July 13, 2020
What does this mean for you? You may be able to lessen your tax burden.
Millions who are receiving tax bills on July 15 can lessen their tax burden by saving for retirement.
This past March, the IRS clarified that the deadline for making Individual Retirement Account and Health Savings Account contributions for the 2019 tax year was extended from April 15 to July 15, 2020. If you miss this upcoming deadline, you will miss the opportunity to contribute to a certain tax year, meaning, you’ve lost the opportunity to get those dollars growing tax-deferred in an IRA, or tax-free in a Roth IRA or HSA.
In Notice IR 2020-146, the IRS says: Taxpayers can file their 2019 tax return now and claim the deduction before the contribution is actually made. But the contribution must then be made by the July 15 due date of the return, not including extensions.
Here’s the Breakdown: Numbers & Limits
The maximum amount you can contribute to an IRA for the 2019 tax year is $6,000—or $7,000 if you’re 50 or older (including a $1,000 catch-up contribution). You can deduct the full amount of your traditional IRA contribution from your income, reducing your tax bill.
In 2019, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000.
The AGI phase-out range for taxpayers making contributions to a Roth IRA is $193,000 to $203,000 for married couples filing jointly, and $122,000 to $137,000 for singles and heads of household. But note, if you earn too much to contribute to a Roth IRA directly, you can contribute to an IRA, and then convert it to a Roth IRA.
The maximum amount you can contribute to a Health Savings Account is $3,500 for individual coverage or $7,000 for family coverage (you must have a qualifying high deductible health plan to open one of these triple tax-advantaged accounts). The secret: You don’t have to spend down HSAs for current healthcare expenses. Rather, you can invest the money you stash in the account and use it later for out-of-pocket healthcare needs in retirement. Fund it anyway.
If you plan on making the contribution to an account you already have set up by moving money into it from a brokerage account, make sure you designate it as a 2019 tax year contribution. Alternatively, you can mail your contribution and meet the deadline with a postmark by July 15.
Depending on the amount of income you expect to earn, start saving with a Roth or traditional IRA, and then consider a SEP-IRA or if you want to sock away the most possible, a solo 401(k). Speak with a financial professional today to learn more about your estimated payments and your tax & retirement savings options.
Blog Referenced from the Article "July 15 Tax Deadline For 2019 Returns And 2020 Estimates: Save For Retirement And Save On Taxes” from Forbes.com