deduction for contributions to a
traditional IRA is generally reduced depending on the
taxpayer's modified adjusted gross income:
Single or head of household filers with income of
$65,000 or less can take a full deduction up to the
amount of their contribution limit. For incomes more
than $65,000 but less than $75,000, there is a partial
deduction and if $75,000 or more there is no
deduction.

• Filers that are married filing jointly or a
qualifying widow(er) with $104,000 or less of
income, a full deduction up to the amount of
the contribution limit is permitted. Filers with
more than $104,000 but less than $124,000
can claim a partial deduction and if their
income is at least $124,000, no deduction is
available.

• For joint filers, where the spouse making the
plan, but their spouse is covered, a full
deduction is available if their modified AGI is
$196,000 or less. There's a partial deduction if
their income is between $196,000 and
$206,000 and no deduction if their income is
$206,000 or more.

• Filers who are married filing separately and
have an income of less than $10,000 can
claim a partial deduction. If their income is at
least $10,000, there is no deduction

Roth IRAs

Even though contributions to Roth IRAs are not tax
deductible, the maximum permitted amount of these
contributions begins to phase out for taxpayers whose
modified adjusted gross income is above a certain
level:

• For filers who are married filing jointly or
qualifying widow(er), that level is $196,000.

• For those who file as single, head of
household, or married filing separately and did
not live with their spouse at any time during
the year, that level is $124,000.

• For filers who are married filing separately and
lived with their spouse at any time during the
year, any amount of modified AGI reduces
their contribution limit.

The Saver’s Credit

The Saver’s Credit, also known as the Retirement
Savings Contributions Credit, is often available to IRA
contributors whose adjusted gross income falls below
certain levels. In addition, beginning in 2018,
designated beneficiaries may be eligible for a credit
for contributions to their Achieving a Better Life
Experience (ABLE) account.

What Should You Do?

Taxes are complicated enough and reading, learning
and implementing tax strategies that are most
appropriate for you can be a daunting task. Make sure
you talk to your financial advisor in order to confirm
that the tax decisions you make are consistent with
your overall financial plan.

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