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There’s Still Time to Contribute to Individual Retirement Account Savings for 2016 by Jack Winter, CPA/PFS, CFP


Posted on March 21, 2017 by Jack Winter

Taxpayers who failed to contribute to an Individual Retirement Account (IRA) before December 31, 2016, still have time to do so and have it count for the 2016 year.

 

The deadline for making a 2016 IRA contribution and allowing it to grow tax free, along with income, dividends and capital gains generated from the account investments, is April 18, 2017, the due date of individuals’ annual tax return filings.

 

Participation Qualifications and Contribution Limits

For 2016, the maximum amount qualifying taxpayers may contribute to a traditional tax-deferred IRA or a tax-exempt Roth IRA is $5,500.

 

Taxpayers older than 50 years of age may contribute an additional $1,000 to a Roth IRA whereas individuals with traditional IRAs may make these catch-up contributions only when they were younger than 70 ½ on the last day of 2016.  At that age, account owners must begin taking taxable required minimum distributions (RMDs) from their traditional IRAs, which will subsequently increase the amount of income that is subject to income taxes.

 

In order to establish an IRA, individuals must receive taxable income from wages and salaries, net self-employment income, tips, commissions, bonuses or alimony. For married couples, both spouses may contribute to an IRA as long as one of the two has taxable income.

 

Saver’s Tax Credit

Low- and middle-income taxpayers who contribute to retirement savings accounts may qualify for a Retirement Savers Contribution Credit, which can reduce their taxes up to $2,000 when filing a joint tax return.

 

Rollovers of Retirement Plans and IRA Distributions

The IRS allows savers to roll over distributions they receive from their retirement plans into other retirement plans and generally avoid paying taxes on that amount until they withdraw the funds from the new plan.  To qualify for this benefit, taxpayers must complete the rollover within 60 days, and they cannot make more than one rollover from one IRA to another one within a one-year period, no matter how many IRAs the taxpayer owns, unless the rollover qualifies as an allowable exception.

 

About the Author: Jack Winter, CPA/PFS, CFP, is an associate director of Berkowitz Pollack Brant’s Tax Services practice, where he works with individual taxpayers and entrepreneurs on estate planning, tax structuring and business consulting.  He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email info@bpbcpa.com.