Yes, There Is Still Time

Still Time to Contribute to Retirement Accounts

Yes, there’s still time to make a regular IRA contribution for tax year 2017. You have until your tax return due date, not including extensions, to contribute up to $6,500 for 2017 ($5,500 if you are younger than 50). For most, the deadline for 2017 is April 17, 2018.

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income).

Traditional IRA

You can contribute to a traditional IRA for 2017 if you had taxable compensation and you were not age 70½ the end of the year. However, if you were covered by an employer-sponsored retirement plan in 2017, then your ability to deduct your contributions may be limited or eliminated depending on your filing status and your modified adjusted gross income. However, even if you can’t deduct your traditional IRA contribution, you can always make a non-deductible (after-tax) contribution to a traditional IRA, regardless of your income level. You could then convert the after-tax IRA to a Roth. If you are eligible to contribute directly to a Roth, you’ll be better off doing that directly, but this non-deductible IRA method allows higher-earners to take advantage of the retirement savings option.

Roth IRA

You can contribute to a Roth IRA if your gross income is within certain dollar limits and you had earned income during the year. For 2017, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your taxable income is $118,000 or less. Your maximum contribution is phased out if your income is between $118,000 and $133,000, and you can’t contribute at all if your income is $133,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $186,000 or less. Your contribution is phased out if your income is between $186,000 and $196,000, and you can’t contribute at all if your income is $196,000 or more. And if you’re married filing separately, the rules are different: you can’t contribute at all if your income is $10,000 or more.

Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. If you haven’t yet reached age 70½, you can simply make a nondeductible contribution to a traditional IRA, and then convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)
Finally, keep in mind that if you make a contribution to a Roth IRA for 2017 — no matter how small — by your tax return due date, and this is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2017.

Employer retirement plans

Most of the significant employer retirement plan limits for 2018 have increased. The maximum amount you can contribute to your 401(k) plan is $18,500, up from $18,000 in 2017. This limit also applies to 403(b) and 457(b) plans, as well as the Federal Thrift Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $6,000 to these plans in 2018, for a total of $24,500. Special catch-up limits also apply to some in 403(b) and 457(b) plans.

If you participate in more than one retirement plan, you can contribute to each but your total contributions can’t exceed the annual limit. Deferrals to 401(k) plans, 403(b) plans, and SIMPLE plans are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan — a total of $37,000 in 2018 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan remains unchanged at $12,500, and the catch-up limit remains at $3,000, for a total maximum of $15,500 for those 50 or older.

Blue Spark Capital Advisors

We're a boutique fee-only Registered Investment Advisory (RIA) and financial planning firm based in New York City and the Berkshires.

We provide planning and investment management services and financial coaching to women, men and their families.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.

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