Last-Minute IRA Contributions: What You Need to Know

As the tax filing deadline approaches, many individuals seek ways to maximize their retirement savings while reducing taxable income. Individual Retirement Accounts (IRAs) provide a valuable opportunity to achieve both goals. Below is a comprehensive guide to making last-minute contributions while ensuring compliance with IRS regulations.

IRA Contribution Deadlines

The IRS permits contributions to IRAs for the previous tax year until the federal tax filing deadline. For the 2024 tax year, this deadline is April 15, 2025. This applies to Traditional IRAs, Roth IRAs, and SEP IRAs. SIMPLE IRAs may have different deadlines depending on whether extensions are filed.

Contribution Limits for 2024

The IRS sets annual limits for IRA contributions:

• Traditional and Roth IRAs: $7,000 for individuals under age 50; $8,000 for those aged 50 or older (catch-up contribution). Source: IRS Publication 590-A8.
• SEP IRAs: Contributions can be up to 25% of compensation, capped at $69,000. Source: Investopedia5.
• SIMPLE IRAs: Employee contributions are capped at $16,000, with an additional $3,500 catch-up contribution for those aged 50 or older. Source: IRS Publication 590-A8.

Tax Benefits of IRA Contributions

• Traditional IRA Contributions: These may be tax-deductible, reducing taxable income immediately. For example, if your Modified Adjusted Gross Income (MAGI) is below $77,000 as a single filer in 2024, you can deduct the full contribution amount of $7,000. Source: NerdWallet9.
• Roth IRA Contributions: Contributions are not deductible upfront but grow tax-free. Withdrawals during retirement are also tax-free if eligibility requirements are met. Source: Fidelity IRA Center2.

Steps for Making Last-Minute Contributions

1. Verify Eligibility: Ensure you meet income limits and contribution requirements. For Roth IRAs, your MAGI determines eligibility:
   • Single filers can contribute fully if their MAGI is below $146,000 in 2024; contributions phase out between $146,000–$161,000. Source: NerdWallet9.
2. Specify Tax Year: When contributing early in 2025 for the 2024 tax year, clearly designate this intent to avoid confusion.
3. Maximize Benefits: Choose between Traditional and Roth IRAs based on your current financial situation and long-term goals.

Avoiding Common Mistakes

1. Overcontribution Penalties: Exceeding annual limits can result in penalties. Excess contributions must be removed or recharacterized by the extended filing deadline (October 15). Source: IRS Publication 590-A8.
2. Documentation Errors: Properly document contributions to avoid discrepancies during audits.
3. Missed Deadlines: SEP IRA deadlines may vary based on business structures—be aware of these nuances.

Proactive Retirement Planning

While last-minute contributions can provide immediate benefits, planning ahead allows more time for investments to grow through compounding returns. Setting up automatic monthly contributions or consulting a financial advisor can help streamline your savings strategy.

Disclosure

This article is intended for informational purposes only and does not constitute financial, tax, or legal advice. Readers are encouraged to consult a qualified professional regarding Individual Retirement Accounts (IRAs) and applicable regulations. The information provided herein is based on sources deemed reliable as of the publication date; however, accuracy and completeness are not guaranteed. Fidelity Investments is referenced as an educational resource but does not endorse this article. All investments carry risks, including the potential loss of principal.

This material is not intended to serve as personalized tax, legal, or investment advice, as the availability and effectiveness of any strategy depend on your individual facts and circumstances. Duncan Williams Asset Management is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation to determine if any of the mentioned strategies are suitable for you.  

Sources

1. Fidelity IRA Center: https://www.fidelity.com/learning-center/smart-money/ira-contribution-deadline
2. Forbes Advisor: https://www.forbes.com/advisor/retirement/last-minute-ira-contributions
3. SmartAsset Financial Planning Guide: https://smartasset.com/financial-advisor/sec-disclosure-requirements

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