Lessen Your Tax Burden with an IRA Contribution

It’s fair to say that most every working resident of Massachusetts is aware that April 17 (thanks, Patriot’s Day!) is the deadline to file their income tax return. But what many people aren’t aware of is that the 17^th is also the last day you can make contributions to your traditional or Roth IRA.

Here’s why that’s important: Contributions to a traditional IRA can reduce your adjusted gross income (AGI) for that year by a dollar-for-dollar amount.

As with so many things in life, there are a few caveats to contributing with pretax dollars.

To begin with, only contributions to traditional IRAs can reduce your AGI. Roth IRAs contributions do NOT lower your AGI and are NOT tax-deductible.

Next, for 2023, the IRA contribution limit is $6,500 for taxpayers under the age of 50, and $7,500 plus a $1,000 catch-up contribution for those age 50 and over. It’s important to note that the contribution maximums apply collectively to all your IRAs, which means they are not per account.

In addition, your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels. However, if you (and your spouse, if you are married) aren’t covered by a retirement plan at work, Your deduction is allowed in full.

Finally, and this is important, the deadline for making IRA contributions is April 17, no ifs, ands or extensions. Even if you apply for an extension of time to file your income tax return, your IRA contribution deadline is still April 17. Period.

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.