Last Minute IRA Tax Deduction

With just under two weeks before the tax filing deadline you probably think your 2010 tax picture is set in stone. For some of you that may be the case, but for many more there may still be some money on the table ready for the taking.

It’s all about the IRA contributions. One of the benefits of IRAs is that you have up until the tax filing deadline to make prior year contributions. So that means between January 1 and April 15 (or whenever the deadline falls) to make a contribution to your IRA that counts toward the prior tax year. This can be especially helpful if you’ve sat down to do your taxes and find that you owe Uncle Sam a little money. Rather than just paying the IRS you could pay yourself by making a traditional IRA contribution and then reduce your tax bill at the same time!

Of course, this only works if you are eligible for, and haven’t maxed out your contributions already. But if you haven’t maxed out contributions it almost always make sense to make early year contributions applicable to the prior year. If it’s a traditional IRA that can reduce your tax bill that’s great, but even if it’s a Roth IRA it still keeps your current year contribution limit intact so you can contribute the full amount going forward if possible.

IRA Contribution Limits

As a reminder the IRA contribution limits are as follows:

If you are under 50 years of age: The maximum contribution that can be made to a traditional or Roth IRA is the lesser of $5,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $5,000.The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.

If you are 50 years of age or older: The maximum contribution that can be made to a traditional or Roth IRA is the lesser of $6,000 or the amount of your taxable compensation for 2011. This limit can be split between a traditional IRA and a Roth IRA but the combined limit is $6,000. The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.

Make Those Contributions Before It’s Too Late

Once the tax deadline passes you can’t get the opportunity to make prior year contributions again, so you might as well use it. If you’re able to reduce your tax liability, all the better. But more importantly you’ll be making some serious strides in securing your retirement.

Beat the 4/18 deadline,

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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.

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