By Jon L. Ten Haagen
If you have the assets in one of your personal investment accounts, get serious about your future retirement! You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2015 ($6,500 if you are age 50 by Dec. 31, 2015). For most taxpayers, the contribution deadline for 2015 is April 18, 2016 (April 19 if you live in Maine or Massachusetts).
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 may also be able to contribute to an IRA for your spouse for 2015, even if your spouse didn’t make any 2015 income.
You can contribute to a traditional IRA for 2015 if you had taxable compensation and you were not age 70.5 by Dec. 31, 2015. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2015, then your ability to deduct your contributions may be limited or eliminated depending on your filing status and your modified adjusted gross income (MAGI)., See your CPA or CFP to determine the deductibility and phase-out ranges of IRA contributions.
ROTH IRA You can contribute to a ROTH IRA if your MAGI is within certain dollar limits (even if you are 70.5 or older). For 2015, if you file a single or head of household, you can make a full ROTH contribution if your income is $116,000 or less. Your maximum contribution is phased out if your income is between $116,000 and $131,000. And you can’t contribute at all if your income is $131,000 or more. Similarly, if you are married and file a joint federal return, you can make a full ROTH contribution if your income is $183,000 or less. Your contribution is phased out if your income is between $183,000 and $193,000, and you can’t contribute at all if your income is over $193,000. And if you are 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.
Even if you can’t make an annual contribution to a ROTH IRA because of income limits, there’s an easy workaround. If you have not reached age 70.5, you can simply make a nondeductible contribution to a traditional IRA, and then immediately convert the tradition IRA to a ROTH IRA. Keep in mind that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own - other than IRAs you have inherited – when you calculate the taxable portion of your conversion. This is sometimes called a “back-door” ROTH IRA.
Finally, keep in mind that if you make a contribution to a ROTH IRA for 2015, no matter how small, by your tax return due date, 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 Jan. 1, 2015.