Due to the Covid-19 pandemic, the Internal Revenue Service delayed the deadlines for filing your 2019 taxes and contributing to your Individual Retirement Accounts. You now have until July 15th, 2020 to file both your income taxes and make any last minute contributions to your IRAs. This includes Roth IRA, Traditional IRA, and even Health Savings Accounts. In order to take advantage of the July 15th contribution deadline, you must not have already filed your 2019 tax return (for Traditional IRA or HSA contributions, unless you want to file an amended return) and ensure you designate the contribution for the 2019 tax year with your broker or financial institution.
The contribution limits for your 2019 and 2020 Roth and/or Traditional IRA:
| 2019 | 2020 | |
| Under 50 years old | $6,000 | $6,000 |
| 50 or older | $7,000 | $7,000 |
Contributions to a Traditional IRA are tax-deductible for the tax year in which they are claimed and are taxed as ordinary income when withdrawn in retirement. Contributions to a Roth IRA are not tax-deductible, but are able to be withdrawn tax free after age 59 ½.
There are special rules that apply to maximum Roth IRA contributions for 2019 based on your income:
One of the best ways to save for retirement is through an IRA, especially if your employer does not offer a 401k retirement savings option. Saving the maximum of $6,000 per year in your IRA for 30 years could result in an account balance of over $1,000,000 by year 30 at a long term average annual growth rate of 10%. The average annual rate of return for the S&P 500 is just shy of 11% from 1871 to 2019!
What can I do?
Obviously, making one big contribution of $6,000 each year is not possible for everyone, so you can also split those contributions up and make tax-advantaged deposits throughout the year. Maxing your IRA contribution at $6,000 comes to $500/month or $115/week. Even if $115/week is out of reach for you right now, it’s important that you start contributing what you can, when you can. Your best friend in building wealth for retirement is compounding returns over a long period of time. The sooner you start contributing, the more time you have on your side to build your account balance!
Stay tuned to The Money Sloth for more posts about IRAs and retirement savings strategies and best practices. If you haven’t already done so, sign up for our e-mail list to ensure you’re the first to know when we have something new to share!
[mc4wp_form id=”174″]