• There’s still time to contribute to 2017 IRA

  • Financial Readiness

    • email print
  • Rodney S. Morris | Special to the Fort Leavenworth Lamp
    Time is running out to contribute to your Individual Retirement Arrangement, also known as an Individual Retirement Account or IRA, for calendar year 2017. Yes, there is still time to do so. You have until April 17, 2018, to make contributions for last year to either a traditional IRA or your Roth IRA. The same deadline holds true for those who do not have a retirement account in place and desire to open one. Establish it before April 17 and you are still able to contribute for calendar year 2017. If you are mailing your application or deposit, you also have until April 17 to have it postmarked.
    The same timeline holds true for 401(k) contributions. Unfortunately, the Thrift Savings Plan does not include any provisions that allow you to deposit today’s money in last year’s TSP. The only way to deposit into the TSP is through the bi-weekly payroll deduction program thereby making it impossible to deposit this year’s dollars into last year’s investment. The good news for Department of Defense employees is even if you have maxed out your contribution for the TSP, you are still eligible to contribute to an IRA.
    Your maximum allowable contribution for 2017 for both the traditional and Roth IRAs remains at $5,500. There is no contribution increase for 2018. If you are age 50 or older, you are entitled to what is known as a “catch-up” contribution option in which you may contribute an additional $1,000 for a total of $6,500 for 2017. There is also no increase for the “catch up” contribution for 2018.
    For those filing single who made more than $118,000 in 2017, you begin a phase-out period where you can make a partial deposit into your IRA up until your taxable income reaches $133,000. At that point, you are no longer eligible to contribute to an IRA as an investment option. For 2018, the phase out period starts at $120,000 and is eliminated at $135,000. For married couples filing jointly, the 2017 phase-out period begins at $186,000 and ends at $196,000. You are highly encouraged to consult your tax attorney or Certified Public Accountant to understand the exact amount you are eligible to contribute if you are in the phase-out category.
    For those contributing this year for last year’s 401(k), the maximum allowable contribution for 2017 has not changed for both the traditional and Roth 401(k), and remains at $18,000. There is, however, a $500 increase for 2018 to a maximum contribution of $18,500. If you are age 50 or older, you are entitled to the “catch-up” contribution option in which you may contribute an additional $6,000 for a total of $24,000 for 2017. There is no increase for the “catch up” contribution for 2018 and it remains at $6,000.
    The traditional versions of both the IRA and 401(k) generally offer a tax-deferred advantage, meaning the monies contributed into the IRA or 401(k) for that calendar year are deducted from the total amount of taxable income for that year, thereby creating a favorable tax benefit. The downside to this is the taxes are then paid on both the contributions and the growth when you begin withdrawing the money. You generally cannot withdraw monies from your traditional IRA or 401(k) without penalty until you are age 59 ½ and must begin withdrawing from it by age 70 ½.
    Page 2 of 2 - The Roth version of the IRA and 401(k) offers a tax-free investment advantage, meaning the contributions into the Roth IRA or 401(k) are from after-taxed dollars. The benefit is significant as the monies that accumulate in the investment are tax free. In other words, the taxes are paid going in, and then the entire investment (contributions and growth) are then tax free at withdrawal. As with the traditional accounts, you generally cannot withdraw monies from your Roth accounts until you are age 59 ½. Different from the traditional accounts though, you are not required to begin withdrawing from the Roth IRA and can leave it in place as long as you desire. Since Uncle Sam is not collecting taxes on those funds, there is no benefit to the government and therefore no incentive for the government to require mandatory distribution of those funds.
    An IRA can be an essential part of a retirement savings strategy. It offers a tax-advantaged way, either through tax-deferred or tax-free investing, and provides a turbo-charged way to help build your retirement nest egg. Don’t pass up this opportunity to help enhance your financial future.
    Editor’s note: When he’s not sharing financial advice, Rodney S. Morris is an assistant professor for the Advanced Operations Course, Department of Distance Education, Command and General Staff College, and an associate professor for personal finance/economics for Barton Community College.
  • Comment or view comments