Traditional IRA and ROTH IRA Contributions in 2021 reduce 2020 taxes???

[chapinreyes]

Hello,

Turbo Tax shows that I can contribute to a Traditional IRA and lower my taxes.  I know I have been contributing to a ROTH IRA since last year.  I don't have a Traditional IRA, but according to TurboTax if I open a new account and contribute up to 6,000 I can lower my 2020 taxes?  Is this correct?  I'm just not seeing how opening a new account in 2021, can save me on taxes for 2020 and so I want to make sure I am understanding this correctly?  Please see screenshots and advice!

[macuser_22]

Only Traditional IRA contribution are tax deductible.

Your total Roth plus Traditional IRA contributions for 2020 cannot exceed $6,000 ($7,000 if over age 50) but cannot be more than your taxable compensation (money you worked for).

If covered by a retirement plan at work then  depending on your MAGI the deduction may be limited.

You have until the due date of the 2020 tax return  to make 2020 contributions which is May 17 this year.

[Opus 17]

The short answer is that you have until the tax filing deadline to make a contribution to a traditional IRA that is retroactive to the previous year and you would take the tax deduction in the previous year rather than in the current year.  This year the tax filing deadline is May 17, 2021, so you could potentially make contributions to a traditional IRA that are backdated to 2020 and take the deduction on your 2020 tax return.

However, as stated, your overall contribution limit to all IRAs is $6000, or $7000 if you are over age 50. And if you prefer making contributions to a Roth IRA, then you may not want to make a tax-deductible contribution to a traditional IRA. It’s all a matter of taking the tax deduction now and paying the tax when you withdraw, or paying the tax now and withdrawing tax free later.

If you have not maximized your 2020 Roth IRA contribution, you could also do that before May 17 and have it counted as a 2020 contribution. that would allow you to contribute more money in 2021 because you would not be using up your 2021 limit.

to make any retroactive contribution to an IRA, you must inform the trustee that is what you are doing before you make the contribution, so they record it correctly.