December is here. If you open an IRA before the end of 2024, you will have until April 15, 2025 (or April 17 if you live in Maine or Massachusetts). However, individuals and businesses affected by Hurricane Helene or Hurricane Milton may have until May 1, 2025, to file their returns and make tax payments.
If you already have IRA accounts, you do not need to do anything. If you still need to open a Traditional or Roth IRA, you can open one this year without investing in it until next year.
If this sounds too good, go to the Internal Revenue Service’s published online link, IRA year-end reminders, for confirmation. It provides all the information you need to know about the opportunity.
There is no minimum required amount for opening an IRA and no federal rules about how much money you must deposit. Some investment companies may, however, set their account minimum.
This is a neat way for an individual to invest up to $7,000 or for a couple to invest $7,000 each in a tax-deferred retirement account. For those who attain age 50 before 2025, an additional $1,000 can be added as a catch-up contribution. The guideline is that you are bound by the contribution limits of the tax year you are filing.
You can contribute to an IRA even if you have a retirement plan at work, like a 401K or the Thrift Savings Plan. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If, during the year, either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated, depending on filing status and income. The rules for Roth IRAs are different.
The maximum you can contribute annually across all personal IRAs is the IRA contribution limits above. If you have a traditional IRA and a Roth IRA, you cannot contribute more than this limit across both accounts in a year.
You also cannot contribute more to your IRAs than your 2024 income. If your income is lower than the contribution limit, your annual IRA contribution may be limited to your earned income. For example, if your earned income is $3,500, your max contribution limit is $3,500.
If you file a joint return, you may be able to contribute to an IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can contribute up to the current limit; however, your combined contributions can’t be more than the taxable compensation reported on your joint return. See the Kay Bailey Hutchison Spousal IRA Limit in Publication 590-A.
You may even file your tax return before you make the IRA contribution, but you must be sure to complete the contribution by the filing deadline. If you report a contribution to a traditional IRA on your return but fail to make it by the deadline, you must file an amended tax return. I advise avoiding that situation by filing your tax return after your IRA contribution.
If you mail your IRA contribution to your financial institution, ensure the envelope is postmarked by the appropriate deadline. Also, please write down the contribution year on your check; otherwise, your IRA custodian may think it’s for 2024!
