Not to late to contribute to IRA

For all those individuals wondering that if you can still make a contribution to a retirement plan, don’t worry if you haven’t set up a retirement account by December 31st, 2015. There is still time to contribute to a retirement plan – Traditional IRA & Roth IRA. Both are advantageous plans and help contribute towards financial security at the time of your security. In the following article, we will discuss details regarding Traditional IRA and the pros/cons associated from a tax point of view.

2015 Traditional Individual Retirement Account (IRA)
Deadline to open by: April 15th, 2016.
Contribution Deadline: April 15th, 2016.
Maximum Contribution per Individual: $5,500 or $6,500 (if you are 50 and older)

Pros of IRA:

  1. You get an after-tax deduction on your 2015 1040 Line 32 for the amount you contribute to your IRA.
  2. Assuming both you and your spouse are not covered by a retirement plan at work, you can contribute of up to 5,500 per person (11,000 total if Married filing jointly). if you are at a 30% tax bracket, you get a tax savings of $1,650 per person ($3,300 if you are Married Filing Jointly).
  3. For a given year, there is no requirement to open up an Individual Retirement Account by end of the tax year as long as there is a traditional IRA set up and contributed by April 15th, 2016.

Cons of IRA:

  1. All withdrawals of IRA are taxable.
  2. Generally, you can’t withdraw from IRA without 10% distribution penalty.
  3. You must make required minimum distributions after the age of 70 and half.
  4. There is a risk that tax rate contributed at the time of contribution may be higher than at the time withdrawal.

Qualifications to contribute to Traditional IRA:
1. If you are already covered by a retirement plan at work, then there is a limitation on how much you can contribute, see the following table by the IRS:

single or
head of household		 $61,000 or less a full deduction up to the amount of your contribution limit.
more than $61,000 but less than $71,000 a partial deduction.
$71,000 or more no deduction.
married filing jointly or qualifying widow(er) $98,000 or less a full deduction up to the amount of your contribution limit.
more than $98,000 but less than $118,000 a partial deduction.
$118,000 or more no deduction.
married filing separately less than $10,000 a partial deduction.
$10,000 or more no deduction.

2. If you are not covered by a retirement plan at work, then you can contribute to the maximum allowed contribution limit of 5,500 assuming you have at least $5,500 worth of earned income for the given year.

3. Finally, if your spouse is covered by a retirement plan at work but you are not then the limitations as follows per the IRS:

married filing jointly with a spouse who iscovered by a plan at work $183,000 or less a full deduction up to the amount of your contribution limit.
more than $183,000 but less than $193,000 a partial deduction.
$193,000 or more no deduction.
married filing separately with a spouse who is covered by a plan at work  less than $10,000  a partial deduction.
 $10,000 or more  no deduction.
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