Thinking About Making an IRA Contribution? Here Are 10 Things You Need to Know

Tax season is upon us! This is the time of year when many people consider making a contribution to an IRA. If you are thinking about doing so, here are 10 things you need to know.

1. You can still make an IRA contribution for 2024. This is called a prior year contribution. If you do, be sure you let your IRA custodian know so they can code it properly. If you don’t, they may code it for the current year instead and that will cause tax problems for you.
2. The deadline for making a 2024 IRA is April 15, 2025. Having an extension of time to file your return does NOT give you more time to make a 2024 IRA contribution.
3. The maximum dollar amount that is allowed to be contributed by an individual to a traditional or Roth IRA for both 2024 and 2025 is $7,000 for those under age 50 and $8,000 for those age 50 and older.
4. You cannot contribute $7,000 (or $8,000) to both a traditional IRA and a Roth IRA for 2024 or 2025. You are limited to $7,000 (or $8,000) combined to both types of IRAs. For example, you could contribute $2,000 to a traditional IRA and $5,000 to a Roth IRA for 2024 but you cannot contribute $7,000 to both your traditional IRA and your Roth IRA.
5. IRA contributions must be based on taxable compensation. Taxable income for IRA purposes can include a salary from a job or earnings from self-employment. It does not include investment income, Social Security, or pension income.
6. If you do not work but your spouse does, you can make an IRA contribution based on your spouse’s taxable compensation. A contribution to your IRA based on your spouse’s compensation cannot exceed the amount of the spouse’s compensation, adjusted by any IRA contribution the spouse makes for himself.
7. Roth IRA contributions are subject to income limits, but there are no income limits for traditional IRA contributions.
8. Many individuals can deduct their traditional IRA contributions. However, for active participants in employer plans and their spouses, the ability to deduct an IRA contribution will phase out for those with higher incomes.
9. There are no age restrictions on making contributions to either traditional or Roth IRAs.
10. IRA custodians will report your IRA contributions to the IRS (and to you). This is done on Form 5498.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

Thinking About Making an IRA Contribution? Here Are 10 Things You Need to Know