Great Tips To Maximize your IRA contributions

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Money Matters by Better planning & investing

Maximize your IRA contributions

While profits and losses for 2023 have already been booked, did you know you may still be able to reduce your tax bill for 2023 by making an IRA contribution? Whether it is fully deductible may be determined by whether your employer provides its own retirement plan.

You have until April 15, 2024, to contribute to your traditional or Roth IRA and have it count as a 2023 contribution. Though we at Better Planning & Investing recommend saving as a monthly habit, you may have been holding onto extra cash this past year as inflation created uncertainty.

The IRA contribution limits for 2023 are $6,500 for those under age 50 and $7,500 for those 50 and older.

Spousal IRA contribution limits

Are you wondering who can contribute to a spousal IRA? Under current law, most couples can contribute up to $13,000 ($6,500 each) to their IRAs for 2023, as long as their combined compensation is at least $13,000 for the year in which contributions are made. This is a great way to get more money into a tax deferred or tax-free investment account without both spouses having to have earned income. Once again, these contribution for 2023 can be made up to the date of this years filing deadline of April 15th, 2024.

Contributions for a tax-free retirement

If you are investing for 20 years or more (including retirement years) you are almost certain to benefit from Roth IRAs. Roths are funded with after tax dollars but provide both tax free compound growth and also tax free withdrawals. Another bonus is that they are not subject to the required minimum distributions (RMDs). This gives you more control in how you spend down your assets in retirement.

If you want to contribute to a Roth IRA for your spouse (or yourself), there are income limits. For 2023, a married couple who file a joint tax return and have a modified adjusted gross income (MAGI) of up to $230,000 can contribute the full amount to each of their Roth IRAs.

Roths for upper income earners

Even though there are income limits on Roth contributions, there aren’t any limits on Roth conversions. You can earn as much as you want and still convert a traditional IRA to a Roth. Surprisingly, there are investment advisors who do not make use of this simple method to grow tax free money for their clients.

A backdoor Roth IRA is a retirement savings strategy whereby you make a contribution to a traditional IRA, which anyone is allowed to do, and then immediately convert the account to a Roth IRA.

If you make a nondeductible traditional IRA contribution or if you immediately convert the account after making a traditional IRA contribution, there generally won’t be any taxes due on the conversion.

Always check with your tax professional before making tax decisions. Consulting with a CPA in coordination with a Certified Financial Planner® may allow help ensure you have the best possible tax planning.

Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. Separate from the financial plan and our role as a financial planner, we may recommend the purchase of specific investment or insurance products or account. These product recommendations are not part of the financial plan and you are under no obligation to follow them. Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. Better Planning and Investing LLC is a registered investment advisor in the state of Oregon.


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