There's still time to make a regular IRA contribution for 2016! You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2016 ($6,500 if you were age 50 by December 31, 2016). For most taxpayers, the contribution deadline for 2016 is April 17, 2017.
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% of your earned income). You may also be able to contribute to an IRA for your spouse for 2016, even if your spouse didn't have any 2016 income.
You can contribute to a traditional IRA for 2016 if you had taxable compensation and you were not age 70½ by December 31, 2016. However, if you or your spouse were covered by an employer-sponsored retirement plan in 2016, then your ability to deduct your contributions may be limited or eliminated depending on your filing status and your modified adjusted gross income (MAGI). Even if you can't deduct your traditional IRA contribution, you can always make nondeductible (after-tax) contributions to a traditional IRA, regardless of your income level. However, in most cases, if you're eligible, you'll be better off contributing to a Roth IRA instead of making nondeductible contributions to a traditional IRA.
You can contribute to a Roth IRA if your MAGI is within certain dollar limits (even if you're 70½ or older). For 2016:
Back-Door Roth IRA
Even if you can't make an annual contribution to a Roth IRA because of the income limits, there may be a workaround. If you haven't yet reached age 70½, you can simply make a nondeductible contribution to a traditional IRA, and then immediatelyconvertthat traditional IRA to a Roth IRA. This is sometimes called a "back-door" Roth IRA. Keep in mind, however, that you will 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 Roth conversion. There are concerns that the IRS may prohibit this strategy in the future. Contact your HCM Advisor for more information.
Finally, keep in mind that if you make a contribution to a Roth IRA for 2016 - no matter how small - and this 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 January 1, 2016.
If you’d like to explore this area further, please contact Jim via email [email protected] or 513-598-5120.
Date Posted: 12/28/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence. If you would like to discuss your Wealth Accumulation or Retirement Income Plan with an HCM Wealth Advisor, please give us a call at 513-598-5120. Located in Cincinnati, Ohio, we serve clients in 23 states, and we’d love to help.