If you haven’t already funded your retirement account for 2016, do so by April 17, 2017. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. To start tax-free compounding as quickly as possible, however, don’t dawdle in making contributions. Your local bank is typically the easiest to do, especially if it's the last minute. From there, you can always transfer it later to another custodian or brokerage.
Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s hard to find a better deal. If you put away $5,000 a year for 20 years in an investment with an average annual 8 percent return, your $100,000 in contributions will grow to $247,000. The same investment in a taxable account would grow to only about $194,000 if you’re in the 25 percent federal tax bracket (and even less if you live in a state with a state income tax to bite into your return).
To qualify for the full annual IRA deduction in 2016, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, you must have adjusted gross income of $61,000 or less for singles, or $98,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $184,000.
For 2016, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2016 is $53,000.
Although choosing to contribute to a Roth IRA instead of a traditional IRA will not cut your 2016 tax bill—Roth contributions are not deductible—it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,500 if you are age 50 or older by the end of 2016) to a Roth IRA, you must earn $117,000 or less a year if you are single or $184,000 if you’re married and file a joint return.
The amount you save for making a contribution will vary. If you are in the 25 percent tax bracket and make a deductible IRA contribution of $5,500, you will save $1,375 in taxes the first year. Over time, future contributions will save you thousands, depending on your contribution, income tax bracket, and the number of years you keep the money invested.
Here's how you
report the IRA contribution:
1.
Open (continue) your tax return.
(To do this, sign in to TurboTax and click the orange Take me to my
return button.)
2.
In the search box, search for the exact
phrase IRA contributions
and then click the "Jump to" link in the search results.
3.
Enter your IRA Contribution info
An
alternative way is:
·
Federal Taxes tab
(Personal in the Self-Employed/Home& Business version)
·
Deductions and Credits
·
Continue or I'll Choose What I Work On (if they
show up)
·
Scroll to Retirement and Investments
·
then, Traditional and Roth IRA
Contributions
