Now that we’re a few months into the new year you might be saying to yourself, I wish I would have contributed more to my retirement account in 2017. Lucky for you it’s still possible. The IRS allows individuals to contribute for the prior year, all the way up to the tax filing deadline. For 2018 that’s April 17.
So depending on your income, age, whether you’re self-employed, and what you have already contributed, you still have some time to invest in your retirement accounts.
Funding Your Traditional and Roth IRA’s
An IRA is a great way to save for retirement, particularly because of its flexibility. For 2017, you can contribute a total of $5,500 to either, but not both accounts. Plus, if you’re over 50 years of age, you can invest an extra $1,000. Contributions to these plans can be done all the way up to the tax filing deadline, regardless of whether you have filed your taxes or not. There are some income limitations though.
Roth IRA Income Limits
If you file single, your ability to contribute to a Roth IRA starts to phase out at an income of $118,000. For married filing jointly that increased to $186,000.
Traditional IRA Income Limits
With a traditional IRA your ability to contribute isn’t limited, but your ability to take a tax deduction is. It all depends if you’re covered by an employer sponsored plan or not.
- If you, or your spouse, are NOT covered by an employer sponsored plan, you can contribute up to $5,500 and deduct 100 percent no matter what your income is.
- If you, or your spouse, ARE covered by an employer plan, your ability to deduct the contribution starts to phase out at $62,000 (for single filers), $99,000 (for married and you are covered), or $186,000 (for married and your spouse is covered).
Funding Your Roth 401k
Workplace sponsored plans (including 401k, 457 plan, and 403b plans) have slightly different rules surrounding them. The breakdown is when contributions can be made, how much can go in, and when the deduction occurs. Keep in mind that contributions to a Roth 401k do not affect how much you can contribute to your Roth IRA; they’re completely separate.
For both the Roth and traditional 401k, employees can contribute $18,500 and employers can match an additional $36,500. If you’re over 50 years old the employee contribution limit increases to $24,500.
- Employee contributions must be made before the end of the year. In this case, by December 31, 2017.
- Employer contributions can be made up until tax day.
If you’re utilizing a Roth 401k, only your contributions go in after taxes. Employer contributions are always pre-tax. In most situations, you won’t have to worry about contributing to last year’s 401k since it’s all done automatically when you get paid. There is one exception: if you’re the business owner.
What if I’m Self Employed?
If you’re self employed, or you own the business, you have a lot more options than those who are employees. Besides having access to a variety of retirement accounts not available to W-2 employees, you can contribute different amounts and at different times.
- Owner Employee Contributions: You can contribute up to 100% of your income or the annual contribution limit of $18,500, whichever is less.
- Owner Employer Contributions: You can contribute 25% of your income, or the annual employer contribution limit of $36,500, whichever is less.
Those are very similar to the rules for a traditional employee, but there is one big difference. You can contribute to your 2017 plan at any time up until tax day. So if you had a slow 2017, but a phenomenal first quarter of 2018, then you can push some of that money back to 2017 (assuming you don’t go over your actual earnings of course).
Make Funding Your Retirement Account Easier
There’s a lot that goes into eligibility and funding these accounts! So here’s an easy breakdown for you:
- IRA Contribution Limits and Deadlines: $5,500 (plus catch-up) can be contributed until tax day.
- 401k Contribution Limits and Deadlines: $18,500 (plus catch-up) can be contributed until December 31.
- 401k Contribution Limits and Deadlines as the owner: $18,500 (plus catch-up) and $36,500 employer contributions can be contributed until tax day.
- Important Income Limitations: Single filer pay attention at $62,000 and $118,000; Married pay attention at $99,000; most married filers won’t need to worry until $186,000.
Your best bet is to meet with an accountant to determine your eligibility. Then make regular contributions throughout the year. That way after December 31 you won’t have to go back and play catch-up since you will already be maxed out.