Attention taxpayers…the IRS is reminding those saving for retirement that they may be able to claim a deduction on their 2023 tax return for contributions to their Individual Retirement Arrangement (IRA) made through April 15, 2024. How much can you contribute? Let’s dive in here.

IRA vs. Roth IRA Refresher

A traditional IRA is a tax-deferred retirement savings account in which contributions may be tax deductible or nondeductible, depending on various factors. You do pay income tax when taking withdrawals on the growth and any previously tax-deductible contributions.

A Roth IRA is a special IRA that you fund with post-tax dollars. In other words, you are satisfying the tax liability upfront, enabling the earnings to appreciate and be withdrawn tax-free.

What is the contribution deadline?

You can make your 2023 contribution to a traditional or Roth IRA until the 2024 filing deadline- April 15, 2024.

How much can you contribute?

Eligible taxpayers can typically contribute up to $6,500 for tax year 2023. If you reached age 50 or older by the end of 2023, you can contribute $7,500.

Check out our blog, New Retirement Plan Contribution Limits for 2024 for more information on other contribution limits. Keep in mind that years listed refer to the tax year.

What’s new this filing season?

Taxpayers will want to be strategic with IRA planning in 2024 to maximize tax benefits. Here are some things to be aware of:

• Since stock market values reached record highs in 2023, taxpayers and beneficiaries should expect larger RMDs, and accordingly, adjustments to estimated taxes. Although you can expect potentially higher tax bills, you can take advantage of historically low tax rates in 2024 and 2025 through increased RMDs. Withdrawing IRA funds at lower rates now can help offset future tax increases.
• Roth conversions can help reduce growing taxable IRA balances- A Roth conversion is where you take some or all your traditional retirement accounts and convert them to a Roth IRA. The benefits of a Roth IRA are there are no RMDs during your retirement, protection against the new 10-year rule for IRA beneficiaries under SECURE; the assets grow income tax free; and if you take qualified withdrawals, they are also tax free. You can also leave a Roth IRA to your beneficiaries, and they get to withdraw funds tax free as well. You do have to pay the income taxes associated with the conversion from assets that you hold outside of your retirement accounts.
• Qualified Charitable Distributions (QCDs) from IRAs for those age 70 ½ or older provide an opportunity to give generously while reducing future RMD income.

Questions? Looking for ways to reduce your tax bill? We can help. Contact us.